SMSF Investment Strategy for Commercial Property

An SMSF investment strategy is the framework you use, as a trustee, to decide whether an investment suits the fund’s members, cash flow and retirement objectives. It matters most when a self managed super fund is looking at commercial property, because one asset can take up a large share of the fund and may be hard to sell quickly. Write the strategy before you start looking, so it sets out what the fund can prudently own, finance and maintain. A strategy written afterwards to justify a property you have already found is doing the job backwards. In this article, we’ll cover what the strategy must address, how to test concentration and liquidity, the property and borrowing rules (including the August 2026 change), and when to review it.

What Must an SMSF Investment Strategy Cover?

The ATO expects your investment strategy to consider:

• Risk and the likely return from the fund’s investments
• Diversification, and the risks of not being diversified
• Liquidity, meaning how easily assets can be turned into cash to pay fund expenses and member benefits
• Whether to hold insurance cover for each member

The strategy should be in writing and tailored to your fund. The ATO cautions that a standard template still has to be adapted to the fund’s circumstances.

That means recording why your asset allocation is appropriate. If commercial property will dominate the fund, explain how that concentration still serves each member, because ages, contribution patterns, retirement dates and risk tolerances can differ.

Where Commercial Property Fits in Your SMSF

Commercial property can suit an SMSF well. The rent is set by a lease, the reviews are agreed in advance, and the tenant may pay some of the outgoings, which can give the fund a more predictable income. For business owners, the fund may also be able to own the premises the business operates from, provided the rules covered below are met.

It also brings vacancy, tenant, maintenance, valuation and selling risks. Moneysmart reports that around 17.5% of SMSF assets are held in residential and commercial property, and sets out the costs, restrictions and cash flow pressure that come with SMSF property investment.

Start with the fund, not the building. Map the fund’s current assets, expected contributions, benefit payments, insurance premiums and likely capital expenses. Then test how the purchase changes that picture.

If the fund is not set up yet, our guide to setting up an SMSF to buy commercial property covers the structure and the sequence.

Test Concentration and Liquidity

Suppose a fund has $1 million in assets and buys a $700,000 property. Commercial property would make up 70% of the fund before allowing for transaction costs or debt. That concentration is not automatically prohibited, but you should document why it is reasonable and how the remaining assets support liquidity and diversification. The ATO notes that concentration risk is higher where the fund has borrowed.

Then stress-test the plan. Work out what happens to the fund’s cash if:

• The property sits vacant for several months
• Interest rates rise
• A major repair falls due
• A member moves into pension phase

The fund must be able to meet its expenses and benefit payments without being forced to sell an illiquid asset at the wrong time.

If you would like to test a property against the fund’s numbers before you commit, book a call with our team.

Keep the Property Within SMSF Rules

An SMSF must be maintained for the sole purpose of providing retirement benefits. Residential property generally cannot be acquired from, lived in or rented by a related party. Business real property can be an exception when the legal requirements are met.

Business real property generally means land and buildings used wholly and exclusively in a business. This is the rule that can allow a business owner’s fund to own the premises the business operates from.

The ATO’s related-party acquisition rules explain the conditions and the importance of arm’s-length dealings. If your business leases SMSF commercial property, use a written lease, charge market rent, keep consistent payment records and get an appropriate valuation. Personal convenience should never replace compliance.

Treat SMSF Borrowing as a Separate Risk Decision

SMSF property borrowing normally uses a limited recourse borrowing arrangement (LRBA). The loan can generally only be used for a single asset, and the legal structure, lender requirements and transaction timing leave little room for error. Moneysmart also warns that the fund must meet the loan repayments and property expenses from its own cash flow, and that you cannot change the character of the property until the loan is repaid.

What Changed for SMSF Borrowing on 10 August 2026

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 narrowed what an SMSF can borrow to buy. For arrangements entered into on or after 10 August 2026, an LRBA can only be used to acquire real property if that property is business real property. Borrowing through an SMSF to buy residential property is no longer available for new arrangements.

According to the ATO’s guidance on the change, three things are not affected:

• LRBAs entered into before 10 August 2026
• Refinancing of those existing LRBAs
• Binding contracts exchanged before 10 August 2026, even if settlement happens later

For commercial investors, the practical point is that “commercial” is not the legal test. A property has to meet the business real property definition, and each one is assessed on its facts. Ask your SMSF adviser to confirm that the property qualifies before you sign a contract, particularly for mixed-use or vacant sites.

Whatever the property, model the rent after outgoings, loan repayments, administration, insurance and a vacancy allowance. Our explanation of how commercial property loans work will help you frame the finance questions before you seek credit and legal advice.

Do Not Let Tax Benefits Drive the Strategy

SMSF tax benefits can be valuable, but they are conditional, and they will not rescue a weak property. A complying fund’s investment income is generally taxed at a concessional rate, while capital gains and retirement-phase outcomes depend on the fund’s circumstances and the rules at the time. Income that is not earned on arm’s-length terms may be taxed at the highest marginal rate.

Judge the property on whether it still suits the fund after realistic cost, tax, vacancy and finance assumptions. Get advice from an SMSF-qualified accountant or adviser before relying on a tax outcome, especially where related parties, contributions or pension accounts are involved.

Review and Record the Strategy

Review the strategy at least once a year and after any material event, such as a member joining or leaving, a member starting a pension, a market correction, a refinance or a significant vacancy.

Record your reasoning, the updated cash flow forecasts and any decision to keep or change the asset allocation. The minutes of the annual trustee meeting are a sensible place for it, and your auditor will want to see evidence that the review happened.

Frequently Asked Questions

Does an SMSF Need a Written Investment Strategy?

Trustees must prepare, regularly review and give effect to an investment strategy that reflects the fund’s circumstances. The ATO says it should be in writing.

Can an SMSF Invest Mostly in Commercial Property?

Potentially, but you should document why the concentration is appropriate and how the fund will manage diversification, liquidity, costs and member benefits.

Can My Business Lease a Property Owned by My SMSF?

It may be possible for qualifying business real property, provided the arrangement complies with the rules and runs on documented arm’s-length terms.

Can an SMSF Borrow to Buy Commercial Property?

Yes, through a compliant limited recourse borrowing arrangement, provided the property is business real property. Get specialist legal, financial and tax advice before contracts are signed.

Can an SMSF Still Borrow to Buy Residential Property?

Not under a new arrangement. Since 10 August 2026, an LRBA can only be used to acquire real property that is business real property. The ATO says arrangements entered into before that date, and refinancing of them, are not affected.

What Are the Main SMSF Property Risks?

Concentration, vacancy, tenant default, debt, unexpected expenditure, valuation changes, liquidity pressure and compliance failures are among the main risks to assess.

Conclusion

An effective SMSF investment strategy connects the commercial property to the fund’s purpose, members and capacity. Write it first, check the property against the SMSF rules and the new borrowing limits, and review it every year.

Thinking About Commercial Property in Your SMSF?

Your accountant and SMSF adviser look after the fund. At Revolve Commercial, we look after the property side, which means finding the property, testing the lease and the numbers against market evidence, and negotiating the purchase.

If you would like to test a proposed purchase before you commit, book a free call with an experienced commercial buyer agent at Revolve Commercial today.

Disclaimer: This article provides general information only and does not constitute financial, legal, tax or investment advice. SMSF and property rules are complex and can change. Obtain advice from appropriately licensed professionals who understand your fund, members and proposed transaction before acting.