SMSF Property Lending: Common Mistakes (and How to Avoid Them)

Property can be a valuable long-term asset inside an SMSF — but only when the lending is structured correctly from the outset.

Many issues we see in SMSF property transactions don’t stem from the property itself, but from lending decisions made too early, too quickly, or without a full understanding of lender policy and SMSF compliance requirements.

This guide outlines some of the most common SMSF property lending mistakes — and how a careful, compliance-first approach can help trustees avoid unnecessary risk, delays, and future restructuring.

Mistake #1: Treating SMSF property lending like a standard home loan

One of the most common issues in SMSF property transactions is assuming the lending process works the same way as a personal or business loan. It doesn’t.

SMSF property lending operates under limited recourse borrowing arrangements (LRBAs), with tighter lender policy, stricter documentation requirements, and less margin for error. Decisions that may be simple in a personal lending context — such as lender selection, property type, or loan structure — can have far greater consequences inside super.

When SMSF lending is treated as “just another mortgage,” trustees often encounter avoidable delays, declined applications, or the need to restructure the loan later. This is particularly common in SMSF residential property lending where lender policy and compliance constraints differ significantly from standard home loans. A specialist, SMSF-specific approach from the outset helps ensure the lending structure aligns with compliance requirements and long-term fund strategy.

Mistake #2: Not confirming LRBA structure and documentation early

SMSF property lending relies on a correctly established limited recourse borrowing arrangement (LRBA). If the structure, trustee setup, or bare trust documentation isn’t right from the beginning, even a suitable property and lender can become problematic.

Issues commonly arise where contracts are signed before the LRBA is fully confirmed, or where assumptions are made about trustee names, trust deeds, or asset-holding structures. These gaps can lead to settlement delays, lender rework, or compliance concerns that are difficult to unwind once the transaction is underway.

Confirming LRBA structure and documentation early — before committing to a purchase or refinance — reduces friction, protects compliance, and gives lenders confidence that the transaction is properly prepared.

Mistake #3: Assuming lender policy will match your investment strategy

Not all SMSF lenders assess property transactions the same way. Differences in acceptable property types, lease arrangements, valuation approaches, and serviceability models can materially affect whether a loan is approved — and on what terms.

A common mistake is selecting a property or structuring a transaction based on what “should” work, without first confirming how SMSF lenders are likely to assess it. This risk is particularly relevant for trustees considering SMSF commercial property lending, where lender appetite and policy variation can be much narrower, often resulting in unexpected conditions, reduced borrowing capacity, or the need to revisit the structure late in the process.

A lender-aligned approach ensures the property, loan structure, and SMSF strategy are assessed together — reducing the risk of misalignment and improving approval certainty from the outset.

Mistake #4: Underestimating valuation risk and loan-to-value constraints

Valuations play a critical role in SMSF property lending, yet they are often treated as a formality. In reality, valuation outcomes can materially affect borrowing capacity, lender appetite, and whether a transaction proceeds at all.

SMSF lenders typically apply conservative valuation methodologies and lower maximum loan-to-value ratios than standard residential lending. When valuation risk isn’t factored in early, trustees may face funding shortfalls, revised structures, or delayed settlements once the lender valuation is received.

A prudent SMSF lending strategy considers valuation risk upfront — ensuring adequate buffers, realistic expectations, and a structure that can withstand a more conservative assessment.

Mistake #5: Poor coordination between advisers and lenders

SMSF property transactions involve multiple professionals — accountants, solicitors, lenders, and brokers — each with a distinct role. When these parties are not aligned early, small issues can quickly become delays, rework, or compliance concerns.

Problems often arise where lending decisions are made in isolation, documentation is prepared without lender input, or assumptions are made about what other advisers will accept. This lack of coordination typically surfaces late in the process, when changes are more difficult and costly to implement.

A coordinated approach — where lending, legal, and accounting considerations are aligned from the outset — reduces friction, improves approval certainty, and supports a smoother path to settlement.

What a lender-ready SMSF property purchase looks like

A well-structured SMSF property transaction doesn’t rely on last-minute fixes or optimistic assumptions. Instead, it is built around early confirmation, realistic lender alignment, and conservative structuring.

In practice, a lender-ready SMSF property purchase typically includes:

• A confirmed LRBA structure and supporting documentation

• Lender policy aligned to the property type and SMSF strategy

• Realistic valuation and loan-to-value expectations

• Clear coordination between accountant, solicitor, and lender

• A lending structure designed to remain compliant over time

Where appropriate, working with experienced SMSF property professionals can help ensure lending, legal, and accounting considerations remain aligned throughout the transaction.

Taking this approach reduces avoidable risk and helps ensure the lending structure supports the SMSF’s long-term objectives — not just settlement.

Next steps: getting the structure right early

Whether you’re planning a new SMSF property purchase or reviewing an existing loan, early guidance can make a meaningful difference to outcomes.

If you’re considering a new SMSF property purchase, reviewing an existing loan through refinance or restructuring, or ensuring the right advisers are involved from the outset, working with an SMSF lending specialist can help ensure the structure is compliant, lender-ready, and aligned with your long-term strategy.