Question 1

Can my SMSF borrow to buy property?

Accepted Answer

Yes, SMSFs can borrow to buy residential or commercial property through a Limited Recourse Borrowing Arrangement (LRBA). The property must be held in a separate bare trust until the loan is fully repaid. There are strict rules: the property must meet the sole purpose test (solely for providing retirement benefits to members), it cannot be lived in by members or their relatives, and it must be purchased at market value from an arm's length transaction.

Question 2

What deposit does an SMSF need to buy property?

Accepted Answer

SMSF property loans typically require a 20-30% deposit for residential property and 30-40% for commercial property. All funds (deposit, stamp duty, legal fees, and ongoing costs) must come from the SMSF — you cannot use personal funds. Your SMSF also needs sufficient cash reserves to cover ongoing expenses like loan repayments, insurance, maintenance, and rates without relying on future contributions.

Question 3

What are current SMSF loan interest rates?

Accepted Answer

SMSF loan rates are typically 0.5-1.5% higher than standard residential rates due to the additional complexity and risk. Current rates start from approximately 6.99% p.a. for residential and 7.49% p.a. for commercial SMSF properties. Rates vary by lender, property type, LVR, and loan size. We compare SMSF-specialist lenders to find competitive rates for your fund.

Question 4

Can I renovate an SMSF property?

Accepted Answer

You can maintain and repair an SMSF property, but you cannot make improvements that change the property's character while a borrowing arrangement is in place. For example, you can repaint, replace carpets, or fix a leaking roof, but you cannot add a bedroom, build a pool, or subdivide the land. Once the loan is fully repaid, the property transfers from the bare trust to the SMSF, and then improvements are permitted (subject to the sole purpose test).

Question 5

Can my SMSF buy a commercial property that my business uses?

Accepted Answer

Yes, this is one of the most powerful SMSF strategies. Your SMSF can purchase commercial property and lease it to your own business at market rent. The rent is tax-deductible for your business and assessable income (taxed at just 15%) for the SMSF. This effectively lets you build a retirement asset while your business pays the mortgage through rent. The lease must be at arm's length market rates with standard commercial terms.

Question 6

What happens if my SMSF loan defaults?

Accepted Answer

SMSF loans are 'limited recourse' — meaning the lender's claim is limited to the property held in the bare trust. If the loan defaults, the lender can seize the property but cannot pursue other SMSF assets or your personal assets. This protects the fund's other investments. However, defaulting triggers significant consequences: potential ATO penalties, audit attention, and the trustee's duty of care obligations. Ensure your SMSF can comfortably service the loan.

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