6 ways to purchase property using your super

If you have read any of my other articles you should now that your SMSF is a fantastic vehicle for holding your investment properties. Extremely tax effective with the maximum possible asset protection.

In this article I will review the 6 ways that your SMSF can purchase property:

1. Direct purchase

2. Instalment warrant

3. Tenants in common

4. Joint venture

5. Unit trust

6. Pre-99 unit trust

Direct Purchase:

A direct purchase is exactly that – the SMSF purchases the property directly without any intermediary structures or entities in place.  For this to happen the SMSF must have the ability to fund 100% of the purchase price and all associated costs.

This type of purchase is the simplest way an SMSF can invest in property.  No borrowings or gearing is used – meaning the amount required is going to be a lot higher than via other methods.  This limits the type of property the SMSF can afford to invest in and also limits diversification (in either other asset classes or other properties).

A direct purchase will typically be the cheapest in terms of transaction / purchase costs – there are no other structures required to be set up.

Instalment Warrant:

Purchasing via an instalment warrant arrangement has been covered in a couple of my previous posts:

This purchase method involves the title of the property being owned by a simple or ‘bare’ trust (also known as a ‘custodian’ or property trust), with the SMSF at the same time obtaining a limited recourse loan.  The SMSF receives all the rental income and is responsible for all expenses including the loan repayments.

Once the loan is repaid the bare trust can transfer the title to the SMSF without any capital gains or stamp duty – provided it has been established correctly.

Tenants in Common:

Purchasing is tenants in common enables the SMSF to take ownership of a fixed percentage of a property, with another party (such as an individual or trust) owning the remaining percentage.

This structure doesn’t allow the title of the property to be used as security for gearing – however the other party is allowed to use borrowings provided the security is another property.

You can have more than two investors each holding a percentage of the title and sharing the income and expenses if necessary.

Joint Venture:

A joint venture is where two or more parties form an agreement to undertake a specific commercial activity and share the result of that activity.

For example a SMSF and a family trust could pool resources / funds to purchase a block of land and build a house.  On completion title would be transferred to each joint venture partner based on their percentage input (i.e. money contributed to the venture) and it would end up in a tenant in common arrangement as described above.

A very important thing to note is that the joint venture partners MUST share the outcome – i.e. the rental income of the completed property NOT the sale proceeds of the completed development.

The ATO doesn’t like joint ventures involving SMSFs – and rightly so – a lot things can go wrong.  Before entering into such an arrangement professional advice needs to be sort and an appropriate joint venture agreement needs to be drafted.

If done correctly however a joint venture can be a valuable tool to enable a SMSF to enter the property development arena without entering the ‘business’ of property development – which may inadvertently lead the trustees of the SMSF to breaching of the laws that cover SMSFs.

Further information can be found here from the ATO in regards to a SMSF carrying on a business (including property development) and the relevant laws which need to be taken into consideration for SMSF trustees.

A correctly documented joint venture agreement however can enable a SMSF to become involved in a property development without carrying on a business or breaching the relevant regulations that apply to SMSFs.

Unit Trust:

This structure enables two or more parties to acquire a fixed percentage of a property through purchasing units in a fixed or unit trust, where the monies are pooled and then used to purchase the target property.

Like the tenants in common structure, the underlying or target property is not able to be used as security for any borrowings.  However the other investors (except for the SMSF) are able to borrow to fund their share of the purchase – provided the above restriction is not broken.

A unit trust can also issue different kinds of units that have different rights.  For example there could be units which entitle the unit holder to receive a share of any income, and other units that give entitlement to capital profits or gains.  This may bring advantages when using segregated investment strategies down the track.

Where a unit trust is set up and one party (or group of related investors) does not hold a controlling interest in the trust (i.e. less than 51%) the unit trust is then able to utilise borrowings with the underlying property used as security.

For example four unrelated parties could each invest $100k each into a unit trust, and then obtain another $500k from the bank to enable the purchase of a $900k commercial property.

For more information on who is a ‘related party’ please click here (opens as a PDF).

Pre-99 Unit Trust:

I will not go into detail in regards to this purchase method – simply because the majority of people don’t have such a structure from more than 10 years ago floating around.

Prior to 11 August 1999, a unit trust like those described above did not have the restriction on borrowings.

Another restriction gave such trusts a further 10 years (to 30 June 2009) to enable them to re-invest their distributions.  For example if the unit trust had a profit of $10,000 it could then simply issue 10,000 more units @ $1 each to the unit holder (SMSF)  – much the same way as via using a re-investment strategy with managed funds.  For years after 30 June 2009, any distributions paid by such unit trusts must be paid to the unit holders – they cannot be re-invested.

At the time all these changes scared many SMSF trustees and their advisers to wind up and close these pre-99 unit trust structures.  However if used correctly and within the constraints of the law they were for almost a decade the only feasible option to enable a SMSF to use gearing without getting other parties involved.

SMSFs now have the ability to utilise instalment warrants which does provide another option for property investment with a level of gearing.

WARNING:  If somebody approaches you saying they have a pre-99 SMSF and unit trust available that you can use or invest into and then borrow to purchase property without the need of a limited recourse loan arrangement and without all the current restrictions be careful –  it may be a scam.  You should seek independent advice from a SMSF specialist and allow them to review all the documentation and information provided by the supplier of the structures to ensure they are legitimate and genuine. 


Buying any property is always a big decision that should not be rushed.  The same applies when using your superannuation monies in your SMSF to buy a property.

Always ensure you get the correct advice and a structure that is appropriate for your situation – both now and into the future.

If you have any questions or comments on any of the information contained in this article please feel free to post a comment in the box below.


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  • Frangop

    What a great article – Very informative, thank you.

    • http://www.evolvemysuper.com.au Kris_Evolved

      Thanks for the feedback!There is so much information out there at the moment – especially when it comes to the new(ish) super fund borrowing rules. Unfortunately most of the hard sell is coming from either property spruikers or mortgage brokers who are trying to earn a quick buck. Either they don’t understand the technicalities of how the strategies work, or how to make them work in the best interests of their clients.It is still important to realise that a great structure for investing with friends is the unit trust. It gives a lot of flexibility, but you need to have a good unit holders agreement to ensure everything runs smooth.Any other questions or comments please throw them out there.Kris

      • Shanerryan

        Hey Kris

        Great article, and like your site, thanks!

        Shane, CA, Port Macquarie

        • http://www.evolvemysuper.com.au Kris_Evolved

          Thanks Shane.

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  • mick

    If i purchased an investment property using my super, can I eventually use the equity in the property to purchase a home to live in or a personal investment property?

    • http://www.evolvemysuper.com.au Kris_Evolved

      Hi Mick,

      Good question.

      Yes – you can use the equity EVENTUALLY to purchase a home to live in or an investment property. The key part being – eventually – i.e. at retirement (at least over age 55 and fully retired).

      To access the equity from an investment property purchased in a SMSF using a limited recourse loan, you need to sell the underlying property – you are prohibited from redraw any built up equity.

      If you are looking to purchase another (subsequent) investment property pre-retirement, their is nothing preventing you from doing it under the SMSF structure again.

      There are a couple of strategies I have developed that enable an investor to tip in additional savings into their SMSF and then use those amounts towards the purchase of a property, but still have the ability to take these amounts OUT of their super fund at a later date (before retirement).

      I cover these strategies (and lots more) in my comprehensive guide on buying property with super which I will be releasing soon. Please ensure you are signed up to my mailing list to be notified of when the comprehensive guide is released.

      I hope this answers your question.

  • Simoncb

    Can the person renting the investment property be the same name as holder of the super fund?

    • http://www.evolvemysuper.com.au Kris_Evolved

      Residential property = no

      Commercial property = yes

      • Simoncb

        thanks for that.

        would the definition of comercial property be a place of business?

        Is there anyway that smsf can be used to purchase property for living in?

        I am 40 yrs recently divorced, cleaned out except for the super money. It would be many years before i would be able to save for a deposit for a new house and was wondering if it was possible to access it in some way.


        • http://www.evolvemysuper.com.au Kris_Evolved

          Yeah – sure – go for it. Take your super money and buy a property and live in it.

          That will definitely sort out your accommodation problem for a couple of years because you will be in jail.


          The ATO has issued a rather detailed ruling on what constitutes business real property – and it is not “a place of business” – more details here: http://www.ato.gov.au/super/content.asp?doc=/content/00138072.htm&pc=001/149/030/004/005&mnu=&mfp=&st=&cy=1

  • Tony

    Im wanting to buy commercial land within my super fund and then build a commercial property on the land so I can run my business from it. Question: can i use a limited recourse loan to buy the land and construction of the property? Or do i need a seperate  limited recourse loan for both the land and constructed property? or nether?

    whats the best strategy for the above to happen. Note property is in QLD

    • http://www.evolvemysuper.com.au Kris_Evolved

      Hi Tony

      Your question is a very common one, however there is no easy answer.

      One of the restrictions of using a limited-recourse loan within a SMSF (whether bank funded or funded by the members) is a little thing called a ‘single acquirable asset’. This restrictions prevents you from buying a block of land and borrowing for the construction.

      As it is commercial property, you are able to purchase the land outside of the SMSF (i.e. in personal name, joint names, or a family trust etc), complete the construction and then have your SMSF purchase the completed property using a limited recourse loan.

      There is also the ability for your SMSF to legitimately contribute towards the construction cost, however the details of this sub-strategy are outside the scope of my response here. I believe I cover it in my ebook (see the ebook tab on the menu above).

      The downside of this strategy (especially in QLD) is double stamp duty – on the land when initially purchased, then on the complete property when acquired by the SMSF.

      A second strategy is to use a reg 13.22c unit trust, where the SMSF obtains a member-financed limited recourse loan to buy units in the unit trust (not the underlying property) and have the unit trust undertake the development. This is probably a little more tricky, and the inability to utilise the underlying property as security is a major draw back.

      Thanks for your question.


  • http://www.facebook.com/sujantas Sujata Shrestha

    how much amount do you need to have in your super account and how much do we have to pay as deposite

    • http://www.evolvemysuper.com.au Kris_Evolved

      Some banks will lend up to 80% to SMSFs for residential property, however my rule of thumb to make a purchase of a residential property cash flow positive is that you need between 35% to 40% of the purchase price.

      Assuming an average ‘quality’ property is around $400k – then $150k is a good place to start and it is a reasonable for a typical couple looking to build wealth using their super.

      I also generally assume 0% capital growth on all investments – any capital growth is the cherry on the top.

      Please use the following calculator to determine the cash flow situation of a potential property purchase for your SMSF:


  • Cara

    Hi Kris,

    Can I purchase ‘land only’ through my Super fund? I am in the process of branching out and establishing a SMSF. Have searched everywhere on the internet and cannot find the info I am requiring. Thanks

    • http://www.evolvemysuper.com.au Kris_Evolved

      Hi Cara,

      Yes, nothing wrong with purchasing land within your SMSF provided it is part of a well thought out investment strategy for your SMSF.

      A couple of EXTREMELY IMPORTANT issues to consider however:

      – If you need to borrow to fund the purchase you will not be able to develop / build on the land until the loan is paid off and the title is transferred to the trustee of the SMSF (rather than a custodian which needs to hold the title when the property is held under a limited recourse borrowing – LRBA)

      – If you DO NOT need to borrow to cover the purchase of the land (i.e. SMSF will have enough cash to fund the entire purchase and associated costs) then you can develop the land / build on it using other monies from the SMSF.

      – In either situation you CANNOT borrow to fund the construction.

      The best reference for these type of questions is an ATO SMSF ruling:


      There are a number of examples including Example 9 which cover these types of deals:
      Example 9 – purchase of land and construction of house using borrowings

      The trustees of an SMSF want to enter into an LRBA where the single
      acquirable asset is a vacant block of land. The SMSF intends that the
      borrowing will provide sufficient funds for the construction of a house
      on that block. Assuming that title to the vacant land transfers to the
      holding trust prior to the house being built, it is the vacant land that
      is acquired and held on trust under the LRBA .

      This arrangement will cease to satisfy the requirements of section 67A if
      money borrowed under the LRBA is subsequently used to construct the
      house and thus improve and fundamentally change the character of the
      asset held on trust (that is, from vacant land to residential premises ).

      This outcome is not altered even if the contracts entered into for the
      acquisition of the land and the construction of the house contain
      clauses linking the two contracts .

      There may be other options – but I don’t have enough information to determine what could be the most suitable way to obtain what you are trying to achieve.


  • Cara

    Hi Kris, Thanks kindly for your speedy response. It is greatly appreciated. Was wishing to know if you set up SMSF, if so – how much would it cost for me to get it done through you. How much extra would it cost, to set up a Trust and how long would this process take? kind regards, Cara

    • http://www.evolvemysuper.com.au Kris_Evolved

      Hi Cara,

      I will answer your questions (as I believe they are common questions and it would benefit other readers to learn the answers), however as our interactions have been limited, the following should not be considered advice – it is general information only.

      Apologies for not providing a short answer – but I would rather be extremely clear when it comes to potentially complex issues.

      ***Please also refer to additional information below my answers.***
      ***Please note that any quoted fees are currently as at the date of posting this comment, and are subject to change and variation depending on the exact service offered. They should be used for a guide only.***

      Yes – I can assist readers to set up a SMSF (with corporate trustee), the ‘full service’ cost is $1650 and details and the form you need can be found here, together with details of what is included:


      We (Superfund Partners) generally set up SMSFs the same day we receive the order, however it can take up to 28 days (average 7-10 days) to obtain an ABN from the ATO. The ABN needs to be issued before you can request rollovers / transfers of your existing super fund monies from other super funds.

      If you are entering into a borrowing arrangement, then Superfund Partners can also assist to establish the bare / custodian trust and trustee company. The current pricing is $1485.

      We also offer a ‘full package’ which includes the set up of the SMSF, bare / custodian trust, financial advice and all assistance from start to settlement for $3960 – for more details please see below.

      If you are 100% sure that setting up a SMSF is the right thing for you, and you have done all your research, then you probably don’t need to read any further as I have answered the questions – however I believe it will be worth your time.

      Most SMSF lenders require a financial adviser sign off prior to approving any SMSF loans – i.e. you are forced to seek independent advice prior to your SMSF borrowing (the banks are covering themselves).

      For this reason we generally prefer our clients to seek financial advice around a potential property purchase within a SMSF using a limited recourse loan. This advice can be obtained independently or we can also refer you to a related adviser to assist you.

      The standalone fee for this advice from our related adviser is $1650*, and is comprehensive including the following:

      – Analysis of a potential property purchase, including cash flow

      – Establishment of a SMSF, and also looking at alternative purchasing structure options

      – Review of current superannuation accounts and advice on a rollover / transfer of benefits of a SMSF

      – Insurance requirements and advice (including a review of insurances attached to your current superannuation accounts)

      – The overriding focus of any advice is whether what you want to do (i.e. purchasing property in a SMSF) will actually lead to an increase in your wealth = wealth creation!

      *The quoted fee is discounted 50% to $825 when you decide to go ahead to set everything up and sign a service agreement for us (Superfund Partners) to look after your SMSF administration (the $3960 total package mentioned above assumes this – i.e. $825 + $1650 + $1485).

      The advice will not tell you whether should buy a specific property or buy property at all, but it will definitely provide accurate and realistic information that will ensure any investment decisions you make are well informed.

      Sometimes, depending on your specific goals, setting up a SMSF without the above advice first may be putting the horse before the cart.

      There is nothing wrong with determining what your options are before hand, i.e. what purchasing power you have using your super and analysing potential purchases, and when you find a property that ticks all the boxes pull the trigger and get everything set up quickly (just have a chat to us before signing any contracts!).

      This method ensures you don’t prematurely incur costs that can wait.

      Cara – I will email you separately with some additional information and my contact details.


  • Svennis

    Hi Kris,
    in the Unit Trust scenario, where the Unit Trust has a Corporate Trustee, I’ve been told that the contract of sale (of the investment residential property) must be in the name of , and signed by the Director of the Corporate Trustee.
    In whose title is the property legally held? Is it the Unit Trust, or the Corporate Trustee?


  • Cecile

    If you buy a property tenants in common and then subdivide and each take one block can the smsf then get a loan?