Investment Loans
Investment property lending outside super, with the right structure.
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A self-managed super fund can borrow to invest in property under a structure called a limited recourse borrowing arrangement, or LRBA. It's a specialist area with a much smaller lender pool, its own legal structure, and rates and fees that differ from standard residential lending. We work with the lenders that offer SMSF lending and help you understand what's involved before you commit.
Important: SMSF borrowing has specific legal and tax implications. This page is general information only, not personal financial or tax advice. Before proceeding with an LRBA, you should obtain licensed financial advice and tax advice from qualified professionals who can assess whether borrowing inside your super fund is appropriate for your circumstances.
What is an LRBA?
A limited recourse borrowing arrangement is the structure that allows an SMSF to borrow money to purchase a single asset — typically a residential or commercial property. The "limited recourse" part is the key: the lender's recourse in the event of default is limited to the asset held within the borrowing structure. The lender cannot go after the rest of the fund's assets. This is a fundamental protection built into the superannuation rules.
The borrowing is established under a specific exemption in the Superannuation Industry (Supervision) Act 1993 — section 67A — which permits an SMSF trustee to borrow money provided the arrangement meets strict conditions. These conditions include the requirement that the borrowed funds are used to acquire a single acquirable asset (or a collection of identical assets with the same market value), that the asset is held in a separate bare trust, and that the lender's recourse is limited to that asset alone.
The rules around what constitutes an acquirable asset, what improvements are permitted, and how the arrangement must be documented are detailed and unforgiving. Getting the structure wrong can result in the fund breaching the in-house asset rules, which carry significant tax consequences. This is why an LRBA should never be a do-it-yourself exercise.
The bare trust structure
When an SMSF borrows under an LRBA, the property cannot be held directly in the name of the fund. Instead, a separate bare trust is established. A corporate trustee is typically appointed as the trustee of the bare trust — this is a distinct company from the trustee of the SMSF itself, though in practice the same corporate trustee can sometimes serve both roles depending on the lender's requirements and the legal advice received.
The bare trust holds the legal title to the property on trust for the SMSF, which holds the beneficial interest. The SMSF makes the loan repayments from fund assets (rental income, member contributions, or existing cash), and the lender holds a mortgage over the property. When the loan is fully repaid, the property is transferred from the bare trust to the SMSF trustee, at which point the fund holds both legal and beneficial title.
This structure exists because superannuation law generally prohibits funds from borrowing. The LRBA is a narrow, structured exception. The documentation must include a loan agreement, a declaration of trust, and in some cases a custodian deed — all of which need to be prepared or reviewed by a solicitor familiar with SMSF lending. We can refer you to legal professionals who specialise in this area.
Why the lender pool is much smaller
Most residential lenders do not offer SMSF lending. Of the 60+ lenders on our panel, only a handful provide LRBA loans. The reason is straightforward: SMSF lending carries additional compliance risk, requires specialist legal documentation, and the loan sizes tend to be smaller relative to the administrative cost of setting them up. For a lender, the return on effort is lower than a standard residential loan.
The lenders that do offer SMSF loans tend to be specialist non-bank lenders and a few smaller banks. Their products differ from standard residential loans in several important ways:
- Interest rates are typically higher. SMSF loan rates are often 1-2 percentage points above comparable residential rates. The lender is taking on a more complex risk profile, and the smaller market means less competitive pressure on price.
- Fees are higher. Application fees, establishment fees and ongoing fees are generally more than a standard home loan, reflecting the additional legal and compliance work involved.
- Loan-to-value ratios are lower. Most SMSF lenders cap LVR at 70-80%, meaning the fund needs a larger deposit than a standard residential purchase. Some lenders go lower for certain property types.
- Loan terms may be shorter. SMSF loans often have terms of 15-30 years, but some lenders require the loan to be repaid within a shorter window, particularly if the fund members are approaching retirement age.
Because the pool is small, the value of a broker who already knows these lenders — their policies, their quirks, and what they'll accept — is significant. We maintain relationships with the specialist lenders in this space and can tell you upfront which ones are realistic for your fund's position.
Typical fund balance and liquidity requirements
Lenders want to see that the fund has enough in assets and cash flow to service the loan comfortably — not just today, but over the life of the loan. While there's no universal minimum, most lenders look for the following as a starting point:
- Minimum fund balance. Most lenders want to see a total fund balance of at least $200,000-$300,000 before they'll consider an LRBA application. Some prefer $400,000 or more. This isn't arbitrary: the fund needs enough assets outside the property to cover the deposit, stamp duty, legal costs, and a buffer for vacancies, repairs and rate changes.
- Cash buffer. Lenders typically want to see 10-20% of the property value held in liquid assets (cash or shares) within the fund, separate from the deposit. This buffer covers ongoing costs if rental income is interrupted.
- Servicing from rental and contributions. The loan must be serviceable from the fund's income — primarily rental income from the property and, in some cases, ongoing employer or member contributions. Most lenders will not accept a loan that relies on future contribution income alone without evidence that those contributions are contractual and ongoing.
- Member age profile. Some lenders are cautious about LRBAs where the youngest member is close to retirement, because the fund's ability to service the loan may change when members transition to pension phase and contributions cease. This isn't always a deal-breaker, but it can affect the loan term or servicing calculation.
These are general benchmarks only. Each lender applies its own thresholds, and some are more flexible than others. We'll assess your fund's position against the lenders most likely to accept it.
What the fund must demonstrate
To secure an LRBA, the fund trustee needs to demonstrate several things to the lender — and, separately, to the fund's auditor and the ATO. The lender's requirements focus on repayment capacity; the regulatory requirements focus on compliance with superannuation law. Both need to be satisfied.
To the lender
- The fund has sufficient assets and income to service the loan, including a buffer for rate rises and vacancies.
- The investment strategy explicitly permits borrowing and property investment within the fund. This is a document the trustee must have, and it must be current.
- The fund's trust deed allows borrowing under an LRBA. Older deeds may need to be updated before an application can proceed.
- The property being purchased is consistent with the fund's investment strategy and will be held for the sole purpose of providing retirement benefits to members.
To the fund auditor and the ATO
- The LRBA is properly documented with a loan agreement, a bare trust, and a declaration of trust.
- The asset acquired is a single acquirable asset (or a collection of identical assets with the same market value).
- No improvements are made to the property using borrowed funds (repairs and maintenance are permitted; improvements that change the character of the asset are not).
- The loan is on commercial terms — the interest rate, term and conditions are consistent with what an arm's-length lender would offer. Related-party loans are permitted but must be strictly at market rates.
- The fund continues to meet the sole purpose test: the investment is for the purpose of providing retirement benefits, not present-day benefits to members.
The ATO takes LRBA compliance seriously. Breaches can result in the fund becoming non-compliant, which carries a tax rate of 45% on the fund's income (instead of the usual 15%), plus potential administrative penalties. This is why we strongly recommend obtaining licensed financial advice, tax advice, and using a solicitor who specialises in SMSF lending before proceeding.
Why rates and fees differ
SMSF loan rates and fees are higher than standard residential loans for a combination of reasons. The lender faces a more complex legal structure, a smaller loan book to spread risk across, and a borrower that is a trust rather than an individual — which changes the enforcement options available if things go wrong. The limited recourse nature of the arrangement means the lender's security is confined to one asset, which is inherently riskier than a full-recourse loan.
On the fees side, the establishment cost reflects the additional legal documentation required: the loan agreement, the bare trust deed, the declaration of trust, and the mortgage documentation. Some lenders bundle these into a single establishment fee; others itemise them. We'll give you a full breakdown of the costs for each lender we compare, so you can see the total picture — not just the headline rate.
It's also worth understanding that SMSF loans are less likely to offer the features you might expect on a residential loan. Offset accounts, for example, are rare in SMSF lending. Redraw facilities are uncommon. The product is simpler and more rigid by design, reflecting the compliance constraints.
What it costs you
For the lending arrangement, the lender pays us a commission for introducing the loan — you don't pay us a fee for the mortgage broking service. However, SMSF lending involves additional professional costs that are separate from our service: legal fees for establishing the bare trust and preparing documentation, accounting fees for the fund's annual return, and potentially financial advice fees. These are costs you'd incur regardless of which lender you choose. We'll outline them upfront so you can factor them into the fund's investment decision.
Before you proceed: borrowing inside an SMSF is a significant decision that affects your retirement savings. We strongly recommend you obtain licensed financial advice and tax advice specific to your circumstances before committing. We can help with the lending side — but the decision about whether borrowing inside your fund is right for you is one that should be made with qualified advisers who understand your full position.
Considering property inside your SMSF?
We work with the specialist lenders that offer LRBA loans and can tell you what's realistic for your fund. Free, no obligation. Please seek licensed financial and tax advice before proceeding.
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