A Beginner's Guide to SMSF Property Lending

Ever wondered if your super fund could get into the property game? Yep, you can - but it’s not as simple as clicking through a few menus online. Enter SMSF loans, which are technically called Limited Recourse Borrowing Arrangements, or LRBAs if you want the acronym.

Picture this…

You’ve got a self-managed super fund and you’re watching property values tick up, thinking, “Wouldn’t it be great to let super join the mix?” With an SMSF loan, that’s exactly the idea - you borrow to buy a property held in a bare trust, and the rest of your fund's assets stay untouched if anything goes sideways. Pretty clever, right?

That said, lenders don’t just hand these out. They tend to be pickier, ask for bigger deposits, and charge slightly higher rates than your average home loan. So getting set up properly isn’t a “done in an afternoon” kind of thing. Your SMSF needs to have the right trust deed, investment strategy, and registrations sorted first.

How it usually unfolds…

Once your fund is ready, you lock in a mortgage designed for SMSFs and set up a bare trust as the legal holder of the property. The fund’s been running quietly on its own - making money, getting contributions - and now it starts covering the loan. Rental income, future contributions, or money already in the fund can all go toward repaying that loan.

But, heads up - this isn’t like buying a weekend home. The ATO keeps a sharp eye: the property must be strictly for retirement, and not something you or relatives live in or rent (unless it’s commercial property, and even then, it must be at market rate). Liquidity's important too - lenders want to see that you've got enough cash left over after the purchase to stay on top of repayments, fees, and the occasional surprise expense.

So, what’s a ballpark? Can your fund handle it?

Most lenders will lend around 60–80% of the property’s value. For that to work, you’ll need a decent balance - think $150,000 to $200,000 or more, depending on your strategy and location. Otherwise, the numbers might just tip the wrong way.

Why do people bother?

Control’s the biggie - you make the calls. Plus, putting some super into property means you’re not 100% tied to share markets. Tax-wise, the SMSF structure can also be more efficient: you generally pay a lower tax rate on rental income, and capital gains can be sweeter down the track, especially if your fund moves into pension phase.

What makes it tricky?

Well, the interest rates are often higher, and setup and compliance aren't cheap. Also, don’t forget - in some parts of the property cycle properties can be slow to sell, so your fund needs enough liquidity to weather any tight spots. And if the ATO sees you messing with the rules - misuse of the property, sloppy loan repayments, non-arm’s-length dealings - the penalties can be harsh.

Final thoughts…

SMSF loans aren’t glamorous or easy, but when done right, they can be a smart way to grow your super portfolio. If your fund is ready, you’ve got a long game mindset, and you're okay with a bit of legwork on the paperwork and compliance - then this could be worth exploring. Just make sure you lean on advice from someone who knows SMSF lending inside out - a financial adviser or an accountant, coupled with an SMSF-savvy mortgage broker (like us).

At Neptune Finance, we take the mystery out of SMSF lending - no jargon, no aggressive sales pitch. Just straightforward advice to help you see if it aligns with your goals.

Want to chat through your numbers or see if your fund is ready? Give us a call on 08 9200 4840 or book a time online.

As always, this is general information only and not personal advice. Talk to your broker and/or a financial planner to see how SMSF lending applies to your personal situation.