A limited recourse borrowing arrangement is a strategy used by self-managed superannuation funds (SMSF) to borrow funds from a third party lender and invest in a single asset, such as a residential or commercial property.

The asset or property is held in a separate trust structure, with minimal recourse for the SMSF. Meaning, the creditor’s cannot come after the SMSF for everything it has if something goes wrong. The asset purchased is used as security for the third-party loan.

Limited recourse borrowing arrangements are often used to buy large and valuable single assets, like property; but, they can be costly to start and maintain.

There are a number of rules government limited recourse borrowing, so it’s vital to speak to a qualified and licenced professional (financial adviser, accountant and lawyer) when considering this strategy.