What is a Limited Recourse Borrowing Arrangement?
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 usually held in a separate trust structure, with minimal recourse for the SMSF. Meaning, the creditors might not be able to 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 governing limited recourse borrowing, so it’s vital to speak to a qualified and licenced professional (financial adviser, accountant and/or lawyer) when considering this strategy.
How Does Warren Buffett Identify Stocks To Buy?
Download our free ASX and global investing guide, "How Warren Buffett Pick Stocks" when you join Rask Group's free Investor Club! Rask's Investor Club is designed to help you become a better investor by providing unique up-to-date insights on what's going on in the investing world.
Join Owen and Rask team today. Click here to join our club & download the ebook!