6 ways to purchase property using your super

If you have read any of my other articles you should now that your SMSF is a fantastic vehicle for holding your investment properties. Extremely tax effective with the maximum possible asset protection.

In this article I will review the 6 ways that your SMSF can purchase property:

1. Direct purchase

2. Instalment warrant

3. Tenants in common

4. Joint venture

5. Unit trust

6. Pre-99 unit trust

Direct Purchase:

A direct purchase is exactly that – the SMSF purchases the property directly without any intermediary structures or entities in place.  For this to happen the SMSF must have the ability to fund 100% of the purchase price and all associated costs.

This type of purchase is the simplest way an SMSF can invest in property.  No borrowings or gearing is used – meaning the amount required is going to be a lot higher than via other methods.  This limits the type of property the SMSF can afford to invest in and also limits diversification (in either other asset classes or other properties).

A direct purchase will typically be the cheapest in terms of transaction / purchase costs – there are no other structures required to be set up.

Instalment Warrant:

Purchasing via an instalment warrant arrangement has been covered in a couple of my previous posts:

This purchase method involves the title of the property being owned by a simple or ‘bare’ trust (also known as a ‘custodian’ or property trust), with the SMSF at the same time obtaining a limited recourse loan.  The SMSF receives all the rental income and is responsible for all expenses including the loan repayments.

Once the loan is repaid the bare trust can transfer the title to the SMSF without any capital gains or stamp duty – provided it has been established correctly.

Tenants in Common:

Purchasing is tenants in common enables the SMSF to take ownership of a fixed percentage of a property, with another party (such as an individual or trust) owning the remaining percentage.

This structure doesn’t allow the title of the property to be used as security for gearing – however the other party is allowed to use borrowings provided the security is another property.

You can have more than two investors each holding a percentage of the title and sharing the income and expenses if necessary.

Joint Venture:

A joint venture is where two or more parties form an agreement to undertake a specific commercial activity and share the result of that activity.

For example a SMSF and a family trust could pool resources / funds to purchase a block of land and build a house.  On completion title would be transferred to each joint venture partner based on their percentage input (i.e. money contributed to the venture) and it would end up in a tenant in common arrangement as described above.

A very important thing to note is that the joint venture partners MUST share the outcome – i.e. the rental income of the completed property NOT the sale proceeds of the completed development.

The ATO doesn’t like joint ventures involving SMSFs – and rightly so – a lot things can go wrong.  Before entering into such an arrangement professional advice needs to be sort and an appropriate joint venture agreement needs to be drafted.

If done correctly however a joint venture can be a valuable tool to enable a SMSF to enter the property development arena without entering the ‘business’ of property development – which may inadvertently lead the trustees of the SMSF to breaching of the laws that cover SMSFs.

Further information can be found here from the ATO in regards to a SMSF carrying on a business (including property development) and the relevant laws which need to be taken into consideration for SMSF trustees.

A correctly documented joint venture agreement however can enable a SMSF to become involved in a property development without carrying on a business or breaching the relevant regulations that apply to SMSFs.

Unit Trust:

This structure enables two or more parties to acquire a fixed percentage of a property through purchasing units in a fixed or unit trust, where the monies are pooled and then used to purchase the target property.

Like the tenants in common structure, the underlying or target property is not able to be used as security for any borrowings.  However the other investors (except for the SMSF) are able to borrow to fund their share of the purchase – provided the above restriction is not broken.

A unit trust can also issue different kinds of units that have different rights.  For example there could be units which entitle the unit holder to receive a share of any income, and other units that give entitlement to capital profits or gains.  This may bring advantages when using segregated investment strategies down the track.

Where a unit trust is set up and one party (or group of related investors) does not hold a controlling interest in the trust (i.e. less than 51%) the unit trust is then able to utilise borrowings with the underlying property used as security.

For example four unrelated parties could each invest $100k each into a unit trust, and then obtain another $500k from the bank to enable the purchase of a $900k commercial property.

For more information on who is a ‘related party’ please click here (opens as a PDF).

Pre-99 Unit Trust:

I will not go into detail in regards to this purchase method – simply because the majority of people don’t have such a structure from more than 10 years ago floating around.

Prior to 11 August 1999, a unit trust like those described above did not have the restriction on borrowings.

Another restriction gave such trusts a further 10 years (to 30 June 2009) to enable them to re-invest their distributions.  For example if the unit trust had a profit of $10,000 it could then simply issue 10,000 more units @ $1 each to the unit holder (SMSF)  – much the same way as via using a re-investment strategy with managed funds.  For years after 30 June 2009, any distributions paid by such unit trusts must be paid to the unit holders – they cannot be re-invested.

At the time all these changes scared many SMSF trustees and their advisers to wind up and close these pre-99 unit trust structures.  However if used correctly and within the constraints of the law they were for almost a decade the only feasible option to enable a SMSF to use gearing without getting other parties involved.

SMSFs now have the ability to utilise instalment warrants which does provide another option for property investment with a level of gearing.

WARNING:  If somebody approaches you saying they have a pre-99 SMSF and unit trust available that you can use or invest into and then borrow to purchase property without the need of a limited recourse loan arrangement and without all the current restrictions be careful –  it may be a scam.  You should seek independent advice from a SMSF specialist and allow them to review all the documentation and information provided by the supplier of the structures to ensure they are legitimate and genuine. 


Buying any property is always a big decision that should not be rushed.  The same applies when using your superannuation monies in your SMSF to buy a property.

Always ensure you get the correct advice and a structure that is appropriate for your situation – both now and into the future.

If you have any questions or comments on any of the information contained in this article please feel free to post a comment in the box below.