Investing in Unit Blocks with Your SMSF: Is It Worth It?

Investing in property through a Self-Managed Super Fund (SMSF) is a growing trend among Australians looking to bolster their retirement savings. 

Over $24 billion is invested in residential real estate through SMSFs each year. 

At Yura Capital, we believe that Unit blocks offer one of the best risk-adjusted investment vehicles for Australian investors. 

They're about 20,000 of them across Australia, they rarely go down in value and have consistently doubled every 10 years since as far back as the records go.

But while Unit Blocks offer an exciting investment opportunity, they come with their own set of challenges including higher price tags and more complexity.

Let’s walk through the key points you need to consider when weighing whether this strategy is right for you.

Why Unit Blocks?

Unit Blocks can be a lucrative investment, offering potential for both rental income and capital growth. 

SMSFs can provide access to larger deposits, particularly for individuals in their 40s or 50s who have built up substantial superannuation balances over time. 

This gives them the leverage to make significant investments that might otherwise be out of reach through personal savings alone.

The Growing SMSF Trend

Data from the Australian Tax Office (ATO) shows a clear trend: more Australians are using their SMSFs to invest in residential property. 

In fact, residential real estate investments through SMSFs grew by 67% between 2011 and 2016, climbing from $14.6 billion to $24.4 billion. 

This surge reflects the appeal of property as a stable, long-term investment vehicle.

The demand for Unit Blocks is rising, and SMSF investors are well-positioned to take advantage of this trend, especially as they seek income-generating assets that align with long-term retirement goals.

Financing an Apartment Block Purchase

Financing an apartment block purchase through your SMSF can be more complex than buying a single residential home. 

Lenders often apply stricter criteria, and you may face higher interest rates and more conservative lending assessments. 

Here are a few things to keep in mind:

• Loan Limits: Banks may only offer residential loans for Unit Blocks with up to six units, and they must be on a single title.
• Rental Income: Lenders may only take a percentage of the actual rental income into account when determining loan serviceability, which can limit the amount you can borrow.
• Commercial Loans: Larger Unit Blocks (those with more than six units) are often treated as commercial properties, meaning shorter loan terms and higher rates.
• LVR Caps: Most banks apply an 80% Loan-to-Value Ratio (LVR) limit, so you’ll need a significant deposit to move forward.

Choosing Between City and Regional Unit Blocks

Investing in a city apartment block often comes with higher purchase prices but may offer greater capital growth potential. 

The choice between the two depends on your investment goals.

• City Blocks: If your primary focus is capital appreciation, city blocks are likely a better option, although they often require a larger upfront investment and come with more competition.
• Regional Blocks: If steady rental income is your goal, regional Unit Blocks might be a better fit. With lower vacancy rates and stronger rental yields, they can provide reliable cash flow for SMSF investors focused on paying off loans and creating a debt-free retirement.

As with all financial decisions, it's important to do your own research. 

Finding areas with population growth, low vacancy rates, and strong local economies to ensure consistent rental demand is your best bet.

Is It Worth It?

Investing in Unit Blocks through your SMSF can be a smart move for those with the right financial foundation and long-term strategy. 

The potential for high rental yields and capital growth is appealing, but it’s essential to go in with your eyes wide open.

Before making any decisions, consult with your accountant to fully understand the legal and financial responsibilities involved, including setup costs and ongoing audit requirements. 

You’ll also want to work with a mortgage broker who specialises in SMSF lending to ensure you secure the best financing options for your specific needs.

If you’re looking to learn more about Unit Blocks, we wrote a detailed ebook that covers the Australian Unit Block Market including the:

• 3 unit block title types and mistakes that cost the author millions
• 3 reasons developers sell on one title and what drives new development
• 5 structural trends keep Australian residential real estate going up
• 3 key considerations you need to know when investing blocks

You can download the report on our resources page here.