Home News Manage the Risks of SMSF Loans

Manage the Risks of SMSF Loans

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A Self-Managed Super Fund can offer a wide range of benefits for those wanting to invest in property. However, with those benefits also come risks.  It is important for investors to be aware of these risks and know how to manage them effectively.   

Investment Performance

When you invest in a property, you cannot be 100% sure that this investment will create a large amount of profit for you. However, there are measures you can take to help improve the investment’s performance.
  • Obtain quality advice: Speak with a financial advisor before you purchase a property to ensure you are financially prepared. It is also a good idea to sit down regularly and have a progress review to ensure you are still on track with your finances.
  • Consider future influences on the property’s value (population growth, housing development, local transport)
  • Keep up-to-date with your investment (is the rental agent providing good service? Are the tenants looking after the property?) 
Trustee Incompetence

It is important that as the trustee you know what you are doing. Managing a self-managed super fund requires work and knowledge and if you don’t understand the processes, you may end up losing money. If you are a trustee, you should:
  • Get training: Training programmes will help you learn the basics about self-managed super funds and you will also be able to have all of your questions answered by professionals.
  • Get advice: Your accountant will be your best friend when it comes to your SMSF. They will show you how to operate the accounts, file receipts and make entries into the accounts.
  • Use checklists: If you are planning to meet with your accountant, make sure you are prepared. Write a checklist of what you need to bring and you need to do before you meet with your accountant. Things can easily be forgotten if you don’t write them down.

Legal & Contractual Issues

There are continuous changes in the area of self-managed super funds investing in property, so it is important to keep up to date with all of the documentation. For example, the purchase contracts need to suit the type of purchase you are making and the titles need to be correct.

This area should not be left to chance; you need to find a good lawyer with the right qualifications to act on your behalf.  It shouldn’t be left to someone who is not 100% sure on what they are doing.

Lender Review

Depending on your lender, there may be a list of possible scenarios that result in a review. Some examples include:

  • The SMSF applying for another loan
  • A valuation review showing that the minimum LVR has been breached
  • The SMSF entering pension phase or a member entering retirement
  • The death or permanent disability of a member
  • Members being added or removed from the fund

If any of these events occur, the lender will need to make sure it is still appropriate for the SMSF to have the loan. If it isn’t appropriate, you may be required to repay the rest of the loan or sell your property. 

So, to avoid this situation, it is best to discuss any possible changes with your lender before they happen to ensure you are not breaking any rules. 

Property Structure & Plant Issues

Even though land usually goes up in value, plant and buildings depreciate. Although investors are given a depreciation allowance as a tax deduction, some see it as free money and spend it all. Then, when it comes time to make repairs to the building, investors may not have enough money saved. 
This depreciation allowance is there for a reason, so it would be in your best interest to take advantage of it. You can manage this risk by maintaining a cash account with adequate funds kept in it for emergency repairs.


Although tenants do provide you with income, they can also cause a great amount of stress. It is important that you find a good rental agent. Do not just look for the cheapest option, do your research and speak with other landlords. It is also important that you have landlord’s insurance. This will cover you for things such as loss of rent when repairs for a claim are being completed. Regular inspections with your rental agent will allow you to keep an eye on the state of the property to ensure your tenants are maintaining the property.   

If you want to find out how much you can borrow, use our SMSF calculator.


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Anouska Linz

Anouska Linz is Manager, Online Sales at State Custodians and has over 10 years’ experience in financial services, both in broking and banking. Holding a bachelors degree in accounting, Anouska quickly discovered a love for mortgage lending and assisting people to achieve their home ownership goals. She leads a team of highly experienced lending specialists who are passionate about finding lending solutions which result in real wins for the customer. She is also a massive netball fan.

For more information on our home loans, visit www.statecustodians.com.au or call 13 72 62.

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