Residential vs commercial: which is better for your SMSF?

Residential SMSF loans

Residential property is the more straightforward option for most people starting out. It's what most Australians already understand: a house, townhouse, or unit that tenants rent and live in.

One thing to keep in mind from 10 August 2026: an SMSF will no longer be able to borrow to buy a residential property. The points below apply to refinancing an existing residential SMSF loan, or to buying residential outright with the fund's own cash.

The advantages

• Easier to understand and manage - most people are familiar with residential property
• Refinancing is well supported - every SMSF lender we track will refinance an existing residential loan
• Typically easier to find and retain tenants
• Lower minimum loan amounts - access at lower fund balances
• Higher LVRs on a refinance - up to 90% in some cases

The limitations

• Lower rental yields - typically 3–4% compared to commercial's 5–8%
• You cannot live in it, rent it to family, or use it personally in any way
• You are restricted with what you can do with the property, for example no subdivision

Commercial SMSF loans

Commercial property is a different beast, and for the right person, it's a genuinely powerful strategy. The standout use case is when your SMSF buys the premises your business operates from, and your business pays rent directly into your super.

The advantages

• Higher rental yields: commercial typically returns 5–8% or more
• Longer leases: 3–10 year terms give your fund stable, predictable income
• Business owners can lease from their own SMSF: rent goes into super, not to a stranger
• Broader property types: offices, warehouses, retail, medical, industrial
• Strong capital growth in the right locations

The limitations

• More specialised lending: the big banks have largely exited SMSF, and appetite varies by property type and location
• Lower LVRs: most lenders cap at 70–80% for commercial
• More complex to manage: commercial leases and property management require more attention
• Vacancy risk: empty commercial property can be harder to relet than residential

Which should you choose?

A simple way to think about it:

• If you want to borrow to buy property in your SMSF, commercial is now the only option (residential can still be bought outright with the fund's own cash)
• If you own a business and want to stop paying rent to someone else, commercial is often the clear winner
• If your fund is larger and you want stronger income returns, commercial deserves serious consideration

Whether an SMSF is right for you depends on your financial position, long-term goals and how involved you want to be in managing your super. For some, an industry or retail super fund remains the better option. For others, an SMSF provides greater control over their investments, along with additional responsibilities.

If you're considering commercial property through an SMSF, it's important to understand that it can be more complex and hands-on than residential property. Leasing, vacancies, maintenance, cash flow and ongoing compliance often require a more active approach from trustees.

An SMSF is a significant decision, so it's important to discuss your circumstances with your licensed financial adviser and accountant before making any changes.