How to buy property with your superannuation
Six ways to purchase property using your super

 For people who have seen some of my other articles you are likely to be aware that your SMSF is a wonderful vehicle for holding your investment properties. Extremely tax effective along with the maximum possible asset protection.

Outlined in this article I will look at the 6 strategies your SMSF can buy property:

1. Direct purchase

2. Instalment warrant

3. Tenants in common

4. Joint venture

5. Unit trust

6. Pre-99 unit trust

Direct Purchase:

Direct purchase

A direct purchase is precisely that - the SMSF purchases the property directly without having intermediary structures or entities set up. For this to take place the SMSF needs to have to be able to provide for 100% of the purchase price as well as involved costs.

 This style of purchase certainly is the simplest way a SMSF can purchase property. No borrowings or gearing is needed - meaning the amount of money required is likely to be a lot higher than via other methods. This limits the actual property the SMSF is able to buy and also limits diversification ( in a choice of alternative asset classes or other properties).

A direct purchase will typically be the cheapest in the case of transaction / purchase costs - there won’t be other structures forced to be set up.

Instalment Warrant (a.k.a limited recourse loan):

SMSF limited recourse loan diagram instalment warrant

This purchase method requires the title of the property being owned using a simple or ‘bare’ trust ( often known as a ‘custodian’ or property trust), with the SMSF concurrently getting a limited recourse loan. The SMSF receives the entire rental income and is liable for all expenses such as loan repayments.

As soon as the loan is repaid the bare trust can transfer the title to the SMSF without having capital gains or stamp duty - provided it’s been established correctly.

If you want to learn more about this way to purchase, please click here to see a video which describes how it works in more detail.

Tenants in common:

Tenants in common SMSF

Purchasing is tenants in common enables the SMSF to have ownership of a fixed percentage of a property, with another party ( like an individual or trust) owning the remainder percentage.

This structure doesn’t let the title of the property to be utilized as security for gearing - however other party is permitted to use borrowings provided the security is a second property.

 It’s possible to have even more than two investors each holding a share of the title and sharing the income and expenses if needed.

Joint venture:

SMSF property joint venture

A joint venture is when 2 or more parties form a contract to attempt a selected commercial activity and share the outcome of that activity.

 By way of example a SMSF as well as a family trust could pool resources / funds to acquire a block of land and construct a house. On completion title is going to be transferred to each jv partner based upon their percentage input (i.e. money contributed into the venture) and it also would finish up in a tenants in common arrangement as described above.

 A vital thing to make note of is the fact that jv partners Must share the actual end result - i.e. the rental income of the completed property Not the sale proceeds from the completed development.

The ATO doesn’t like joint ventures involving SMSFs - and rightly so - lots of things can go wrong. Before getting in this kind of arrangement professional advice ought to be sort and a good jv agreement is required to be drew up.

If done right however a joint venture is a really valuable tool permit a SMSF to go into the property development arena without entering the ‘business’ of property development - which could inadvertently lead the trustees of the SMSF to breaching of the laws which cover SMSFs.

A correctly documented jv agreement however can enable a SMSF to get included in a property development without carrying on a business or breaching the appropriate regulations that cover SMSFs.

Unit Trust:

SMSF property unit trust

This structure enables 2 or more parties to have a fixed percentage of a property through purchasing units in a fixed or unit trust, where monies are pooled then utilized to buy the target property.

 Much like the tenants in common structure, the actual or target property is can not be utilized for security for any borrowings. However other investors ( except the SMSF) will be able to borrow to finance their share of the purchase - provided the above mentioned restriction Isn’t broken.

A unit trust could also issue varieties of units which may have different rights. For example there can be units which entitle the unit holder to get a share of any income, as well as other units that provide entitlement to capital profits or gains. This may bring advantages when you use segregated investment strategies down the track.

 When a unit trust is set up and one party (or group of related investors) isn’t going to hold a controlling interest in the trust (i.e. below 51%) the unit trust will be allowed to utilise borrowings while using the underlying property used as security.

 One example is four unrelated parties could each invest $100k each into a unit trust, and after that obtain another $500k through the bank to allow the purchase of a $900k business property.

Pre-99 Unit Trust:

SMSF pre 1999 unit trust

I will not go deep into detail regarding this purchase method - for the reason that most people don’t have this sort of structure from in excess of a decade ago floating around.

 Leading up to 11 August 1999, a unit trust like those described above didn’t have the restriction on borrowings. The Ato applied ‘grandfathering rules’ that enabled such trust to keep the exact same level (%) of borrowings - nevertheless they were not able to borrow more after 1999.

Another restriction gave such trusts an extra ten years (to 30 June 2009) to be able to re-invest their distributions. For example if the unit trust had a profit of $10,000 it could actually then simply issue 10,000 more units @ $1 each to the unit holder (SMSF) - a very similar way as via employing a re-investment strategy with managed funds. For years after 30 June 2009, any distributions paid by such unit trusts are required to be paid to the unit holders - they can not be re-invested.

At the time these changes scared many SMSF trustees and their advisers to wind up and shut down these pre-99 unit trust set ups. However if used correctly and within the constraints of the law they were for pretty much 10 years truly the only feasible choice to enable a SMSF to make usage of gearing without getting other parties involved.

SMSFs should take advantage of  instalment warrants which can give another option for property investment that has a amount of gearing.

Warning: If somebody approaches you saying there is a pre-99 unit trust available that your particular SMSF can invest into after which you can borrow to acquire property with the necessity of an instalment warrant arrangement it is a scam.


Buying any property is always an important decision which should not be rushed. The same applies when utilizing your superannuation monies within your SMSF to acquire a property.

Always make sure you get the appropriate advice and a structure that is suitable for your needs - both now and into the future.

Please visit my blog for more articles and further information about how you can buy property with super.