Setting up a Self Managed Super Fund (SMSF) and using it to purchase an investment property is one of the most tax effective investment strategies available for the average Australian investor.

Rolling all of your superannuation into a self managed fund (and then using those funds to buy real estate) might sound a little scary. But it’s important not to confuse this with being risky as an investment. It’s the complexity of setting everything up that can be daunting, but this largely disappears if you get the right help with the technicalities.

SMSF basics

  • A SMSF is a superannuation fund set up for the benefit of not more than 4 members who are also the trustees of the fund.
  • To be recognised and regulated by the ATO a SMSF must comply with the Superannuation Industry Supervision Act 1993 and other rules and regulations governing SMSFs.
  • The fund must also meet the so-called “Sole Purpose Test”. This states that all the investment activity of the fund should be aimed at securing and providing retirement benefits for the members.

Using your SMSF for property investment

Prior to 2007 SMSFs were not allowed to borrow funds from a bank, so property investment wasn’t really an option for most investors. But in 2007 the superannuation rules changed to allow SMSFs to borrow funds from a bank (in much the same way a person would normally borrow from a bank) to purchase direct investments such as property.

An increasing number of investors, who have become despondent with the underperformance of their retail super funds, have decided to take control of their own superannuation and use it to invest in real estate directly.


Below are 3 videos that will give you a basic introduction and further education about the SMSF strategy discussed in this article. You’ll need 25 minutes to watch all three videos, so feel free to read the rest of the article and watch the videos afterwards if you’re still hungry for more.

They’ve been prepared by one of our Financial Planners, Mr Tim Shapter.

Video 1 – What is super? – 7 min

Video 2 – SMSF and property – 10 min

Video 3 – SMSF leverage (worked examples) – 8 min

The benefits

The most important benefit associated with a SMSF strategy is the fact that your transactions are subject to a lot less tax than non-SMSF investments. This means that your return on investment after tax is going to be much better. For example:

  • Rental income from the investment property inside your SMSF is taxed at only 15%, compared with tax rates of up to 46.5% that a “regular” property investor will pay.
  • If you hold the property for more than a year, and then need to sell the property, you will only pay 10% capital gains tax.
  • And if you hold on to the property until you retire so that your Super enters the “Pension Phase”, you will pay no tax ($0.00) on the rental income, and no tax ($0.00) on the capital gain if you decide to sell the property.
  • Using your own SMSF gives you control over your investments and allows you to understand exactly where and how your money is being invested.
  • It is also a great way to diversify your investment portfolio.

The disadvantages

The higher returns are attractive, but there are also some strict regulations that make purchasing a property with your SMSF less flexible in comparison with using your personal finances. For example:

  • If you purchase a property in a SMSF you are not allowed to live in the property, and neither are your friends or family members.
  • If your property inside the SMSF is negatively geared, you can only claim the tax offset against income earned by the fund, and not your regular income.
  • You cannot borrow funds to renovate a property inside a SMSF.
  • Lending criteria is a lot stricter for a SMSF, and it can be difficult to get a SMSF loan approved if you don’t know what you are doing.
  • The set-up costs associated with a SMSF can be expensive, if you don’t know where to look.
  • Operating and managing a SMSF is complicated and penalties are severe for non-compliance, it is always best to have a professional manage the SMSF for you.

Is it too much trouble?

None of the disadvantages mentioned above are large barriers and they certainly should not discourage you from investing in property through an SMSF. They should simply remind you of the importance of seeking the best possible advice throughout the process.

Main Street Group clients (see our Property Concierge Service) have access to expert brokers (who specialise in SMSF lending) to maximise your chances of loan approval, and we partner with licensed financial planners who specialise in all aspects of SMSF investing. The complexities of owning and managing a SMSF disappear when you have the right person take care of it for you.

Before you take the plunge though, we’ll sit down with you and figure out exactly how beneficial this strategy would be for your unique circumstances, and whether it’s worth the extra effort.

Consider this option if you…

  • Are at least ten years from retirement.
  • You have stable employment with regular superannuation contributions from your employer.
  • Have at least $100,000 in superannuation – this can be a combined amount if you are investing with your spouse or an investment partner/s (up to 4 people)
    • For example if you have $50,000 and your wife/husband/partner also has $50,000 you can combine the two amounts together.


This type of strategy is not going to suit every investor, and you should always consider all of your options and speak to a financial planner before making any investment decisions. However, this strategy does provide some extremely tax efficient ways of maximising your retirement income.

If you’re considering this strategy as an option, the first step is to assess how beneficial it would be for your unique circumstances. I’d be happy to offer my advice, so a short phonecall to my number below will get you a step closer to taking that next step forward.

Andrew Clough | (07) 3510 2122

Disclaimer: The information in this blog article is general information only and has been prepared without taking into account your personal objectives, financial situation or needs. If you are interested in using your superannuation to buy an investment property, Main Street Group can certainly help you find the best property for your strategy; however your first step must be to consult with a licensed financial advisor to make sure a SMSF strategy is the right move for your specific financial circumstances.

Main Street Group partner with licensed financial planners who specialise in all aspects of SMSF investing, and we can certainly refer you to an expert if you don’t already have a personal financial planner.