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SMSFs or self-managed super funds have been one of the most popular choices for Aussie investors since 1992, when superannuation became mandatory. Presently, the number of SMSFs registered every week is more than 1,000. 

SMSFs have the same privileges and tax advantages as the corporate, retail, and industry funds in the market. The main difference is the ability to directly own property and therefore have absolute control over the investment strategy. Indeed, buying a property in an SMSF can be an excellent strategy for investment if you want to generate long-term wealth that will make retirement something to look forward to. That said, it’s not the one-size-fits-all answer investors might be looking for. 

If you are on the fence about it, here are some of the drawbacks and the advantages of self managed super funds for buying investment properties:

Drawbacks of Purchasing an Investment Property with an SMSF

You Can’t Leverage Personal Benefits

One of the first cons of this is that you cannot buy from, rent to, or sell to a related party. You can’t even purchase a property for your kids to live in when you use your SMSF.

You Don’t Have a Diversification Option

Do you know how you are always told not to put all your eggs in a single basket? That is diversification. However, in a smaller super balance that may be less than 500k, for instance, a direct property will surely get a chunk of, if not all of the underlying investment. Investors have to realize the additional risk that may come with such a specialised investment strategy. 

There May Be Cash Flow Deficiencies

Investors can borrow capital so they can purchase a property within an SMSF. That said, you cannot borrow to renovate, make alterations, or build as the capital for improvements should only be used from your superannuation savings. That means investors should ensure that their contribution levels and SMSFs cash levels are enough to cover any potential improvement. 

It Can Be Complex

If you think investing in an SMSF property is easy, you’re mistaken because it can be quite complex. And if something goes wrong, there would be substantial penalties. That said, you can always seek advice from professionals who can help you run your fund and guide you through all the regulations.

Advantages of Buying an Investment Property Using an SMSF

It’s Tax-Effective

As you know, a super is designed to become your preferred method of saving for your retirement. The earnings within your super fund are taxed at just 15%. This is less than what you'd have to pay in your own name. 

There are Business Benefits

If you are purchasing a commercial premise through an SMSF, you can rent it to your own business - something that you cannot do if you buy a residential property. However, you are required to pay the market rental rate and the revenue goes into your SMSF instead of another landlord. 

You Can Minimise Capital Gains Tax

Owning a property has tax benefits when held inside an SMSF. For instance, for properties that are held for over 12 months, the fund gets a one-third discount on any capital gain that is made upon sale. It brings any capital gains tax liability down to just 10 percent. 

You’ll Have Direct Control

An SMSF is the only superannuation structure that allows you to directly own property. Aside from that, within the SMSF, you can also have direct control of your strategies, your portfolio, and your investments in general. 


As discussed above, there are disadvantages and advantages of self managed super funds’ use for purchasing an investment property. It is up to you to weigh both sides to see if it is indeed the right choice for you. As it is a complex matter, you’d do well to seek advice from an alternative lending specialist with sufficient knowledge on how purchasing a property through SMSF works. 

Wealthy You is one of the top non bank lenders in Australia that offers different mortgage solutions to meet the varying needs of our clients. Contact us today to get approved for an SMSF loan or to know more about your SMSF mortgage options!