Borrowing is a possibility, but much like other aspects of SMSF property investing, there are rules. Borrowing can only be done under very strict circumstances called a “limited recourse borrowing arrangement”. With this strict borrowing option, there are risks involved.
These risks can include:
• Higher cost – SMSF property loans are usually more expensive.
• Difficult to cancel – If your contract has not been properly set up, you may not be able to unwind this arrangement, which could cause potential losses to your SMSF.
• Property Alterations Are Not Allowed – Until the loan is paid off, no changes can be made to the property if they change the property’s character in any way.
• Possible Tax Losses
• Cash Flow – Payments are to be made from your SMSF which means your fund must always have sufficient liquidity and cash flow to make the payments.