SMSF Residential Property Loan

SMSFs can borrow to purchase residential investment property through a Limited Recourse Borrowing Arrangement, but the rules governing how the loan must be structured are specific. The property must be held in a separate bare trust during the loan term, with the SMSF as beneficial owner. The lender's recourse in the event of default is limited to the asset held in that bare trust — hence the name. These requirements narrow the pool of lenders willing to write SMSF investment property loans, and they slow down banks that do offer the product.

Secured Lending writes SMSF residential property loans structured as LRBAs. We understand the bare trust mechanics, work alongside your SMSF adviser and solicitor, and can move considerably faster than a bank through the same transaction. Loans are from $250,000 to $10,000,000, secured against residential investment property only.

How an LRBA Works in Practice

The SMSF trustee enters into the loan as borrower. A bare trust is established, with a bare trustee (typically a separate company) holding legal title to the property. The SMSF holds the beneficial interest. Once the loan is repaid in full, legal title transfers from the bare trustee to the SMSF trustee.

Because the lender's recourse is limited to the asset in the bare trust, the fund's other assets are protected. This is the essential feature that makes LRBAs compliant with SIS Act requirements. The ATO has issued detailed guidance on LRBA structuring, and your SMSF adviser should review any proposed arrangement before execution.

One practical consequence of the LRBA structure is that it adds legal work and time to a transaction. Both the bare trust deed and the loan agreement must be prepared correctly, and the title must be taken by the bare trustee before settlement. For a bank processing SMSF loans through a standard residential mortgage pipeline, this structure creates delays. We are experienced with it and can coordinate with your solicitor without adding unnecessary time.

Who This Is For

• •SMSFs with sufficient funds to meet the LRBA deposit requirement (typically 30% or more of the purchase price)
• •SMSF trustees needing to settle on a residential investment property within a compressed timeframe
• •SMSFs that have been declined or stalled by a bank on an LRBA application
• •SMSFs where the fund's income profile does not satisfy a bank's serviceability assessment
• •Trustees completing a refinance of an existing SMSF LRBA facility
• •Not for SMSFs purchasing business real property, commercial assets, or property for personal use by members

ATO Compliance Considerations

The ATO's LRBA guidelines require that loan terms be consistent with what a commercial lender would offer on an arm's length basis. Where a related party is the lender, the ATO Safe Harbour applies — the loan must meet specific interest rate and term requirements to avoid being treated as an in-house asset.

Secured Lending is an unrelated commercial lender, so Safe Harbour rules do not directly apply to our facilities. However, the structure must still comply with SIS Act requirements and the fund's investment strategy. Your SMSF auditor will review the LRBA at year end — having the structure correctly documented from the outset avoids complications at audit.

Three SMSF Deals We Have Funded

An SMSF with two members purchased a residential investment property in Brisbane for $890,000. The bank had been processing the LRBA application for eleven weeks with no clear timeline to settlement. The vendor refused a further extension. We assessed the deal, established the bare trust structure with the trustees' solicitor, and settled within five business days of receiving complete documentation.

A four-member SMSF in Victoria needed to refinance an existing LRBA facility that was maturing. The original lender had exited the SMSF lending market and would not renew. Loan balance $610,000, LVR 52% against a residential property worth $1.18M. We refinanced the facility within 48 hours, giving the trustees time to find a longer-term SMSF lender.

An SMSF purchasing an off-market residential investment property at $1.35M needed unconditional exchange within 48 hours. The fund had sufficient liquidity for the deposit and the property met SIS Act requirements for fund investment. We provided a letter of indicative credit within hours, and the deal settled inside a week.

What You Need Before Enquiring

• •SMSF name, ABN, and trustee structure (individual trustees or corporate trustee)
• •Most recent SMSF financial statements and fund balance
• •Details of the bare trustee company (name, ACN, directors)
• •Security property address and purchase price or estimated value
• •Proposed loan amount and intended exit (refinance to long-term lender, fund accumulation, sale)
• •Name and contact of your SMSF adviser and solicitor

Related Finance Options