Can I Buy an Established Property with My SMSF?

As SMSF lending specialists, we spend a lot of time helping Australians navigate the rules and, frankly, the myths that swirl around using a super to build wealth. One question that pops up again and again—usually asked by a member looking for an investment opportunity—is: “Can I buy an established property with my SMSF? ”The simple, powerful answer is: Yes, you absolutely can! Read on to learn more about this critical topic. When you’re armed with facts, you will find it easier to make a confident investment decision using your SMSF. 

The Truth About Established Real Estate

The idea that your Self-Managed Super Fund (SMSF) is restricted to buying brand-new residential property is simply false. This rumour often stems from a misunderstanding of the SMSF lending rules around borrowing, but let’s first clarify the ATO’s position on property type.

When complying with the Australian Tax Office (ATO) rules, the age of the investment property is not the main concern. An SMSF can generally acquire any type of residential property, provided it meets the core legislative requirements. This means high-quality established real estate—apartments, houses, or units in a prime location—is just as viable as a brand-new development.

The key takeaway is this: the SMSF legislation does not discriminate based on the property’s age. The rules focus on ensuring your investment is compliant. So, what matters are the rules governing you buy it and you buy it from.

The Real SMSF Property Rules That Matter

Instead of worrying about whether the paint is still wet, you need to focus on three critical SMSF property rules. These are the non-negotiables:

1. The Sole Purpose Test

In any SMSF investment, the asset must be acquired and maintained for the

sole purpose of providing retirement benefits to the fund’s members. In practical terms, this means:

- No Living In It:

You, a relative, or any other related party of the fund cannot live in, or even temporarily stay in, the property. Even a weekend stay will break the rules, as it is considered a “present-day benefit.”

- No Holiday Home:

It must be an investment property leased to unrelated tenants at market rates.

2. The Related Party Rule

Your SMSF cannot purchase the property from a member of the fund or any other related party. The transaction must occur at arm’s length. This is designed to prevent schemes that allow you to effectively sell your own asset to your super fund.

3. Business Real Property Exception

This is the only common exception to the above, as your SMSF purchase business real property from a related party, and you can even run your business from it. However, the property in question must genuinely qualify as commercial or business premises, not residential.

Where the Confusion Lies: SMSF Borrowing Rules

If buying an established property is permitted, why does this myth persist? The answer often lies in the complexity of SMSF borrowing rules and the Limited Recourse Borrowing Arrangement (LRBA)used to finance the purchase. When your SMSF uses an LRBA to buy a property, there are very strict limitations on what you can do to that asset while the SMSF residential loan is in place. Specifically, you can perform repairs, but not improvements.

- Repairs

(Allowed): This involves maintaining the asset’s current functional condition—fixing a broken tap, replacing a broken hot water system, or patching a roof.

- Improvements (Generally Not Allowed While Loan is Active): This involves changing the character or adding significant value to the asset, such as adding a granny flat, constructing a new deck, or a major structural renovation.

Since older properties often require maintenance or could benefit from significant upgrades, some people mistakenly believe that they are too complex for an SMSF, and thus, only new properties are allowed.

- The Reality:

We help our clients structure their SMSF loans to understand the difference between a minor repair and a major improvement. A well-maintained piece of established real estate can be a strategic investment vehicle for your SMSF, and the compliance requirements are manageable with the right guidance.

Let SMSF Loan Experts Guide Your Next Investment

The ability to purchase quality established property dramatically boosts your potential to build retirement wealth. Whether you’re looking at a bustling city apartment or a suburban house, the opportunity is there.

However, the compliance and SMSF lending rules for using an LRBA are complex. Lenders have stringent criteria, and structuring the loan incorrectly can result in severe penalties from the ATO. At SMSF Loan Experts, we specialise in simplifying this process. We can help you:

- Navigate the LRBA:

Ensuring your borrowing structure is 100% compliant.

- Meet Lender Requirements:

Finding the right loan that matches your fund’s servicing capacity.

- Avoid Pitfalls:

Understanding the rules around repairs and improvements so your investment remains penalty-free.

Don’t let myths stand in the way of securing a thriving future. If you are ready to use the power of your super to invest in quality, established real estate, speak with us. We’ll make the complicated easy and help you achieve your retirement dreams.

Contact SMSF Loan Experts today to discuss your next property investment.