02 Jul 2025 SMSF Loan Explained: What Melbourne Property Investors Need to Know
Investing through a super fund isn’t just about managed funds or shares. You can tap into property investment and use an SMSF loan, a Limited Recourse Borrowing Arrangement, to buy real estate through your Self-Managed Super Fund.
This strategy unlocks portfolio diversification and concessional tax benefits on rental income and capital gains. But it’s not as simple as a regular home loan.
You’ll need to understand trust deeds and ATO regulations before diving in. Here’s our mortgage broker team’s no-nonsense guide to SMSF loans for Melbourne property investors.
Ready to simplify your SMSF loan application? Partner with EverLend’s Melbourne mortgage brokers to handle trust deed checks, lender comparisons and ATO compliance, freeing you to focus on property growth. Call us on 03 7036 3356 or visit www.everlend.com.au to talk to our brokers today!
What Is an SMSF Loan?
An SMSF (Self-Managed Superannuation Fund) is a private super fund that you and up to three other members manage yourselves. You act as trustee, set your own investment strategy, and are directly responsible for compliance, reporting and ensuring your fund grows to support your retirement.
An SMSF loan is designed purely for investment purposes, not personal use. It lets your SMSF borrow money to buy property via a bare trust, so the asset sits separately from other fund holdings.
This specialised investment loan aligns with the Australian retirement system, enabling you to leverage real estate to build your nest egg.
Under Self Managed Superannuation Funds Ruling SMSFR 2012/1, you must follow strict ATO regulations and compliance requirements, ensuring every dollar borrowed is used solely to advance your fund’s investment strategy.
Difference between SMSF loans and traditional home loans
Traditional home loans offer full recourse, meaning you’re on the hook if you can’t make loan repayments. SMSF loans use Limited Recourse Borrowing Arrangements (LRBA), so the lender can only claim the asset in the bare trust if you default.
There’s no third-party lending, and you won’t get the same flexibility with interest rate changes or monthly repayment options as a standard loan.
Why SMSF loans matter for property investors
SMSF loans enable you to incorporate SMSF property into your investment strategy. You can diversify beyond managed funds into residential properties or commercial properties.
Rental income flows back into your super, boosting your retirement nest egg. Plus, savvy property investing in Melbourne can deliver solid tax benefits and capital gains over time.
Take the stress out of SMSF lending. EverLend’s Melbourne mortgage brokers specialise in SMSF loans, offering expert advice on loan structuring, trustee roles and compliance so you can invest with confidence. Call 03 7036 3356 or visit www.everlend.com.au and let’s get started!
How Does an SMSF Loan Work?
An SMSF loan lets your Self-Managed Super Fund buy property using an LRBA. Here’s the simple, step-by-step version:
1. Set Up a Bare Trust:
Your SMSF creates a separate holding entity (often called a bare trust) to hold the property’s title. This keeps the property legally distinct from other SMSF assets.
2. Loan to the Trust, Not Directly to the SMSF:
The lender advances money to the bare trust, which then purchases the property on behalf of your SMSF. Because it’s a limited-recourse loan, if something goes wrong, the lender can only claim that one property, not the rest of your fund’s assets.
3. SMSF Trustee Manages the Loan:
As an SMSF trustee, you must:
- Approve the loan and property purchase (in line with your SMSF’s investment strategy and trust deed).
- Make the regular loan repayments from your SMSF’s cash (often funded by rental income).
- Keep records, lodge annual returns with the ATO, and pay the auditor’s fees.
4. Title Held by a Custodian:
A custodian (or bare-trustee) holds legal title to the property until the loan is fully repaid. Your SMSF is the beneficial owner, enjoying rental income and capital growth, but the custodian is the registered owner.
5. Loan Repaid Over Time:
As the property generates rent, those funds, plus any top-ups from other super contributions, go toward your monthly repayments. Once the loans are cleared, the property title transfers fully into your SMSF.
Sample Scenario
- Property price: $500,000
- SMSF cash equity: $200,000
- Loan amount: $300,000 at 5% p.a. over 25 years
- Expected rental income: $30,000 per year
Simple Computation Breakdown
- Loan principal: $300,000
- Interest rate: 5% p.a.
- Approximate monthly repayment: $1,750
- Total annual repayments: $1,750 × 12 = $21,000
- Expected annual rental income: $30,000
- Estimated annual expenses: $2,000
- Net annual surplus: $30,000 − $21,000 − $2,000 = $7,000
That $7,000 surplus stays in your SMSF, boosting your retirement balance (and enjoying concessional tax treatment).
Don’t let complexity stall your SMSF loan journey. Our Melbourne mortgage brokers at EverLend specialise in guiding SMSF trustees through every step, from structuring your LRBA to final settlement. Reach out on 03 7036 3356 or head to www.everlend.com.au and get your property investment moving.
SMSF Loan Eligibility in Melbourne
Getting an SMSF loan in Melbourne starts with meeting the ATO’s requirements. Although the rules are national, some Victorian lenders may require larger fund balances or local rental income forecasts.
Compliant SMSF setup
- Your SMSF must have a properly drafted trust deed that explicitly allows borrowing under a Limited Recourse Borrowing Arrangement.
- You need to lodge annual returns and undergo an independent audit in line with the Australian Taxation Office’s SMSFR 2012/1.
Trustee and member criteria:
- All trustees (or directors, if you use a corporate trustee) must be Australian residents – no foreign investors.
- Individual trustees should be under age 75 or meet the superannuation work test if they’re older.
- Your SMSF can have up to four members, and trustees can’t be employees of other members unless they’re related.
Fund balance and borrowing capacity:
- Many Melbourne lenders require a minimum SMSF balance (often $200,000+) before considering an investment loan.
- They’ll assess your fund’s cash flow, expected rental income, and other contributions to ensure you can service repayments, even if interest rates rise.
Property type and LVR guidelines:
- For residential properties, most lenders cap loans at 70–80% LVR; for commercial properties, it’s usually 60–70%.
- Victorian stamp duty and land transfer fees must be paid upfront, so factor those into your deposit.
Local considerations:
- Some Melbourne lenders prefer to see evidence of tenant demand in your target suburb or rental yield projections.
- If you’re buying off-the-plan or in a regional area outside Greater Melbourne, lenders may apply lower LVRs or request additional serviceability buffers.
How to Apply for an SMSF Loan
Securing your SMSF loan requires careful planning and a clear sequence of steps. Follow this roadmap to ensure your application is accurate, compliant and on time.
1. Check and update your SMSF deed
Confirm your trust deed allows an LRBA. If it doesn’t, have your legal adviser amend it. Your broker can recommend someone who is familiar with SMSF deeds.
2. Define your investment strategy
Trustees must document how property fits your fund’s goals, risk tolerance and liquidity needs. A clear strategy satisfies ATO rules and helps your broker match you to the right loan structure.
3. Engage an SMSF-specialist mortgage broker
A broker with SMSF experience, such as our Melbourne brokers at EverLend, will compare lenders, negotiate fees and rates on your behalf, and prepare your application so it meets each lender’s requirements. They also liaise with valuers, custodians and the ATO, keeping your project compliant and on track.
4. Compare lenders and loan products
Based on your strategy and fund size, your broker will shortlist lenders with competitive investment loan rates, LVRs and service levels in Melbourne. They’ll explain any quirks, such as higher minimum balances or local rental yield criteria.
5. Gather required documentation
Your broker will create a checklist and collect everything: trust deed, trustee minutes, ASIC Connect extracts (or Access Secure Services proofs), recent SMSF financials and the lender’s product disclosure statement. Having a broker chase this for you reduces delays.
6. Select and value your property
Select a property that aligns with your documented strategy, whether residential or commercial. Your broker arranges an independent valuation to confirm the lender’s LVR and factor in stamp duty and deposit needs.
7. Set up the bare trust and custodian
With your broker’s referral, engage a solicitor to draft the bare-trust deed and appoint a custodian trustee. This keeps legal title separate, protecting your wider SMSF assets under the LRBA.
8. Submit your loan application
Your broker lodges the application, online or via their network, attaching every doc in the right format. They chase the lender for serviceability checks, compliance sign-off under SMSFR 2012/1, and final approval.
9. Execute loan and trust documentation
Once approved, trustees sign the loan contract and bare-trust deed, and pass a formal resolution to borrow. Your broker coordinates settlement, directing funds into the custodian’s trust account to complete the purchase.
10. Maintain ongoing compliance
Post-settlement, make loan repayments from rental income or other SMSF cash. Your broker can alert you to interest rate changes, refine your strategy, and remind you of upcoming audits and lodgements to keep the ATO happy.
Streamline your SMSF loan with EverLend’s experienced Melbourne mortgage brokers. From prepping your loan application to navigating ATO regulations, we’ve got you covered. Contact us at 03 7036 3356 or visit www.everlend.com.au to schedule a free chat with our brokers today.
SMSF Loan Benefits and Risks
SMSF loans offer powerful benefits but come with distinct risks you can’t ignore. Let’s break down the key advantages and potential pitfalls.
Benefits
- Tax concessions: Rental income and capital gains are taxed at concessional tax rates, often just 15% or 10% in the pension phase.
- Portfolio diversification: Adding residential or commercial property to your investment strategy spreads risk beyond shares and managed funds.
- Limited recourse protection: If you default, the lender can only claim the property held in the bare trust, not your wider super fund assets.
- Cash-flow potential: Rental income can cover loan repayments and even generate surplus cash to boost your super balance.
Risks
- Higher interest rates: SMSF loans usually carry higher interest rates than standard home loans, squeezing your cash flow.
- Compliance burden: You must meet strict ATO regulations, lodge annual returns, pay the auditor’s fees and cover management expenses.
- Liquidity risk: Property is hard to sell quickly, so a sudden need for cash or a liquidity ratio breach can force a sale.
- Market fluctuations: A downturn in property values can erode your capital gains and reduce your fund’s balance.
- Upfront costs: Stamp duty, valuation fees and loan application charges add to your initial outlay.
Empower Your SMSF Loan Strategy
Let EverLend’s Melbourne mortgage brokers analyse your fund’s borrowing capacity, compare lender panels and negotiate the best rates for your SMSF loan. Call 03 7036 3356 or visit www.everlend.com.au to get a tailored borrowing plan today.
Frequently Asked Questions (FAQs)
What is an SMSF loan?
An SMSF loan is a Limited Recourse Borrowing Arrangement that allows your Self-Managed Super Fund to borrow funds to purchase property via a bare trust. It’s strictly for investment purposes under ATO regulations, keeping the lender’s recourse limited to the asset held in that trust.
What is the 5% SMSF rule?
While not an ATO-mandated ratio, many SMSF lenders expect trustees to maintain at least 5% of fund assets in liquid cash to cover loan repayments and unexpected expenses. This “5% buffer” helps ensure your fund meets its obligations without forcing a distressed sale.
How much deposit do you need for a SMSF loan?
Most lenders require a minimum deposit of 20–30% of the property’s value to meet Loan-to-Value Ratio (LVR) caps, meaning you’ll need $100,000–$150,000 equity on a $500,000 property. Exact requirements vary by lender and property type, with commercial loans often demanding higher deposits.
Which banks will lend to SMSF?
The big four banks (CBA, Westpac, NAB, ANZ) all offer SMSF loans, alongside specialist non-bank lenders such as AMP Bank, La Trobe Financial and various boutique funds. A mortgage broker can compare their product disclosure statements, negotiate rates and ensure you meet each lender’s minimum balance and compliance criteria.
Final Thoughts
Bringing it all together, an SMSF loan can be a game-changer for your retirement portfolio, but getting your trust deed, borrowing structure, and ATO requirements right is crucial.
That’s where our mortgage brokers come in. Based in St Kilda and covering wider Melbourne, we help SMSF trustees review trust deeds, set up bare trusts, compare lenders and keep your fund on track with interest rates, compliance requirements and rental income forecasts.
If you’re ready to explore how an SMSF loan could boost your property investment strategy, book a free consultation with our team today. Call 03 7036 3356 or visit www.everlend.com.au to get started.