Rate Challenge SMSF case study – using super to buy a commercial property without blowing the fund’s cashflow

1) The trustees and fund at a glance – strong balance, clear retirement plan

“Damien and Jade” (names changed) are in their early 50s, running a small allied-health practice in Victoria. They’ve been trustees of a two-member SMSF for more than a decade and have a steady contribution history. The fund is diversified across cash, Australian equities and ETFs, with a stated goal of moving into a more income-stable mix over the next 10–12 years.

They were not looking for property “at any cost.” Their adviser had already flagged two non-negotiables: keep enough liquidity in the SMSF after settlement, and make sure any lease to their own business was demonstrably at market terms. The broker’s job was to map what that meant in lender policy and loan structure, not rewrite the investment strategy.

2) The property goal – control the premises, keep the SMSF compliant

Their practice had leased the same premises for years. The landlord decided to sell, offering them first right of refusal. Buying personally would have meant a separate business loan and the family home as security. Buying through the SMSF offered a cleaner alignment between retirement strategy and business stability, so long as the fund could hold the gearing safely.

The adviser confirmed the property met the “business real property” definition, and that leasing it back to their practice would be acceptable if the lease was written properly and priced like any other tenant would pay. With that in place, the lending path was an LRBA with a bare trust holding legal title while the loan existed.

Damien and Jade also wanted a structure that could survive changes in the business. If they sold the practice in five years, the SMSF could lease to a new tenant at market rent. The broker’s modelling needed to reflect both the “lease to us” and “lease to a third party” scenarios.

3) LRBA, bare trust and lender rules – the constraints that shaped the deal

Commercial SMSF loans are a narrower market than residential SMSF loans, and lender appetites vary a lot. Here, the rules were simple in concept but strict in practice.

• Loan-to-value ratio: for small commercial units, most SMSF lenders are conservative. Maximum LVRs are commonly in the 60–65% range for this style of property, but can move depending on the tenant profile, valuation, location and the fund’s strength. The structure was sized to sit confidently inside policy rather than chase a hard limit.
• Lease evidence: an arm’s-length lease, market rent, and a valuation that supported it. The lease had to look and behave like any third-party commercial tenancy.
• Liquidity test: the SMSF needed a meaningful cash buffer post-settlement, not “fully invested plus a prayer.”
• Documentation: trust deed review, bare trust deed, investment strategy minute, and evidence of contributions.

Rate Challenge worked alongside their SMSF accountant and solicitor to review the trust deed and draft the bare trust. The contract was also checked for SMSF-specific wording, so there were no last-minute stumbles at approval stage. If you want the regulator’s view on keeping LRBA terms genuinely arm’s length, the ATO’s LRBA lender-relationship guidance is a good reference point. (ATO: relationships with the LRBA lender)

The practical takeaway was that the fund had to bring a larger deposit than a normal commercial purchase, and the loan term needed to be sized around long-run retirement cashflow rather than the short-term “what’s the biggest loan we can get.”

4) The SMSF loan solution – conservative gearing with a clear exit path

The chosen lender was a specialist SMSF-friendly bank comfortable with small commercial units leased on genuine market terms. The final structure, rounded for simplicity, looked like this.

The offset was important. It let the SMSF keep a real liquidity buffer while still reducing interest. If the business had a softer year or if there was a vacancy later on, the fund would be holding the buffer in cash rather than scrambling to sell shares at the wrong time.

This also gave them flexibility on repayments. The fund could pay the minimum, keep cash stable through business cycles, and use surplus contributions later to accelerate repayment if they wanted.

5) Cashflow and buffers – stress-testing the fund, not just the deal

Before proceeding, the broker and accountant modelled cashflow under three conditions: market rent as leased to their practice, market rent to an unrelated tenant, and a conservative vacancy period. The lender also ran its own servicing view using rent plus contributions.

*Costs indicative only, including rates, insurance, body corp/maintenance allowance and property management. Final figures depend on actual invoices and lender assumptions.

The base case looked fine, but the vacancy test was the point of the exercise. A 6-month gap would cost the fund roughly $24–25k. With a post-purchase liquidity buffer of around $110k, that stress still left the SMSF in a safe, operating position without forcing asset sales.

That buffer also gave room for small fit-out costs over time, paid from SMSF cash (not borrowed), which kept the LRBA compliant and avoided improvement-funding issues.

6) Settlement and the 12-month outcome – stability for the business, balance for the fund

Once the bare trust was executed and the lease documents were finalised, approval moved cleanly. Settlement ran on a standard commercial timeline with no extra extensions needed.

Twelve months on, the results were practical rather than flashy.

• The practice now had secure premises with known rent reviews and no risk of a forced move.
• The SMSF was receiving consistent market rent, paid on time like any other tenant would pay.
• Contributions continued as normal and the offset balance stayed above the planned minimum buffer.

Nothing about this structure relied on perfect conditions. If rates rose, the SMSF could slow extra repayments and protect liquidity. If the practice was sold, the fund could lease to another tenant at market rent, and the LRBA would continue exactly as designed.

The broker’s view was simple: an SMSF property deal is only “good lending” if the retirement plan still looks sensible when you turn the stress dial up a notch.

7) When this approach fits – and when to slow down

This style of SMSF commercial purchase is usually a fit when:

• The property is genuinely “business real property” and the lease can be documented at arm’s length.
• The fund has enough scale to bring a conservative deposit and still keep liquidity.
• Members have a clear retirement horizon and aren’t relying on “property growth” to rescue the plan.
• There’s a credible Plan B if the business changes hands or relocates.

It’s a poor fit when the SMSF would end up asset-heavy and cash-light, or when related-party terms are fuzzy. In those cases, the right answer might be a smaller property, a different asset mix, or no gearing at all. That call sits with the trustees and their licensed adviser. The broker’s job is to make sure the loan is the right tool for that strategy, not the other way around.

8) Next steps if you’re considering an SMSF property loan

If you’re exploring property through super, start by getting your advice team aligned. A clean SMSF deal is a three-part job: strategy with your adviser, compliance with your accountant/administrator, and lending with a specialist broker.

Step 1: Confirm your trust deed, investment strategy and contribution position with your SMSF accountant.
Step 2: Decide on residential vs commercial and clarify any related-party lease rules with your adviser.
Step 3: Talk to an SMSF lending specialist early to test realistic deposits, LVRs and lender appetite before signing a contract.
Step 4: Have a solicitor review the contract and draft the bare trust in line with lender requirements.
Step 5: Stress-test the fund’s cashflow and buffers at higher rates and vacancy periods, then proceed only if it still stacks up.

Rate Challenge compares 35+ SMSF-friendly lenders and works alongside your accountant and adviser to deliver a compliant LRBA loan with clear buffers. If you want a deeper walk-through, the SMSF Mortgage Broker page explains how different SMSF loan structures work, and the SMSF Loan & Buffer Calculator helps you test repayments and liquidity quickly.

When you’re ready to talk through your own numbers, use the form above or head to Contact Rate Challenge. We’ll map out what lenders may consider and what a conservative, lender-ready structure looks like for your fund.