Residential with cash, and the other ways in

The ban killed the loan, not the asset. Here is what residential still does inside super, and the structures that let smaller funds and families play.

Part three handed commercial property the keys for a simple reason: it is now the only game with borrowed money. But plenty of funds do not need borrowed money, and for them the menu is wider. This chapter covers everything on it that is not a straight commercial purchase: residential bought outright, the co-ownership structures that pool family resources, and the indirect routes for funds that should not be buying whole buildings at all.

Residential with cash: the case for and against

Start with what did not change. A fund with the money can buy a house or unit outright, rent it to arm’s length tenants, and hold it for decades. Sole purpose test, related party rules and arm’s length pricing all apply; the loan is the only thing missing.

Whether it is a good idea is a different question, and inside super the question has a sharper edge than outside, because the crutch is gone. Outside super, pre 2026, a low yielding house could lean on negative gearing against your salary. Inside super there is no salary, losses are only worth 15 cents in the dollar against other fund income, and from the fund’s point of view a property that loses money is just a property that loses money. Residential inside super has to stand up as what it actually is: an asset paying 3 to 4.5 per cent gross, maybe 2.5 to 3 net, with excellent liquidity of tenants and a long record of capital growth.

That profile earns its place in specific situations. A larger fund diversifying beyond one commercial asset, where residential’s short vacancies balance commercial’s long ones. A retiree fund that prizes the near certainty of the rent over its size. A trustee with genuine, provable local knowledge in a growth market, applying the selection craft honestly. If you want that craft in depth, my first book covers residential selection at length; the analysis of suburbs, supply and demand transfers completely, even though its financing and tax chapters describe a world outside super that largely ended on 1 July 2027.

Where cash residential fails is the smaller fund going all in: a $450,000 fund with a $430,000 house is one tenant, one suburb, one asset class, and $20,000 of oxygen. That fund has bought concentration and called it property. The red flags in chapter 3 exist for exactly this purchase.

And the family reminders one more time, because this is where they bite: the fund cannot buy the residential property from you, your parents or your business partner at any price, and cannot rent it to your daughter at any rent. Residential inside super is strangers only, both directions.

Pooling with family: the ungeared unit trust

Now the structures question. What if the fund alone cannot reach the asset, but the family together can?

The cleanest legal answer is a structure the rules specifically bless: the ungeared unit trust, named for the regulation that governs it. The fund and related parties, you personally, your spouse, a family trust, each buy units in a trust, and the trust buys the property. The fund’s slice of a $900,000 asset might be $400,000 of units, with family money holding the rest, and rent and growth flow to unitholders in proportion.

The blessing comes with strict, permanent conditions on the trust: it must never borrow, never allow a charge over its assets, never lease to a related party unless the property is business real property, never invest in other entities, and never run a business. Inside those lines, the fund can even buy additional units from the family over time at market value, gradually taking over the asset as contributions build.

The discipline required is absolute, and here is the sentence your accountant will say with feeling: one breach taints the investment permanently. Let the trust borrow $20,000 for a renovation, once, and the fund’s units become in-house assets forever, which at these percentages means a forced unwind. Funds run these structures successfully for decades. They do it by treating the conditions like electrical wiring: not touched casually, not improvised, checked by someone qualified when anything changes.

Pooling with family: tenants in common

The simpler cousin: the fund and you personally buy the property together as tenants in common, each on the title for a defined share. Fund owns 60 per cent, you own 40, rent and costs split to match.

The attraction is simplicity: no trust, no units, just co-ownership and a written agreement covering decisions, costs and exits. The constraint is debt, and it is close to total: the fund’s share cannot secure anyone’s borrowing, and since a mortgage practically always charges the whole title, tenants in common with a fund means, in practice, no mortgage on the property at all. Both shares come in cash. That makes it a structure for families with equity rather than families with borrowing capacity, and for keeping things simple when the ungeared trust feels like overkill.

Either pooling structure also needs the exit conversation up front, in writing: what happens when one owner needs their money out, dies, or divorces. Co-ownership without an exit plan is a family dispute on layby.

Too small to buy direct: the honest options

Now the paragraph a certain kind of book never includes. If your fund is under roughly $250,000 and property exposure is the goal, buying a whole building is probably the wrong tool, and no structure on this page fixes that. What fixes it is not buying a whole building.

Listed property trusts, the A-REITs: , give you slices of industrial estates, shopping centres and office towers for the price of a share trade: instant diversification, daily liquidity, professional management, and market volatility as the entry fee, since listed property trades with the sharemarket’s moods and usually carries gearing inside the vehicle.

Unlisted property funds: sit between direct and listed: pooled ownership of commercial assets, distribution yields often in the commercial range, valuations that move slowly, and the trade-off in liquidity, with withdrawal windows measured in months or years and manager quality doing a lot of load bearing. Read the gearing, the fees and the redemption terms before the yield.

Neither is a consolation prize. A $180,000 fund holding REITs while contributions build toward a direct deposit is executing a strategy. The same fund with 95 per cent of itself in one flat is executing a hope. And even big funds use these vehicles deliberately, as the liquid property sleeve that chapter 14 will make you glad you have.

The menu, one last time

Business owner needing premises: chapter 8, nothing else close. Fund of $300,000 plus wanting direct property with leverage: borrowed commercial, chapters 6 to 10. Larger fund, no debt needed: cash commercial or cash residential on merit, judged as income investments. Family with combined resources and shared discipline: ungeared unit trust or tenants in common. Fund under about $250,000: listed or unlisted trusts while you build, and pride intact, because the maths is the maths.

Appendix F lays the whole menu out as a matrix. Somewhere on it is the row that matches the fund you actually have. Buy that row.

Find your sweet spot, or have the guts to walk away.