Buying Property in an SMSF in Australia: A Practical Guide for High-Income Professionals

Over the weekend, I caught up with a friend who is a mortgage broker. He specialises in SMSF lending, which means his days are spent helping people borrow to buy property inside super. During our conversation, he told me that many professionals on strong incomes still do not realise the potential role an SMSF can play in expanding their property portfolio once their personal borrowing capacity is exhausted. Some assume buying property in super is too complicated. Others assume it is some kind of loophole. Many assume it works just like a normal home loan.

None of those assumptions are quite right.

This article is designed to explain, in plain English, how buying property in an SMSF actually works in Australia, why professionals are increasingly looking at it, what the real advantages and limits are, and who you need around you to do it properly.

Along the way, I will also clear up some of the misunderstandings that come up repeatedly in real conversations and online forums.

Why professionals are looking at property inside super

For many high-income professionals, there comes a point where the personal balance sheet starts to push back. You may already have a home loan, one or two investment properties, and other commitments. Even when your income is strong, lenders still apply strict serviceability rules. Eventually, borrowing capacity becomes the constraint, not ambition.

That is often when the question changes. Instead of asking whether you can buy another property personally, the question becomes whether the next stage of investing belongs inside super.

This shift is also happening against a broader backdrop. SMSFs have continued to grow steadily over time. As at 30 June 2025, the ATO reported more than 653,000 SMSFs with over 1.2 million members holding around $1.05 trillion in assets. Just five years earlier, there were closer to 600,000 funds and total assets were well under $900 billion. The growth has not been explosive, but it has been consistent, particularly among professionals in their forties and fifties who want more control over how their retirement savings are invested.

That does not mean SMSFs are right for everyone. But it does explain why more people are at least exploring the idea.

The first rule people miss: this is an investment, not a lifestyle asset

Property inside an SMSF must always be an investment decision. You cannot buy a residential property in your SMSF and live in it. You cannot buy it and let your children live in it. You cannot even use it temporarily. The fund must be maintained solely for providing retirement benefits, not for meeting present-day lifestyle needs.

This single rule shapes everything else. It is why buying property in super requires a different mindset. There is less flexibility than personal ownership, but the trade-off is access to a tax environment that is very different from personal tax rates.

How buying property in an SMSF actually works

When an SMSF borrows to buy property, it does so under a structure called a Limited Recourse Borrowing Arrangement, or LRBA. This is not a standard loan. The rules are strict, and the structure is designed to limit risk to the rest of the fund.

In simple terms, the SMSF can borrow to acquire a single asset, such as a property, but if something goes wrong, the lender’s rights are generally limited to that specific property. The lender cannot access the other assets in the fund. Because of this, lenders are usually more conservative, loan-to-value ratios are lower, and documentation is heavier.

There is also usually a separate holding trustee involved. While the loan is in place, the property is held in a bare trust structure for the benefit of the SMSF. Once the loan is repaid, legal ownership is transferred into the SMSF.

This is why SMSF property purchases involve more parties, more steps, and more attention to detail than normal property transactions.

The setup process, in practical terms

Most SMSF property purchases follow a similar path. The SMSF must first be established properly, with a valid trust deed, trustees, a bank account, and ATO registrations. The deed matters because it defines what the fund is allowed to do.

An investment strategy is then prepared that allows for property and considers liquidity, diversification, risk, and the fund’s ability to meet ongoing obligations. Auditors do look at this, and it needs to reflect reality, not just intention.

Funds are then rolled over from an existing super fund. This can be a partial rollover, just enough to support the purchase and ongoing cash flow.

Pre-approval is obtained through a broker who understands SMSF lending.

Contracts are then signed in the correct name. This is one of the most common and expensive mistakes people make. If the buyer name is wrong, fixing it later can trigger stamp duty or invalidate the structure entirely.

Settlement follows, and from that point on, the property is managed like any other investment asset, with rent and expenses flowing through the SMSF.

A common misunderstanding about negative gearing inside super

Negative gearing inside an SMSF is often misunderstood.

Inside super, the fund’s taxable income is generally taxed at 15 percent while the fund is in accumulation phase. If a property is negatively geared, the loss reduces the fund’s taxable income, but the tax benefit applies at the fund’s tax rate, not your personal marginal rate.

This means negative gearing inside super does not deliver the same deduction outcome as negative gearing personally.

However, this is where many professionals miss a more subtle but important benefit.

For high-income earners on marginal tax rates of 37 to 47 percent, making concessional contributions into super already converts income that would have been taxed at those rates into income taxed at 15 percent. That difference alone can be significant.

When an SMSF holds a negatively geared property, the losses can effectively absorb taxable income inside the fund, including concessional contributions. In practice, this can mean that some or all of your contributions are not exposed to the 15 percent contributions tax in the short term because the fund’s overall taxable income is reduced by the property loss.

This does not make SMSF property automatically superior, and cash flow still matters.

Advantages, when done for the right reasons

Buying property in SMSF works well when the decision is grounded in long-term thinking. The concessional tax environment matters over decades. The structure introduces discipline, because assets cannot be accessed easily or traded impulsively. And for some people, direct control over an asset they understand well feels more comfortable than delegating everything to a traditional industry superfunds.

But these benefits only hold when the fund remains compliant, the investment strategy makes sense, and liquidity is managed carefully.

Risks people underestimate

Property is an illiquid asset. Inside an SMSF, liquidity matters more than many people expect. The fund still needs to pay insurance, accounting, audit fees, and eventually pensions. If most of the fund is tied up in a single property, meeting those obligations can become difficult without ongoing contributions or asset sales.

Diversification is another risk. Many SMSFs end up heavily concentrated in property and cash. That may be a deliberate choice, but it is still a concentration risk that deserves honest consideration.

There is also a real compliance burden. SMSFs require proper administration and annual audit. This is manageable for many people, but it is not passive or effortless.

A calm way to decide if this belongs in your wealth story

If you are considering buying property in an SMSF, the best place to start is not with the property itself. Start with the fund. Ask whether the fund can stay healthy after the purchase. Ask whether liquidity can be maintained. Ask whether the investment strategy genuinely supports holding a large, illiquid asset.

Only after those questions are answered should the property itself come into focus.

SMSF property can be a powerful strategy in the right circumstances. It can also be an expensive and frustrating mistake when driven by enthusiasm rather than structure.

The best decisions in this area tend to be calm decisions, not rushed ones.

This article is general information only and does not constitute financial advice. SMSF borrowing and property rules are complex and depend on individual circumstances and fund documentation. You should seek advice from licensed and appropriately qualified professionals before acting.