Investing Super in Real Estate: Everything You Need To Know

For Australians, property has always been more than bricks and mortar. It’s the dream discussed over the BBQ, the reason auction crowds spill out onto suburban streets, and for many, the backbone of wealth-building.

It’s no wonder that self managed super fund (SMSF) trustees often look to property as part of their retirement strategy. Alongside shares and cash, it remains one of the most popular asset classes inside SMSFs.

But here’s the catch… property in super isn’t as simple as buying a house and waiting for the value to climb. It’s governed by strict rules, unique structures, and some very real risks.

So, before you take the plunge, here’s what you need to know about making property part of your SMSF.

Property rules every trustee should know

An SMSF can invest directly in property, but it must be done within the superannuation framework. The key rules include:

• Sole purpose test: any property must exist purely to provide retirement benefits for members.

• No personal use: you can’t live in it, holiday in it, or rent it to yourself, relatives, or associates.

• Business real property exception: commercial property can be leased to a related business on arm’s-length terms. For many small business owners, this is an attractive way to have rent flow back into their superannuation.

• Compliance with structures: if borrowing is involved, it must use a compliant structure such as a Limited Recourse Borrowing Arrangement (LRBA). 

These rules exist to ensure super stays focused on retirement, not lifestyle perks. We unpack borrowing and mortgage trends in our SMSF Mortgage & Property Investment Trends article.

The Australian Taxation Office (ATO) also provides detailed guidance on SMSF property rules, and trustees should review these carefully before making decisions.

Why trustees look at property inside super

So why do SMSF trustees keep coming back to property? A few reasons stand out:

• It’s something you can see and touch. A lot of people find that easier to trust than a line of numbers in a managed fund.

• Over the long term, property values have generally pushed upward, giving trustees confidence in its growth potential.

• Property can throw off steady rental income, which helps keep the fund ticking over.

• And for small business owners, owning their premises through super can be a smart way to make the rent they’re already paying work harder for them.

Of course, these upsides only really stack up when the fund has the balance, structure, and cash flow to support it.

Residential vs commercial: what’s the difference?

Both residential and commercial property can sit within an SMSF portfolio, but they play different roles:

• Residential property: must be an arms-length investment, rented out to unrelated parties. Returns are usually linked to capital growth and external rental yields.

• Commercial property: more flexible. It can be leased to a related party, such as your own business, provided the terms are market-based. For many small business owners, this allows them to pay rent into their own super instead of to a landlord.

ATO statistics show that business real property remains a major category in SMSFs, reflecting its popularity among trustees who own or run enterprises.

Benefits and risks to consider

Every investment has its upside and its headaches, and property inside an SMSF is no different. Here are some of the main ones trustees talk about:

The upsides:

• Growth potential over time, especially if you pick the right market.

• Rental income to help smooth out cash flow.

• More control over the decision-making than you’d get in a pooled super fund.

• For business owners, the chance to bring their premises under the umbrella of a superannuation fund.

The flip side:

• Property is slow to sell, not ideal if you suddenly need cash for member benefits.

• Putting too much into one property can leave the fund exposed if markets shift.

• Values move with the economy and interest rates.

• The compliance load is heavy, and mistakes can be costly.

Understanding both sides of the equation is essential before taking the leap.

Practical considerations before investing

Property can form part of an SMSF portfolio, but it carries unique features that set it apart from other asset classes. Regulators and auditors typically look at:

• Size of the investment: property often represents a significant portion of fund assets, which can affect diversification.

• Cash flow needs: ownership involves ongoing costs such as rates, insurance and management fees, and these remain payable even during rental vacancies.

• Liquidity challenges: property sales take time, meaning funds may not be readily available when benefits need to be paid.

• Record-keeping requirements: trustees must maintain clear documentation around leases, expenses, and valuations to meet audit standards.

These aren’t pros or cons, they’re structural realities of property in super. Understanding them upfront helps trustees stay compliant and avoid unnecessary complications.

At Andromedae, our role is to manage the reporting and compliance side, so trustees can have confidence that their fund meets regulatory obligations while they focus on long-term strategy.

The long-term outlook for property in SMSFs

Property is expected to remain a strong presence in SMSFs for years to come. Key factors shaping the outlook include:

• Ongoing demand for commercial property: warehouses, medical suites, and industrial units remain attractive due to stable tenants.

• Rising rents: while affordability pressures are real, rental growth in many markets supports income potential.

• New investment platforms: fractional property options are emerging, giving trustees exposure without tying up all their funds in one large asset.

SMSF and real estate will continue to evolve, but property’s role as a “cornerstone” investment is unlikely to change. Read more about the latest SMSF property trends.

How we can help

At Andromedae, we help trustees navigate the rules and requirements of property investment in SMSFs. From ensuring your strategy is compliant to simplifying administration, our role is to make property inside super less daunting and more manageable.

If you’re considering property for your SMSF, get in touch with our team today to see how we can support your journey.

Disclaimer: Andromedae and its staff do not provide financial advice on whether an SMSF is right for you. We also do not provide advice on what investments your SMSF should undertake. Our role is to manage the administration and compliance of your SMSF. Please seek advice from your own financial professionals to determine what is best for your personal circumstances. All content in this blog is provided as general information only.