How to set up an SMSF to invest in property

You’re earning good money and thinking long term. But right now, your super might be sitting in a default fund with limited growth. If you want to take charge of your retirement savings and invest in something real, like property, setting up a Self Managed Super Fund (SMSF) could be the next smart move.

Whether it’s residential property or commercial premises, SMSF property investment offers tax benefits, capital growth, and greater control over your investment strategy. But there are strict rules, so understanding the process is key.

Why Use a Self Managed Super Fund to Buy Property?

Investing in property through your SMSF gives you:

• Control: You choose the investment property.
• Tax Benefits: Rental income is taxed at just 15%, and Capital Gains Tax can drop to 10% (or even 0% in retirement phase).
• Diversification: A tangible asset alongside traditional super investments.
• Potential to Buy Commercial Premises: Your SMSF can buy your own office or business location (if structured correctly).

Remember: the sole purpose of an SMSF must be to provide retirement benefits to fund members, not to gain early access to super or benefit personally in the short term.

Step-by-Step: How to Set Up an SMSF for Property Investment

1. Speak with Qualified and Experienced Advisors

Setting up an SMSF isn’t a DIY task. It's important to seek advice to ensure compliance with Australian Taxation Office (ATO) regulations and superannuation law. An SMSF accountant can help you with setting up an SMSF.

2. Set up the SMSF Structure

An SMSF accountant can assist you with the following:

• Decide whether to have individual trustees or a corporate trustee for the SMSF.
• Create a trust deed outlining the rules of the fund.
• Appoint SMSF trustees and define SMSF members (typically 1–4 individuals).
• Apply for an ABN and TFN.
• Open a bank account in the name of the SMSF.

3. Roll Over Super Balances

Next you'll havea to transfer your existing superannuation contributions from other funds into your SMSF to create a pool for investing.

4. Define Your Investment Strategy

The SMSF’s investment strategy must consider:

• The needs of all fund members
• Liquidity
• Diversification
• Risk tolerance

This strategy will guide decisions around purchasing property and other investments. A financial advisor can assist you with your SMSF investment strategy, however it isn't legally necessary to have one.

5. Choose and Purchase the Property

Next, you'll have to find a property to purchase. A buyer's agent can assist you with this if you need professional help.

The SMSF can invest in residential property or commercial property, but residential property must not be used by you or related parties.

You must avoid holiday houses or any property that breaches the sole purpose test.

Buying Property with Borrowed Money

Limited Recourse Borrowing Arrangement (LRBA)

To borrow money, your SMSF must use a Limited Recourse Borrowing Arrangement (LRBA), which protects the rest of the fund’s assets if something goes wrong with the loan.

You’ll need to:

• Set up a bare trust (also known as a separate property trust)
• Pay loan costs, interest payments, and legal fees
• Engage a mortgage broker experienced in SMSF borrowing

We are specialists in SMSF lending and can help you find finance. Reach out to us today to see how much you can borrow.

Loan Repayments and Ongoing Costs

Loan repayments must be made from the SMSF.

Make sure you budget for the following:

• Ongoing property management fees
• Property expenses such as maintenance and insurance
• Tax consequences related to rental income and capital gains

The SMSF must ensure repayments do not jeopardise the ability to provide retirement benefits.

What Kind of Property Can You Buy?

There are two kinds of property your SMSF can purchase:

• Residential Property: Must meet strict rules, including no related-party use.
• Commercial Property: You may lease it to your business if it’s on market rate and correctly documented.

When considring your ideal investment property you may want to consider growth potential, yield, and ongoing compliance costs before you go ahead. You cannot buy a holiday house, live in the property, or make significant improvements that change the asset’s nature while it’s under loan.

Final Considerations

Before you commit, it's important to assess:

• The costs of setting up and running a Self Managed Superannuation Fund
• Your ability to meet loan repayments within the fund
• Whether your fund has enough capital to buy property without risking retirement savings

An actual SMSF structure will require regular reporting, an annual audit, and engagement with the ATO. That’s why it’s vital to work with advisors who understand the full picture. If you don't have an accountant who specialises in SMSF property, reach out to our sister company Causbrooks today to schedule an appointment with an SMSF specialist.

Ready to Explore SMSF Property Investment?

At Causbrooks Finance, we help ambitious professionals structure SMSF borrowing so you can invest in residential or commercial property with confidence.

Book your free consultation to explore if this strategy is right for you.

‍