SMSF investment options beyond residential property

If your SMSF strategy has relied on borrowing to buy residential real estate, the rules have changed. Since 10 August 2026, new SMSF limited recourse borrowing arrangements (LRBAs) used to acquire real property are generally restricted to eligible business real property.

Transitional provisions may protect certain arrangements entered into before the commencement date. Eligible existing residential LRBAs may also be refinanced if the new arrangement satisfies the applicable conditions. An SMSF may still acquire residential property without borrowing, subject to the usual superannuation and investment rules.

So what does this mean for your retirement strategy?

It simply means looking at the broader range of SMSF investment options. Residential property was never the only driver of superannuation growth. Options like commercial property, managed funds, private credit and residential mortgage-backed securities (RMBS) can deliver solid yields without the hassle of managing residential tenants.

In this blog post, we will walk through these SMSF investment options, unpack the difference between owning property directly and gaining exposure to it indirectly, and cover what to check before you change your fund's investment strategy.

Why are SMSF trustees looking beyond residential property?

New SMSF borrowing rules took effect on 10 August 2026. From this date, SMSFs can only establish a new limited recourse borrowing arrangement to purchase eligible business real property, such as commercial premises used wholly and exclusively in a business. Existing residential LRBAs remain unaffected and may still be refinanced.

Property remains an important SMSF asset. According to APRA's June 2026 statistics, total SMSF assets reached $1.11 trillion, up 3.6% from June 2025.

ATO figures from December 2025 show that SMSFs held approximately $116.7 billion in commercial property, compared with $60.9 billion in residential property. Listed shares remained the largest asset class, accounting for nearly 27% of total SMSF assets.

For trustees who still want geared property exposure inside their fund, commercial property has become the more accessible route. For those who prefer not to borrow at all, or who want easier liquidity, several other asset classes deserve consideration.

SMSF investment options to explore in 2026

With residential borrowing off the table for new arrangements, it's worth asking: where else can your fund put its capital to work? Here are some SMSF investment options that go well beyond the family home, each with its own yield profile, risk level, and liquidity benefits:

Now let's explore each of these SMSF investment options in detail.

Commercial property investment through an SMSF

Eligible business real property may be acquired through a complying LRBA. However, a property is not automatically business real property merely because it is marketed, constructed or zoned as commercial. It must satisfy the statutory business-use requirements, subject to any limited exceptions. An office, warehouse, industrial property, retail premises or other real property may qualify depending on how it is used and the fund's circumstances.

Key benefits:

• Long-term net leases: Commercial leases are often longer than residential leases, although the term depends on the property, tenant and market.
• Business owner leaseback: An SMSF can buy commercial premises and lease them to a fund member's own operating business. This is allowed under superannuation law, but only if the lease is set at genuine market rent, reviewed regularly, and documented on the same commercial terms the fund would offer an unrelated tenant. There's no discount or informal arrangement just because the tenant is connected to the fund.

Important risks and considerations:

• Higher vacancy risk: Commercial tenant pools are smaller than residential ones, so a vacant property can take six months or more to re-let, especially for niche spaces like warehouses or medical suites. During that time, the fund still covers rates, insurance and loan repayments with no rental income offsetting them.
• Cash flow commitments: If a loan is involved, the fund must hold sufficient cash flow to cover debt repayments and ongoing obligations.
• Low liquidity: Capital is locked away for years and cannot be partially or quickly redeemed.
• Related-party lease risk: Non-commercial terms may lead to compliance problems and non-arm's-length income consequences. Income caught by the non-arm's-length income rules may be taxed at the highest marginal rate. Trustees should obtain specialist tax and legal advice before entering a related-party transaction.

An LRBA normally requires a separate holding trust and carefully prepared legal documentation. At ZedPlus, we can assist with the finance process, lender requirements and borrowing assessment, while the trust and transaction documents should be prepared or reviewed by appropriately qualified legal and tax professionals.

Managed property funds and listed investment vehicles

For trustees who want property-related returns without owning a single physical building, managed property funds and listed investment vehicles offer a practical indirect route.

Unlisted managed property funds

Unlisted property trusts pool investor capital to purchase portfolios of commercial, industrial, or retail real estate.

Benefits:

• Lower entry threshold: Gain exposure to major commercial assets for a fraction of the cost of buying a whole property outright.
• Property diversification: Spreads your investment across multiple buildings and tenants, rather than relying on a single tenant for all your income.
• Professional management: Experienced managers handle leasing, maintenance and tenant negotiations on your behalf.
• Income stability: Returns are tied to actual rent collected across the portfolio, which can reduce some of the volatility seen in listed markets.

Risks & drawbacks:

• Low liquidity: Capital is locked away. Many unlisted funds only allow withdrawals at set intervals or can freeze redemptions during market downturns.
• Management fees: Ongoing management and performance fees reduce overall net returns.
• Less valuation transparency: Asset values are based on periodic appraisals rather than real-time market prices.

ASX-listed vehicles (A-REITs, LICs & LITs)

Listed property securities trade directly on the Australian Securities Exchange (ASX).

Benefits:

• Generally higher liquidity: Listed securities can normally be bought or sold during ASX trading hours, although market liquidity and pricing are not guaranteed.
• Real-time pricing: Complete price transparency updated live throughout the trading day.
• Broad diversification: A diversified A-REIT, property ETF or managed fund may provide exposure to multiple properties, tenants or property sectors. Diversification depends on the individual vehicle.

Risks & drawbacks:

• Share market volatility: Prices fluctuate with broader stock market sentiment, meaning share prices can fall even if the physical property value stays steady.
• Interest rate sensitivity: Listed property trust valuations are sensitive to rising interest rates, which can drive share prices down.
• Loss of direct control: Trustees have no vote or say over individual property acquisitions or management decisions.

Fixed income, bonds, private credit and RMBS

Not every SMSF investor wants property exposure at all. Fixed income, bonds, private credit and RMBS offer a different route, one built around regular income rather than capital growth, though each comes with its own risk and liquidity profile. Let's take a closer look at each.

Fixed income options: Government and corporate bonds

Government and corporate bonds allow an SMSF to lend money to an issuer in return for interest payments.

Bonds generally provide repayment of principal at maturity, subject to the issuer meeting its obligations and the terms of the security. Australian Government bonds are generally considered to carry lower credit risk than corporate bonds, but their market value can still fluctuate.

Bond prices generally move inversely to interest rates. A trustee selling before maturity may receive more or less than the purchase price. Corporate bonds may offer higher yields to compensate for greater credit, default and liquidity risk.

Private credit: High yields and regulatory oversight

Australia's broadly defined private credit market at approximately $200 billion in 2024. However, ASIC also noted that definitive market data was difficult to obtain and estimates vary depending on what is included.

ASIC's Report 820, published on 5 November 2025, outlined findings from its surveillance of 28 private credit funds, comprising 20 retail funds and eight wholesale funds. ASIC identified concerns including inconsistent reporting, unclear terminology, opaque fee and interest-margin structures, valuation practices and marketing claims that may understate investment risk.

In June 2026, ASIC also reminded private credit fund managers to ensure asset valuations reflected current economic and market conditions. This should not be described as a specific finding of tightening liquidity or emerging borrower stress unless a direct ASIC source supporting those claims is provided.

Trustees considering private credit should review the fund's disclosure documents, underlying borrowers, security position, valuation approach, fees, withdrawal restrictions and default risks. Higher advertised returns generally involve greater credit, liquidity or capital risk.

Residential mortgage-backed securities (RMBS)

RMBS provide exposure to pools of residential mortgages. Investors receive distributions funded by repayments on the underlying loans.

RMBS can spread exposure across many loans, but that does not remove risk. Performance depends on borrower defaults, arrears, prepayments, housing conditions, transaction costs and the investor's position in the capital structure. Some RMBS may not be readily accessible or suitable for retail SMSF investors except through a managed fund or listed vehicle.

Steps to take before adjusting your SMSF portfolio

Before allocating capital to new asset classes or adjusting your SMSF portfolio, trustees must complete a thorough compliance and operational review. Following these steps helps ensure any portfolio adjustments remain fully aligned with ATO regulations and legal obligations.

Review and update the written investment strategy

Every SMSF must maintain and regularly review a written investment strategy. It should address investment risk and return, diversification, liquidity, liabilities and the fund's ability to pay member benefits. Trustees must also consider whether insurance should be held for one or more members and document that consideration. A strategy should reflect the fund's actual circumstances rather than simply list every permitted investment.

Confirm compliance with the sole purpose test

Under section 62 of the Superannuation Industry (Supervision) Act, all fund investments must serve a single goal. Investments must be made strictly to provide retirement benefits to members or death benefits to their dependents. Ensure that no proposed investment provides a direct or indirect present-day personal benefit to fund members or related parties.

Assess fund liquidity and cash flow demands

Trustees must ensure the fund maintains sufficient cash flow to meet short-term and ongoing financial liabilities, including annual tax obligations, administrative expenses, and upcoming pension payouts. Stress test your cash reserves to confirm that adding illiquid or restricted assets will not force a premature sale during market downturns.

Evaluate total fee structures and net returns

Different asset vehicles feature varying cost structures that directly impact long-term compounding returns. Managed funds, unlisted property trusts, and private credit products carry underlying fee structures that reduce net yields. Compare gross yields against net returns after accounting for entry fees, ongoing management costs, performance fees, and exit terms.

Check related-party and borrowing rules

An SMSF generally cannot acquire an asset from a related party unless a specific statutory exception applies, such as qualifying business real property acquired at market value. Arm's-length pricing alone does not make every related-party acquisition permissible. Related-party leases, investments and loans may also be affected by the in-house asset, arm's-length, sole-purpose and non-arm's-length income rules.

Seek professional and specialist guidance

Navigating complex asset classes and changing regulatory rules requires expert input, as missteps in fund structuring or compliance can result in financial penalties or tax non-compliance status from the ATO. Consult a licensed financial adviser to evaluate asset suitability, and work with an experienced SMSF finance broker to structure any commercial property or lending components correctly.

How does ZedPlus help with your SMSF investment strategy?

Shifting your SMSF strategy beyond residential property involves more than picking a new asset class; it requires getting the finance and structuring right from the start. This is where Zedplus comes in.

Our team specialises in SMSF finance, helping trustees:

• Structure commercial property loans, including setting up compliant holding trusts and meeting specialised lender criteria for eligible business real property purchases.
• Navigate the new LRBA rules, so you understand exactly what borrowing options remain available to your fund after 10 August 2026, including refinancing existing residential loans.
• Assess borrowing capacity and cash flow, ensuring your fund can comfortably service any loan alongside its other obligations.
• Connect you with the right lenders, matching your fund's circumstances with lenders experienced in SMSF commercial lending.
• Coordinate with your financial adviser and experienced accountant, so any changes to your investment strategy are properly aligned across the finance, compliance and advice side of your fund.

Whether you are exploring a commercial property purchase, refinancing an existing residential LRBA, or simply want clarity on how the new borrowing rules affect your fund, our lending team at Zedplus can help. Book a call with our team today.

Final thoughts on SMSF investment options

The August 2026 borrowing changes do not prevent an SMSF from holding residential property purchased without borrowing. They do, however, restrict the use of new LRBAs for residential property.

Eligible business real property may remain available under a complying LRBA. Managed funds, listed property vehicles, bonds, private credit and RMBS may also provide different forms of exposure, but none is automatically suitable or low risk.

The appropriate mix depends on the fund's objectives, members, time horizon, risk tolerance, liquidity requirements and benefit obligations. A licensed financial adviser should assess investment suitability, while legal and tax specialists should confirm the compliance and structuring position.

For assistance with the finance component of an eligible SMSF property transaction, Get in touch with our lending team today.