A Self-Managed Super Fund (SMSF) Limited Recourse Borrowing Arrangement (LRBA) is a legal structure that allows an SMSF to borrow money for the purpose of acquiring an asset, such as an investment property. Under an LRBA, the SMSF trustee borrows money to purchase a single asset (or a collection of identical assets with the same market value) and holds it in a separate trust. The SMSF has the beneficial interest in the asset and the right to acquire legal ownership after meeting the loan repayments.

Our Chief Executive Officer and SMSF Specialist Advisor^TM Andrew Frith has specialist experience with self managed super fund borrowing.  There are many businesses promoting SMSF borrowing and the buyer must be cautious.  There are a variety of considerations for SMSF trustees who are contemplating using borrowing to buy a property through their superannuation fund.

The rules for borrowing by a self managed super fund are strict and it is important that you speak with a professional self managed super fund borrowing specialist. We recommend that you use an SMSF Association accredited Advisor^TM like ourselves.

Self Managed Super Fund Borrowing Advice you can trust

For more information see:

SMSF Property Investment

Examples of SMSF Borrowing

16 Points for SMSF borrowing arrangements

Can SMSFs Borrow Money for an Investment Property?

Yes, an SMSF can borrow money to invest in real property, but there are stringent regulations and conditions in place:

1. Single Acquirable Asset: The borrowed funds must be used to purchase a single acquirable asset, such as a piece of real estate. This asset is then held in a separate trust until the loan is paid off.
2. Limited Recourse: The loan must be a “limited recourse” loan, meaning that if the SMSF defaults on the loan, the lender’s recourse is limited to the asset itself and cannot extend to other assets of the SMSF.
3. Compliance with Investment Strategy: The investment must be in line with the fund’s investment strategy and meet the sole purpose test of providing retirement benefits to fund members.
4. Loan Terms: The terms of the loan, such as interest rates and repayment conditions, must be consistent with an arm’s length transaction. That means that the loan terms should be the same as what would be obtained in the open market between willing parties.
5. Restrictions: There are restrictions on improving or changing the asset while under an LRBA.
6. Cash Flow: The SMSF needs to demonstrate that it will have the cash flow to meet loan repayments.
7. Other Costs and Fees: Keep in mind that LRBAs can be complex and may involve multiple fees, including legal fees, loan establishment fees, and financial advice fees, among others.
8. Regulatory Risks: Laws around SMSFs and borrowing can change, which may affect your investment.

Given the complexity and the regulatory environment, it is strongly recommended that you seek professional advice when considering an LRBA for your SMSF. Legal, financial, and tax advisors can provide valuable insights into whether this investment approach aligns with your overall financial goals and the requirements set forth by Australian law.

Please feel free to call our team to obtain one of our many fact sheets about property investment within a self managed super fund and the requirements of borrowing within an SMSF.  We have vast experience helping to establish self managed super funds for property investment and administration, accounting and auditing for such funds.  We can also review the allocation of funds to property in your SMSF investment strategy and the taxation issues, property types, and borrowing requirements.

To discuss the advantages and disadvantages of self managed super funds borrowing please feel free to speak with Andrew Frith with regards to your current situation and the borrowing opportunities that are available to you through a Self managed super fund.