How Property Investors Are Using Trusts to Unlock ‘Unlimited’ Borrowing Power
Lately, I’ve seen a lot of questions about how trusts work in lending, and how they can help you keep buying multiple properties without running into borrowing limits. Let me explain the strategy and why it’s gaining popularity among savvy investors.
The Problem Most Investors Face: Serviceability
The biggest hurdle to growing a property portfolio isn’t the deposit—it’s your borrowing capacity.
Each time you buy a property, the bank reassesses your financial position. They apply a buffer of around 3% above the actual interest rate, meaning your loan is assessed at rates of ~9–10% (in the current market). As a result, your "assessed" repayments are much higher than what you're actually paying.
This hurts your serviceability.
Here’s a simplified example:
Before buying any property: borrowing capacity = $1.5M
After one property: borrowing capacity = $800K
After two properties: borrowing capacity = $200K
Game over. You’re tapped out.
The Trust Strategy: A Workaround for Serviceability Limits
Now here’s where trusts come in.
When you buy a property using a trust (with a corporate trustee), the loan sits under the trust, not in your personal name. So, it doesn’t show up on your personal credit file as a direct liability.
Instead, the bank sees you as a “Director” of XYZ Pty Ltd, the trustee company that owns the property. Since they don’t automatically see the debts tied to the trust, some lenders are willing to exclude those commitments from your personal borrowing capacity calculation, provided you supply an accountant’s letter or self declaration confirming the trust can service its own loans. To ensure this strategy works, it is essential that the rental income covers your mortgage repayment to make the property “neutrally geared” or “positively geared”.
Same scenario with trusts:
Before buying: borrowing capacity = $1.5M
After one trust purchase: borrowing capacity = $1.5M
After two trust purchases: borrowing capacity = $1.5M
Still in the game.
Pros & Cons of Buying in a Trust
Pros:
Allows you to retain personal borrowing capacity (if set up and used correctly)
Common trust types: Discretionary (Family) or Unit Trust with a corporate trustee
Possible CGT savings* - Trusts are eligible for the 50% Capital Gains Tax (CGT) discount (unlike companies)
Trust losses (from negative gearing) can be carried forward indefinitely*
Some states offer separate land tax thresholds for trusts (but others offer none, check your local rules)
Still access similar loan products, interest rates, LVRs, and LMI as buying in personal name
*Please discuss with your accountant!
Cons:
Losses in a trust can’t offset your personal income (no personal negative gearing benefit)
If a property in the trust is negatively geared, you need to fund the shortfall, which can be risky if your portfolio grows too fast
Some additional setup costs & Annual tax return costs
Setup: ~$1,200 to $2,500
Ongoing: ~$800–$900 p.a.
Small lender pool, not all banks will allow trust loans to be excluded
Must be used strategically from the start, not after you’ve maxed out your capacity
Transferring a property from personal name to a trust later = stamp duty + CGT on market value
Slower settlement as lenders will require paper documents & potentially request you to get independent legal (approx. ~$500–$800+ GST) & financial advice.
High-reward, higher-risk…
This is a high-reward, higher-risk strategy that should only be explored with the right professional advice. It is ESSENTIAL that you have a good accountant who is onboard with this strategy as they play an integral role when it comes to set up & on going assistance. Please also ensure you are engaging an experienced broker who has worked with these structures before as there are intricacies to the lending.
It’s not financial advice, always speak to your accountant and advisor before setting up a trust or making changes to your structure.
But for the right investor, trusts can be a powerful tool to continue building your portfolio when others hit a wall.
If you are interested in learning more or seeing if this is the right strategy for you, book a call with one of our brokers today via the contact us page.
