The following is a simplified illustration to help explain how an SMSF property loan works.

Maria wanted to expand her SMSF investment strategy by adding a property that could produce rental income for her retirement. Her fund had $220,000 available for investment. After speaking with her adviser, she decided to use part of the balance as a deposit and borrow additional funds through an SMSF loan.

• Fund contribution: $200,000 (after keeping cash aside for fees and liquidity)

• Loan amount: $300,000

• Loan type: Variable rate

• Loan-to-Value Ratio (LVR): 75%
  
  

This allowed Maria’s SMSF to purchase a $480,000 residential property. Including stamp duty and acquisition costs, the total outlay came to $505,000.

Maria rented the property for $520 per week, generating approximately $27,000 per year in rental income. These funds—combined with ongoing contributions into the SMSF—were used to meet the loan repayments and maintain the property. Any small out-of-pocket expenses were funded from the SMSF’s cash reserves.

Over time, as rents increase and the property value grows, Maria’s SMSF benefits from:

• Consistent income to help service the loan

• Long-term capital growth within the concessionally taxed super environment