Property is lumpy and illiquid

Shares can be sold in small parcels within days. Property cannot. If a fund needs cash, the whole property generally must be sold, which takes time and incurs costs. This illiquidity is manageable when the fund holds plenty of other assets, but becomes a problem when property makes up most of the fund.

The ongoing costs the fund must meet

Property brings its own running costs — council rates, water, insurance, land tax, repairs, maintenance and management fees — and these fall on the fund. On top of that sit the fund's usual expenses: the annual audit, accounting, administration and the ATO supervisory levy of $259 for an established fund. If rent does not comfortably cover all of this, the shortfall must come from elsewhere in the fund or from new contributions.

A vacancy makes this sharper. When a tenant leaves, the costs continue but the income stops.

Borrowing adds another layer

Many SMSFs buy property using a limited recourse borrowing arrangement (LRBA). This is permitted under specific rules, but it adds Loan repayments to the fund's outgoings. If rent falls or a vacancy strikes, the fund must still meet its repayments. Because contributions into super are capped, the ability to add more money to cover a gap is limited, which is a difference from holding an Investment property personally.

Contribution caps limit rescue options

If a property-heavy fund runs short of cash, the members' ability to inject money is limited by the contribution caps. For 2025–26 the concessional cap is $30,000 and the non-concessional cap is $120,000, with a bring-forward arrangement of up to $360,000 available to those eligible. These limits, and eligibility conditions such as the total Superannuation balance test, mean unlimited top-ups cannot be relied on to solve a Liquidity squeeze.

The pension phase intensifies the pressure

When members retire and the fund begins paying a pension, it must make minimum payments each year in cash. A fund whose Wealth is locked in a single property may struggle to meet these payments without selling the asset. Selling under time pressure can mean accepting a lower price, and it may also have tax consequences.

A hypothetical illustration

Consider a hypothetical fund that buys a $700,000 property, partly with an LRBA, leaving only a small cash balance. For a while, rent covers the loan and costs. Then the tenant leaves for three months and an unexpected repair arises. The fund must meet loan repayments, rates and its audit fee with no rental income and little cash. With contributions capped, Options are limited. This scenario is illustrative, but it reflects a common pinch point.

Restrictions on personal use of the property

Residential property owned by the fund generally cannot be lived in or rented by members or their relatives, and the fund cannot acquire residential property from a related party. These rules flow from the sole purpose test and the restrictions on related-party dealings. The main exception is Business real property, which the fund may acquire from a related party at Market Value and Lease to a member's business, provided the lease is on genuine commercial, arm's-length terms.

This limits the ways trustees might otherwise ease a cash-flow squeeze, such as moving a relative in to guarantee rent or using the property personally to reduce costs.

Selling is rarely quick or costless

Marketing, settlement and any loan discharge take time, and selling costs reduce the proceeds. There can also be adverse tax consequences when a sale occurs under pressure.