SMSF Lending: The Good, the Bad, and the Ugly
SMSF lending is often marketed as a smart way to use super to invest in property — and in the right circumstances, it can be.
But it’s also one of the most misunderstood and misused strategies in the superannuation world.
The best way to approach it isn’t with hype or fear — but with a clear-eyed discussion of the good, the bad, and the ugly.
The Good: When SMSF Lending Works Well
It Allows Property Investment Inside Super
For people who believe in property as a long-term asset, SMSF lending makes it possible to hold property inside super rather than personally.
This can help diversify retirement savings beyond shares and managed funds.
Tax Advantages Can Be Significant
Rental income and capital gains inside super are generally taxed at concessional rates.
Over long periods, this tax efficiency can materially improve net returns compared to holding the same property outside super.
Limited Recourse Reduces Catastrophic Risk
SMSF loans are structured so the lender’s claim is limited to the property itself.
This means a poorly performing investment won’t automatically wipe out the rest of the fund — an important protection when borrowing inside super.
Strong Long-Term Discipline
SMSF lending forces a long-term mindset.
For investors who are patient, conservative, and retirement-focused, this discipline can actually be a strength rather than a limitation.
The Bad: The Real Trade-Offs
Strict Rules and Reduced Flexibility
SMSF property rules are rigid.
You can’t live in the property, use it personally, or freely renovate it. These restrictions can frustrate people who are used to personal property ownership.
Lower Borrowing Capacity
SMSF loans typically require:
- Larger deposits
- Lower loan-to-value ratios
- Stronger cash flow
This limits how aggressive the strategy can be.
Higher Costs
Interest rates are usually higher than standard home loans, and there are additional legal, trust, accounting, and audit costs.
These costs eat into returns if the strategy isn’t well chosen.
Liquidity Pressure
Property doesn’t sell quickly.
If the SMSF needs cash — for expenses, pensions, or unexpected events — liquidity can become a real issue.
The Ugly: Where Things Go Wrong
Poor Property Selection
Buying the wrong property inside an SMSF can be devastating.
Because flexibility is limited, it’s much harder to fix mistakes later through renovations, redevelopment, or quick resale.
Compliance Breaches
This is where SMSF lending gets dangerous.
Using the property personally, improving it incorrectly, or structuring it wrong can trigger serious compliance breaches — with penalties that directly impact your retirement savings.
Over-Leveraging the Fund
Some SMSFs borrow too much, leaving no margin for error.
Vacancies, rate rises, or reduced contributions can quickly turn a “strategy” into a financial drain.
Being Sold the Strategy Instead of Advised
The ugliest outcomes often come from people being sold SMSF lending as a silver bullet.
When the focus is on getting the loan approved — rather than whether it genuinely improves retirement outcomes — problems usually follow.
The Honest Take
SMSF lending isn’t bad — but it’s unforgiving.
When done conservatively, compliantly, and for the right reasons, it can add value. When rushed, over-leveraged, or poorly advised, it can quietly erode retirement savings.
The Question That Matters Most
The real question isn’t:
“Can my SMSF borrow?”
It’s:
“Does this genuinely improve my retirement position — even if things don’t go perfectly?”
Want an Honest Conversation?
If you’re considering SMSF lending and want a clear, balanced discussion — not a sales pitch — we’re happy to walk through the good, the bad, and the ugly as it applies to your situation.
Book an SMSF Lending Strategy Discussion
The best SMSF decisions are made with eyes wide open.
