SMSF property loans under an LRBA

Buying property inside a Self-Managed Super Fund using an LRBA (Limited Recourse Borrowing Arrangement) is one of the most scrutinised and heavily structured transactions in Australian lending. The rules are specific, the lender pool is thin, and the cost of getting the structure wrong is measured in penalty tax, not just interest.

What an LRBA actually does

The SMSF cannot directly borrow against its assets. Instead, a separate entity - the Bare Trust or Custodian Trust - holds legal title to the property while the SMSF holds beneficial title and is the borrower. If the SMSF defaults, the lender’s recourse is limited to the single property inside the bare trust. The SMSF’s other assets - shares, cash, other properties - are quarantined.

Who still lends

The big four exited SMSF lending between 2018 and 2020. The active lenders in 2026 are La Trobe, Liberty, Thinktank, Firstmac, and Switzer. Rates sit 70-120 bps above standard investor rates. LVR caps are typically 70-75% for residential and 65-70% for commercial.

Structural requirements

The bare trust must be established before contracts exchange, with a trustee (usually a corporate trustee) that is distinct from the SMSF trustee. The contract of sale must name the bare trust trustee as purchaser. The SMSF constitution must explicitly permit LRBA borrowing. The investment must satisfy the “sole purpose test” - it must exist to provide retirement benefits, not personal use.

What you cannot do

You cannot live in the property. You cannot rent it to a related party (this is the “in-house asset rule”). You cannot renovate in a way that changes the character of the asset using borrowed funds - repairs are allowed, improvements are not. Buying a vacant block of land and building on it with the LRBA is prohibited; you must already have the improved property.

Minimum SMSF balance

Most lenders require an SMSF balance of $200k-$250k before the transaction, reflecting the costs (audit, accounting, legal) that don’t scale down. A $500k purchase inside a $220k SMSF with 70% LVR uses almost all the fund’s liquidity, and many trustees underestimate the ongoing buffer required for vacancies, repairs, and contribution shortfalls.

LRBAs work, but the structure is unforgiving and the ongoing compliance is non-trivial. We recommend clients consult their SMSF accountant before signing a contract, not after.