You’re building a property portfolio to create wealth, financial freedom, and a lasting legacy for your family. But as you expand, there’s one common trap you need to avoid: cross-collateralisation.
If your goal is to own a property for every family member—a strategy that ensures long-term financial security—you need to structure your loans carefully. Cross-collateralisation can lock up your equity, limit your borrowing power, and put your entire portfolio at risk.
The good news? With the right approach—and tools like a Self-Managed Super Fund (SMSF)—you can grow your portfolio safely, protect your assets, and set up your family for generations to come.
1. What is Cross-Collateralisation?
Cross-collateralisation (also known as cross-securitisation) occurs when multiple properties are used as security for a single loan. For example:
- You use your existing home and investment property to secure the loan for a third property.
It sounds straightforward, but it can limit your financial freedom as you grow.
Why It’s Risky
- Equity Lock-Up: Your ability to access equity is tied to the lender’s valuation of your entire portfolio.
- Reduced Flexibility: Selling one property may require you to pay down debt on others.
- Refinancing Challenges: Restructuring loans becomes harder when multiple properties are linked.
If you want to scale your portfolio efficiently, it’s essential to structure your loans to keep each property independent.
2. The Solution: Use Separate Loans
The key to avoiding cross-collateralisation is to structure each loan independently. Instead of bundling properties into a single loan, each new property is financed separately.
Why This Works
✅ Protects Your Equity: Equity in one property remains accessible for future opportunities.
✅ Maintains Flexibility: Selling or refinancing one property won’t impact the others.
✅ Simplifies Lending: You maintain control over each property’s debt, repayments, and valuations.
By treating each property as a stand-alone asset, you’re free to scale your portfolio without unnecessary restrictions.
3. Leverage an SMSF to Expand Your Portfolio
A Self-Managed Super Fund (SMSF) is a powerful tool that allows you to invest in property while maximizing tax benefits and creating long-term wealth.
Benefits of Buying Property Through an SMSF
- Tax Advantages:
- Rental income is taxed at 15% during the accumulation phase.
- If you sell the property in retirement, capital gains tax (CGT) can drop to 0%.
- Diversified Growth:
- Investing in property within your SMSF diversifies your retirement portfolio.
- Rental income and employer contributions can fund loan repayments over time.
- Commercial Property Opportunities:
- An SMSF can purchase commercial properties and lease them to your business—provided it’s at market rates.
- This turns your rent payments into equity-building contributions.
Case Study 1: Commercial Property Purchase for a Business
Scenario:
A lawyer was paying $60,000 per year in rent for office space. Instead of continuing to rent, he decided to purchase a commercial property to benefit his business and build his portfolio.
The Challenge:
He didn’t have enough cash for a full deposit without affecting business cash flow.
The Solution:
- A lender allowed us to secure 80% of the property value and used equity in his family home as additional security (without cashing it out).
The Outcome:
- Monthly repayments are $4,200—less than the $5,000 rent he was paying.
- He’s now “paying rent” to himself while building equity in an appreciating asset.
- His business enjoys improved cash flow and a property he owns.
Takeaway: Purchasing commercial property can transform your expenses into wealth-building opportunities.
Case Study 2: SMSF Commercial Property Investment
Scenario:
A husband and wife, both senior lawyers, had $400,000 in their SMSF and wanted to diversify their superannuation through property.
The Solution:
- We secured financing for an industrial property through their SMSF.
- They contributed 20% from their SMSF balance, with rental income and employer contributions covering loan repayments.
The Outcome:
- Low Maintenance: Industrial properties typically require less upkeep than residential ones.
- Lower Outgoings: Commercial tenants often cover council rates, utilities, and insurance.
- Tax Benefits: Their SMSF enjoys concessional tax rates on rental income and future CGT savings.
Takeaway: An SMSF allows you to purchase commercial property, diversify your portfolio, and create tax-efficient wealth for retirement.
4. Steps to Avoid Cross-Collateralisation and Expand Safely
Step 1: Keep Loans Separate
When purchasing a new property, ensure the loan is secured only against that property—not your entire portfolio.
Step 2: Leverage Your Equity
Instead of cross-collateralising, access equity in your existing property to fund the deposit for the next one. This keeps loans independent and maximizes flexibility.
Step 3: Use SMSF Financing
An SMSF can be a game-changer for expanding your portfolio without personal property risks. Use a Limited Recourse Borrowing Arrangement (LRBA) to ensure lenders can only claim the SMSF property in case of default.
Step 4: Work With a Specialist
Mortgage brokers and SMSF experts can help structure loans strategically. As mortgage broker Edwena Dixon from Pinpoint Finance explains:
“Avoiding cross-collateralisation is critical for investors. By keeping loans separate and exploring tools like SMSFs, you can protect your assets and scale your portfolio confidently.”
5. Why Avoiding Cross-Collateralisation Matters
When you structure your loans strategically and use tools like SMSFs:
✅ You protect the equity you’ve worked hard to build.
✅ You maintain control and flexibility to grow your portfolio.
✅ You create a secure, tax-efficient strategy to build long-term wealth.
Property investment is about creating freedom, opportunity, and a lasting legacy. By avoiding cross-collateralisation, you can continue to grow your portfolio safely—on your terms.
Conclusion:
You’ve worked hard to build your property portfolio. Don’t let a poor lending structure hold you back.
By:
✅ Keeping loans separate.
✅ Leveraging equity strategically.
✅ Exploring SMSF property investments.
You’ll expand your portfolio safely and create wealth that stands the test of time.
Ready to take the next step? Let’s talk.