SMSF borrowing: benefits and risks

Weigh the benefits and risks of SMSF borrowing for property: leverage, limited recourse loans, costs, rate risk and liquidity, under current ATO rules.

Is borrowing in an SMSF worth the risk?

Borrowing lets an SMSF buy a property it could not afford outright, magnifying both gains and losses. Loans must be limited recourse, rates are often higher than standard home loans and lenders require larger deposits. For Sydney, NSW and Australian trustees, the key test is whether the fund can keep paying if rent stops or rates rise.

Benefits

Leverage can increase long-term growth exposure, and rental income plus contributions can service the loan.

  • Access to larger assets
  • Concessional tax environment
  • Limited recourse protects other fund assets

Risks

Concentration, illiquidity, higher costs and the inability to easily refinance or restructure.

Related-party loans

Loans from members must be on terms consistent with ATO safe harbour guidance.

Frequently asked questions

Can the SMSF borrow to renovate?

Borrowed funds cannot be used to improve the asset.

What deposit do lenders want?

Often a larger share than standard loans; terms vary by lender.

Is SMSF borrowing being banned?

Check current law; past reviews recommended limits but legislation decides.

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Sources & References