How to use your Self Managed Super fund to buy Residential Property

Today the Chisholm & Gamon blog takes a look at one appealing opportunity associated with Self Managed Super Funds. Being informed about your financial options is an invaluable asset to your future fiscal enjoyment. Let’s take a closer look.

This is a suitable option for those who already have a Self Managed Super Fund (SMSF) or are planning to establish a SMSF. You can use your SMSF to borrow and invest in real estate which is residential investment property – this may be a rewarding strategy to diversify your investment portfolio and accelerate wealth creation. As it is a limited recourse loan, other assets of your SMSF will be protected. You may be entitled to receive income tax and negative gearing benefits.

The scheme is ideal for Australian residents planning to establish a SMSF and for Australian residents who already have a SMSF. It must be for purchase of residential investment property in Australia. Potential benefits include the use your rental income to assist in repaying the loan. As it is a limited recourse loan (where the amount that can be recovered on default is limited to the secured property itself) all other assets of your SMSF are protected. There are also negative gearing benefits – you could offset loan interest and expenses against rental income. Loan to value ratio is usually up to 70% to 80%, depending on your Lender or Bank.

Case Study

Suppose your SMSF has $150,000 in that cash account.  As the SMSF trustee, you would like to buy an investment property worth $350,000.  A trustee buys the property on behalf of your SMSF under an installment arrangement.  The $150,000 is used to make an initial payment for the property.  The shortfall of $200,000 plus $25,000 in stamp duty and acquisition costs is funded by a limited recourse loan, using the property as security.

The trustee arranges for the property to be leased to an unrelated party and the rent, together with the other SMSF income and/or member contributions are used to make instalment payments.  Once the loan is paid off, the legal ownership of the property can be transferred to the SMSF.

Please note that it is important to speak to a tax agent or financial adviser who can offer you specialist taxation and financial advice to ensure that you are complying with all of the regulations. Our thanks to Daniel Hustwaite of Aqua Financial Services for providing the information for this blog. For advice, Daniel can be contacted by phone on 0408 985 611 or email

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