Using Super to Invest in Property – How SMSF Borrowing Works

If you’re considering using your self-managed super fund (SMSF) to buy property, you’ll need the right structure in place. One of the main ways to do this is through a Limited Recourse Borrowing Arrangement (LRBA).

What You Need to Know

An LRBA can be a powerful tool for building retirement wealth, but it also comes with strict rules and risks that need to be carefully managed.

What Is an LRBA?

A Limited Recourse Borrowing Arrangement (LRBA) is a specialised loan available to SMSFs. It allows your fund to borrow money to purchase an investment asset, most commonly property.

The key feature is that the lender’s rights are restricted to the asset purchased with the loan. This means if the SMSF defaults, the lender can only repossess the property acquired under the LRBA – not the fund’s other assets.

⚠️ However, in practice, most lenders require a personal guarantee from trustees or members. This means your personal assets could still be at risk if the SMSF fails to meet repayments.

How Does It Work?

Here’s the general process:

1. The SMSF borrows money and uses it to buy the property.
2. The property is held in a special holding trust until the loan is fully repaid.
3. During this time, the SMSF receives all income (such as rent) from the property.
4. Once the loan is repaid, the property is transferred from the holding trust into the SMSF.

Practical Considerations

Benefits of SMSF Borrowing

Using an LRBA to invest in property can offer several advantages:

• Leverage – Your SMSF can purchase property that might otherwise be unaffordable.
• Tax concessions – Income earned in an SMSF is taxed at just 15%, and capital gains are effectively taxed at 10% if the property is held for more than 12 months.
• Retirement phase benefits – If the SMSF is paying a pension, capital gains may be tax-free.
• Contribution flexibility – Members can keep making personal contributions (including deductible contributions) to help repay the loan while still growing retirement savings.

Risks and Downsides

While attractive, SMSF borrowing is not without its challenges:

• Personal guarantees – Even though the lender’s recourse is limited, personal guarantees may expose your private assets.
• Complexity and cost – LRBAs are more complicated and expensive to establish than traditional property loans, requiring professional legal and financial advice.
• Liquidity issues – If the property makes up a large portion of the SMSF’s portfolio, it may cause cash flow problems, especially when the fund needs to pay pensions.
• Property restrictions – SMSFs under an LRBA generally cannot build on vacant land, redevelop, or subdivide while the loan is in place.
• Market risk – Just like any geared investment, borrowing magnifies outcomes. Property value increases can boost returns, but declines can also magnify losses.

Key Takeaway

Borrowing through your SMSF to invest in property can be a smart way to grow retirement savings – but only if structured correctly. The benefits of leverage and tax concessions must be weighed against the risks of personal liability, compliance rules, and reduced liquidity.

If you’re considering an LRBA for property investment, professional advice is essential to ensure you meet all regulations and protect both your SMSF and personal wealth.

Tommy Li, CA

Director, Verity Advisory  |  Registered Tax Agent  |  Authorised Financial Adviser (ASIC Rep No. 1261831)  |  Member, Chartered Accountants Australia & New Zealand

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Tommy is a Chartered Accountant with 20+ years advising medical professionals on tax, financial structure and practice decisions. He founded Verity Advisory to provide integrated advice for doctors at career-defining financial inflection points — combining tax, lending and financial planning into a single structured approach.