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Buying commercial property through an SMSF with a limited recourse loan
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Overview
If your SMSF needs a loan to buy a warehouse or shop, check the title and the planned building works before anyone signs. Both can affect whether the borrowing arrangement fits the super rules.
Understand who holds the property
You’ve found a warehouse and the agent wants a signed contract by Friday. If your self-managed super fund needs to borrow, slow the paperwork down long enough to get the purchaser and holding structure right. Fixing the name on a contract after exchange can have legal, duty and lending consequences.
An SMSF can borrow to acquire property only under limited exceptions. A limited recourse borrowing arrangement (LRBA) generally lets the fund borrow to buy a single acquirable asset. A separate holding trustee holds legal title, often under what’s called a bare trust. The fund holds the beneficial interest and can acquire legal title after repayment. The lender’s recourse against the fund on default is limited to the asset held under the arrangement.
Give the solicitor the title search and contract before signing. A warehouse and a separately titled car park can raise a single asset question. The answer depends on the property rights and whether the interests can be dealt with separately. One sale contract doesn’t automatically make them one asset.
Budget for the work after settlement
Borrowed funds under an LRBA may be used for permitted repairs or maintenance but can’t be used to improve the asset. Even works funded from other cash need review if they would turn the property into a different asset. Show the proposed scope to your advisers before relying on the bank’s borrowing figure.
Your solicitor can settle the holding trust and contract sequence, and a licensed financial adviser can assess whether the investment suits your retirement plans.
