Given the proliferation of these ads, and recent comments from the regulator in  ASIC, it won’t be too long before we see attempts to further regulate this growing section of the superannuation sector.  I too have misgivings about this strategy.

While for some using a Limited Recourse Borrowing Arrangement with their SMSF might make good sense, it is not a strategy that is appropriate for everyone.  There are significant risks, costs, and you must comply with specific structuring rules or risk losing half your superannuation in penalty tax. For trustees who completely fail their duty there is also the risk of jail terms.  Have I got your attention yet?

Before leaping off and establishing a SMSF, you need to consider some basic questions:

1. Do I have the expertise, or access to professional expertise, to run the fund properly?
2. Do I have sufficient accumulated benefits to make the annual running costs of the fund (annual accounts & tax return, annual audit, and professional advice fees) worth bearing?
3. What am I trying to achieve with my SMSF that cannot be achieved using a public offer fund?

I suggest getting some professional advice from a qualified financial planner (preferably a Certified Financial Planner), a SPAA accredited Specialist Adviser or from a Chartered or Certified Practicing Accountant before going any further.  Adviser websites such at www.fpa.asn.au or www.spaa.asn.au can assist further.

Before you set your mind on establishing the borrowing structure to buy an investment property with your SMSF, you also need to consider some additional issues:

1. Can the SMSF repay the loan, and over what period of time?
2. Have you put in place appropriate arrangements to look after your dependents should you die or become totally disabled?  Who and how will the loan be repaid then?
3. Does it make financial sense for you to buy this asset with your superannuation, or should you consider a different investment strategy?
4. Have you got your structure right & will the purchase transaction be conducted correctly?

SMSFs and Limited Recourse Borrowing Arrangements using those funds involve complex structures, and I suggest obtaining specialist advice before taking any such action with your valuable retirement savings.