A Guide to Using SMSF Lending to Grow Your Property Portfolio

Investing in property has long been a popular wealth-building strategy in Australia. One approach gaining attention is SMSF lending or borrowing money through a self-managed super fund (SMSF) to purchase property.

This strategy allows you to use your superannuation savings to invest in real estate, potentially boosting your retirement income. But while the benefits can be significant, SMSF loans come with strict rules and unique risks that you need to understand. 

In this guide, we’ll explain what SMSF lending is, how it works, its benefits, and the mistakes to avoid. Read on to see if it’s the right strategy for you.

What Is SMSF Lending?

SMSF lending involves borrowing through your self-managed super fund to acquire investment properties or other assets. Unlike standard loans, SMSF loans are designed specifically for superannuation funds and must follow the strict rules set by the Australian Taxation Office (ATO).

The big drawcard is the tax benefits. Your SMSF pays just 15% tax on rental income and profits (much lower than most personal tax rates). Once you retire and start drawing a pension from your super, your SMSF may pay no tax at all. Compare this to the personal income tax rate, which can be 32.5% or higher.

In short, SMSF lending gives you a way to build your property portfolio while enjoying the tax advantages of super.

Getting a Loan for Your SMSF – How It Works

Applying for an SMSF loan isn’t the same as applying for a regular home loan. Banks and lenders assess your fund differently, because the borrower is your SMSF, not you personally. Understanding the process upfront makes it easier to find the right deal.

Choose the Right Lender

Not all banks offer SMSF loans, so you’ll need to shop around. Specialist lenders who focus on SMSF lending often understand the rules better and may offer more competitive options.

Meet the Requirements

To qualify, your SMSF must have enough funds for a deposit, usually 20–30% of the property’s purchase price. The fund also needs to demonstrate it can cover repayments using:

• Rental income from the property

• Member contributions to super

• Other income flowing into the SMSF

Follow the Key Rules

The ATO has strict regulations around SMSF lending. Breaking them can lead to serious penalties. For example:

• Your SMSF can’t buy property from you or your family

• You or your relatives can’t live in a property owned by your SMSF

• Investments must be made for the sole purpose of providing retirement benefits

Preparing Your SMSF for a Property Purchase

Before your fund can borrow or invest in property, it needs to be properly structured, compliant, and ready for the responsibilities of ownership. This stage focuses on setting up your SMSF for long-term stability and regulatory compliance.

Review and Update Your Documentation

Your SMSF trust deed must clearly allow property investment and borrowing. If it doesn’t, you’ll need to update it before applying for finance. It’s best to have a qualified SMSF specialist review your paperwork.

Work With Experienced Professionals

Managing an SMSF property requires ongoing compliance and reporting. A specialist SMSF accountant or financial adviser can help you:

• Lodge annual tax returns

• Ensure ATO rules are met

• Manage yearly audits and reporting

Protect Your Fund With Insurance

Safeguarding your SMSF assets is just as important as securing the loan. Consider:

• Building insurance to cover property damage

• Income protection or landlord insurance to maintain repayments if rental income drops

Factors to Consider When Buying Property Through Your SMSF

The property you choose will play a major role in whether your SMSF investment succeeds. Location, rental demand and ongoing costs all matter.

Location Matters

Your SMSF needs steady rental income to cover loan repayments, so choose a property in a strong rental market. Look for areas near:

• Employment hubs

• Schools and universities

• Public transport

• Shops, parks and cafes

Units vs Houses

Units are often more SMSF-friendly because they:

• Rent out more easily

• Have lower maintenance requirements

• Cost less upfront than houses

• Attract consistent tenant demand in urban locations

Do the Sums First

A property should be financially sustainable within the fund. Before buying, calculate:

• Expected weekly rent vs total expenses

• Loan repayments

• Property management fees

• Rates, insurance and maintenance

If the property relies on constant top-ups from members’ contributions, it may not be the right choice.

The Real Benefits of SMSF Lending

An SMSF loan can be a powerful tool to grow your retirement wealth. The main advantages include:

• Tax benefits – Your SMSF pays just 15% on rental income, compared with higher personal tax rates. In retirement, this may fall to 0%.

• Control – You choose which property to buy, how it’s managed and when to sell.

• Tangible asset – Unlike shares or managed funds, you can physically see your investment and track how the area is developing.

Mistakes That Cost Money

SMSF lending can deliver strong outcomes, but costly mistakes are common. Watch out for:

• Not learning the rules – Breaking ATO rules can result in fines or even the loss of your SMSF.

• Buying the wrong property – If rental income doesn’t cover expenses, your fund may struggle.

• Rushing in – Skipping due diligence can expose you to compliance issues and poor returns.

Building Your Property Team

Managing an SMSF property portfolio requires expert support. Consider working with:

• SMSF Accountant: Ensures your fund stays compliant with ATO rules, prepares annual financial statements and tax returns, and helps manage audits.

• SMSF Lawyer: Reviews and updates your trust deed, sets up the bare trust (required for SMSF borrowing) and ensures contracts and structures meet legal requirements.

• Mortgage Broker: Finds and compares SMSF loan options, explains lender criteria and helps structure the borrowing correctly under limited recourse borrowing arrangements (LRBA).

• Property Expert (optional): Helps identify suitable investment properties that align with your SMSF’s investment strategy and risk profile.

Growing Your Property Portfolio

Once your first SMSF property is running smoothly, you may choose to expand. The process is gradual, as your fund grows through contributions and capital growth.

• Start small – Gain experience with one property.

• Build over time – A strong SMSF can eventually support multiple properties.

• Think long-term – Focus on quality properties in high-demand areas to secure steady rental income and growth.

Is SMSF Lending Right for You?

SMSF property investment may suit you if you:

• Have at least $200,000 in super (to cover deposits and costs)

• Want greater control over your investments

• Understand property or are keen to learn

• Don’t need immediate access to the money

It may not be the best fit if you:

• Prefer a hands-off investment approach

• Have a low super balance

• Dislike paperwork or compliance requirements

Wrapping Up

Using SMSF lending to grow your property portfolio can help you build wealth for the future, enjoy tax advantages and take control of your retirement savings. The key is careful planning, choosing the right property and following the rules.

At Richmond Residential, we specialise in SMSF finance and property investment. Our experts can guide you through the process, from structuring your fund to finding the right loan. With the right support, you can grow your property portfolio with confidence and set yourself up for a secure retirement.