A self-managed super fund can borrow to buy property through an arrangement called a limited recourse borrowing arrangement (LRBA). It is a legitimate, established strategy, and also one of the most rule-bound corners of Australian lending. Here is the honest overview.
How SMSF lending works
Your SMSF puts down the deposit (typically 20 to 40%) from super savings, borrows the rest, and the property is held in a separate bare trust until the loan is repaid. "Limited recourse" means if things go wrong, the lender can only take that property, not the rest of the fund. Rent flows into the fund; the fund pays the loan and expenses.
The non-negotiable rules
- The property must serve the sole purpose of funding retirement benefits.
- You, your family and related parties cannot live in it or rent it (residential property).
- Business owners CAN, however, buy their commercial premises through their SMSF and rent it back to their own business at market rates, which is the most popular use of the whole strategy.
- Renovations funded by borrowing are heavily restricted; repairs are fine, improvements are not.
The lending landscape
Most major banks left SMSF lending years ago; the market belongs to specialist and non-bank lenders. Expect rates roughly 1 to 2% above standard home loans, larger deposits, and liquidity tests requiring the fund to hold cash after settlement. See how non-bank lenders work.
Who it suits, and who it does not
Strong super balances (usually $200,000+), business owners wanting their premises inside super, and disciplined long-horizon investors. It does not suit thin balances, where one property swallows the fund’s diversification. You will need financial and legal advice for the setup; that is a legal requirement, not upsell. For the lending piece, Nathan knows which specialist lenders are actually writing SMSF loans this year.