Updated on 30 June 2026
Recently we’ve received enquiries from clients interested in setting up an SMSF for the purpose of purchasing a property within the fund. SMSF borrowings have proven to be a popular wealth accumulation strategy since their introduction in 2008, with many SMSFs acquiring both commercial and residential properties as part of their investment approach.
However, following recent legislative changes, new Limited Recourse Borrowing Arrangements (LRBAs) can no longer be used to purchase residential property through an SMSF. Borrowing under an LRBA is now only available for eligible commercial property investments, subject to the relevant legislative requirements.
If you’ve ever wondered, “What exactly is an LRBA, and is this the right SMSF borrowing strategy for me? – you’re in the right place. In this blog, we’ll break down the key points, benefits, and considerations to help you decide if this approach aligns with your financial goals.
Considerations in SMSF Borrowing for Property
Whilst the strategy is worthy of consideration, it is important to observe it often requires significant borrowings to complete the property purchase under what is known as an LRBA. In recent years, the major banks have stepped away from lending in this space, having been replaced by smaller specialist lenders.
Although property acquisition might be an appropriate strategy for an investor, it is important to exercise a degree of caution given the initial cost of establishing an LRBA is significant. Furthermore, the Superannuation Industry Supervision Regulations require fund trustees to formulate an investment strategy for the fund that is sufficiently diversified to meet the future retirement objectives of all fund members.
With all these factors in mind, it’s always smart to speak with an expert to receive the right guidance for your SMSF borrowing strategy.
Who Benefits Most from Limited Recourse Borrowing Arrangement?
This strategy often best suited for investors who already have an existing SMSF, or if not, has significant balances in other superannuation funds, or personal assets that can be contributed into an SMSF. This enables greater diversification of fund assets and can reduce the level of borrowings required to fund the property purchase.
To illustrate how this strategy can work in practise, consider an SMSF with an existing balance of $600,000 invested across a diversified portfolio of Australian and International shares, fixed interest and cash wishing to purchase a commercial property for $800,000. With a 65% bank lending ratio, the amount to be financed is $520,000 with the residual purchase price of $280,000 plus other stamp duty/legal costs of at least $50,000 funded via selling down existing SMSF assets. Importantly, the fund retains a degree of asset diversification by continuing to hold $270,000 in shares and fixed interest assets and minimal cash.
With an average commercial gross property yield of 6%, property agent management fees of 7%, interest only loan repayments of 7.5%, rates, maintenance and insurance estimates of 1% per annum of the property purchase price, annual CPI increases of 3%, and annual property depreciation (non-cash) of 2.5% on 40% of the property’s purchase price:-
Over the 5 year estimates the SMSF will incur cash flow operating losses (post tax) for first 4 years on the property acquisition. Therefore, fund members must ensure adequate superannuation contributions are being made to meet the level of cash outflow in preference to simply using other fund income and assets to absorb the losses. Tax losses are available for 4 years which act as an offset against concessional contributions and other assessable income earnings.
This of course is only part of the story as no potential future capital gain on the property has been considered and over time one should reasonably expect growth in the property value to compensate for the cash flow losses. However, one must also be aware that property is not immune to falling in value either.
Pros and Cons of Limited Recourse Borrowing
The Benefits of limited recourse borrowing include asset diversification, the ability for an investor to acquire commercial property that may otherwise be out of reach. This strategy also offers potential taxation benefits that are available to offset against other assessable income within the SMSF.
However, there are several considerations to keep in mind. Following recent legislative changes, new LRBAs can no longer be used to acquire residential property, meaning trustees are now limited to eligible commercial property investments.
Beyond the usual costs associated with purchase of direct property such as stamp duty, LRBA’s do come with other additional costs including legal, establishment and finance costs. Furthermore, it is commonplace for lenders to seek personal guarantees from fund members, given in the event of a loan default, the lender has no recourse to any other SMSF assets beyond the financed property.
A final point to remember also is that excepting for business real property, SMSF regulations preclude the lease/rental of the property to a related party of the trustee or fund members.
How Yield Advisors Can Help You?
At Yield, our accredited SMSF specialists are here to guide you in determining whether limited recourse borrowing is the best strategy for your unique needs. With years of experience working with SMSFs and individuals like you, our team understands the complexities involved in SMSF borrowing for property. Our Advisors will help you weigh the benefits, address potential challenges, and ensure your investment strategy aligns with your long-term financial goals.
If you’d like to discuss more and explore how Yield Advisors can support your SMSF journey, contact us today to schedule a no-obligation call with one of our SMSF specialists.
