Pros and cons of using a SMSF for property investing

Pros and cons of using a SMSF for property investing

Self-Managed Superannuation Funds (SMSFs) have gained popularity among Australians seeking greater control over their retirement savings over the past decade

One of the most appealing elements of a SMSF is the ability to invest in property with the help of leverage.

However, the regulations and specifics of investing through a SMSF are complicated and do come with a number of pros and cons.

Here are some of the advantages and disadvantages of buying property within a SMSF.

Pros of using an SMSF to invest in property:

Potential for High Returns

Property has historically been a reliable investment over a long period of time, offering long-term capital growth and rental income. Through an SMSF, individuals can use their retirement savings to tap into the potential benefits of property price appreciation. The fact that you can use leverage and borrow within the SMSF is a powerful tool that can help boost your overall returns compared to traditional investments such as managed funds and shares.


Property investment within an SMSF allows for diversification beyond just stocks and bonds. By incorporating property into the investment mix, individuals can spread risk and potentially achieve more stable returns, contributing to a well-rounded investment portfolio.

Tax Advantages

SMSFs enjoy specific tax advantages. Rental income from the property is typically taxed at a concessional rate of 15% during the accumulation phase and may become tax-free once the SMSF enters the pension phase. Additionally, capital gains on the property can be taxed at a discounted rate of 10% if held for longer than 12 months.

You might also be exempt from capital gains tax once the fund member/s retire. A SMSF might also mean you have a lower tax rate for rental income after expenses and and property depreciation may be tax deductible.

A property for your business

A common way people use SMSF is by purchasing a commercial property and then leasing it out to their business. While you can’t live in or rent a residential property to a family member, it is possible with commercial buildings.

Control and Flexibility

Investing in property through an SMSF gives people a much higher level of control over their investment decisions and is therefore beneficial to more sophisticated investors. Individuals can select the specific property, including residential or commercial, negotiate terms and even manage the property directly. This level of control allows for a tailored investment strategy aligned with individual preferences and objectives.

Cons of using an SMSF to invest in property

Higher Costs and Limited Liquidity

Property investment through an SMSF can be costly. Expenses such as stamp duty, legal fees, and property management costs add up when compared to owning shares. Furthermore, property investments are illiquid, posing challenges to accessing funds quickly if the need arises.

Lack of Diversification

While property can offer diversification benefits, investing a significant portion of retirement savings in a single asset class carries inherent risks. Downturns in the property market or underperformance of the chosen property could substantially impact overall retirement savings. While a share portfolio is spread across a range of individual companies in different geographic locations, a single property skews the portfolio’s risk to a single asset.

Limitations on how to use the property

Using your SMSF to purchase your investment property means abiding by strict rules set by the ATO. Typically if you own a property through a SMSF you are not able to live in it or rent it out directly to a member of your family.

Selling can be more difficult

Buying a property through an SMSF means it isn’t directly owned by you. Selling that asset will be more complicated and it may take longer and could cost you more.

Regulatory and Compliance Burden

Managing an SMSF involves adherence to various rules and regulations set by the Australian Taxation Office (ATO). Strict guidelines regarding related-party transactions, property use, and borrowing arrangements must be followed. It typically costs a lot more to maintain a SMSF, given the fees that come with setting it up and running it along with costs for professionals like accountants.

Buying property through a SMSF can be complicated and it’s best to seek financial advice prior to getting started. An accountant and financial planner will be able to help you set up a SMSF and advice you whether or not it is the right choice for your needs. While a mortgage broker will be able to help you compare your options for financing a property within the SMSF.

Are you currently in the market for a new property? Get a clear understanding of how much that property might be worth with our free property report.


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