How SMSF borrowing works
Super funds can only borrow to buy property through a limited recourse borrowing arrangement. The property is held in a separate bare trust until the loan is repaid, and if the fund defaults, the lender's claim is limited to that property.
Because the lender has less protection, SMSF loans usually need a bigger deposit and come with stricter conditions than standard investment loans.
Rules that catch people out
The loan must be for a single asset. You can repair and maintain the property with borrowed money, but you generally can't use the loan to improve it in a way that changes its character, such as a major renovation or a knock-down rebuild.
Residential property can't be lived in or rented by fund members or their relatives. Business real property, such as your own premises, can be leased to a related business at market rent.
Get the right advice first
Whether an SMSF suits you, and whether buying property inside it makes sense, is financial product advice. Speak with a licensed financial adviser and your accountant before you start. Once the strategy is settled, a broker can compare the lenders that offer SMSF loans and manage the application.
Be ready before you make an offer
Have your trust deed, recent fund statements and members' income details ready, and set up the bare trust before contracts are signed. The contract needs to be in the right name, and fixing that after the fact is costly.
Buying business premises? Read commercial property finance essentials.
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