Generally speaking, Self Managed Superannuation Funds are prohibited from borrowing, however, the introduction of Limited Recourse Borrowing Arrangements has opened up the opportunity for Self Managed Superannuation Funds to gear into assets, most commonly direct property.
As with any gearing strategy, careful consideration must be given to the Self Managed Superannuation Fund members’ overall financial situation, needs and objectives to ensure the strategy is appropriate.
Limited Recourse Borrowing Arrangements are becoming increasingly popular with trustees of Self Managed Superannuation Funds as property is seen as a “safe haven” asset, however the risks and significant limitations must be fully understood before the arrangement is entered into.
Many Self Managed Superannuation Fund trustees to do not appreciate the risks that can be involved if the strategy does not run according to plan.
Limited Recourse Borrowing Arrangements can be effective and their use cannot be discounted, but often the risks involved do not need to be borne to achieve similar outcomes.