Self-Managed Super Funds (SMSFs) give Australians greater control over their retirement savings. Many people love the idea of using their SMSF to buy property — whether it’s a residential investment or commercial premises for their own business.
Property can be a powerful wealth-building tool. But there’s a common trap: forgetting about ⚡ liquidity — having enough cash or easily sold assets on hand to meet ongoing obligations.
📌 Pension phase and minimum drawdowns
When an SMSF member moves into retirement (pension phase), the rules require the fund to pay a minimum pension each year. The percentage depends on your age — for example, at age 65–74 it’s 5% of your account balance.
👉 Problem: If your SMSF only holds an illiquid asset like property, you may face difficulties.
Example: A $1 million SMSF with a $950,000 property and only $50,000 in cash. Once the cash buffer runs out, how will the fund pay pensions? You can’t sell “a bedroom” to release money.
💰 Other obligations
Liquidity matters not just for pensions. SMSFs also need cash flow to pay:
🧾 Tax bills on rental income and capital gains
🏠 Property expenses like rates, insurance and repairs
📑 Audit and accounting fees each year
⚠️ Without sufficient liquidity, trustees may be forced into:
❌ Selling property at the wrong time or under pressure
❌ Taking out expensive short-term loans
❌ Breaching pension payment requirements (leading to tax penalties)
🛠️ Considerations before buying property in an SMSF
🔄 Diversification – Don’t rely on one large property. Mix in liquid assets like cash, term deposits or shares.
💵 Cash buffer – Keep a buffer beyond rent to cover pensions, vacancies, and surprise costs.
📊 Pension planning – As retirement nears, model how much income the SMSF must pay out and ensure cash + rent will be enough.
🚪 Exit strategy – If you need to sell the property, how quickly can it be done? What if the market is weak?
👥 Member ages – If some members are retired and others still accumulating, liquidity needs can get tricky.
✅ The bottom line
Property can be a valuable part of an SMSF, but it shouldn’t be the only part. Without liquidity, trustees risk failing pension rules or covering expenses — undermining the retirement security the SMSF was designed to provide.
If you’re considering property in your SMSF — or already own one — now is the time to review your fund’s liquidity. A quick check today can save major headaches later. 💡 Reach out to us to make sure your SMSF is retirement-ready.