For many property investors, borrowing capacity becomes a limiting factor after acquiring a few properties. Unless you earn a very high income, most lenders will cap how much you can borrow based on your serviceability — your ability to repay loans from your personal income. This can slow down or even halt your property investment journey.

However, there are advanced strategies that experienced investors use to expand their borrowing capacity. One such strategy involves purchasing properties through a trust or company structure. When structured correctly, this can potentially allow you to borrow more for additional property acquisitions.

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The Strategy: Trusts & Companies to “Ring-Fence” Debt

✅ Trusts

• A trust is not a separate legal entity. It is a legal relationship where a trustee (an individual or a company) holds assets on behalf of the beneficiaries.
• The trustee is the legal owner of the property but holds it for the benefit of the trust’s beneficiaries.

✅ Companies

• A company is a separate legal entity that can own assets, take on debt, and enter into contracts in its own name.

🔑 The Borrowing Capacity Advantage

When a property is purchased through a trust or company, and it is self-sustaining (its rental income covers all expenses, including the loan), an accountant can issue a verification letter to confirm this.

Some lenders may then exclude the debt of that trust or company from your personal borrowing assessment, provided the property does not require your personal financial support.

In effect:

If the property in the trust or company pays its own way, lenders might “ignore” its debt when assessing your personal borrowing capacity.

This can allow you to keep borrowing for additional investments, sidestepping the serviceability limits you’d face if all debt sat in your personal name.

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Key Considerations & Risks

1. Property Selection — Yield vs Growth

• To ensure the property is self-sustaining, investors often look for high-yielding properties.
• However, these properties may not provide strong capital growth, so balancing cash flow and long-term appreciation is crucial.

2. Interest Rate & Rental Market Risks

• Rising interest rates or softening rental markets can reduce cash flow, jeopardizing the self-sustaining status of the property.
• This could impact future borrowing capacity and overall portfolio health.

3. Land Tax Implications

• Properties held in trusts or companies are generally subject to different land tax rules compared to individual ownership.
• Trusts do often have a land tax threshold, but it is usually lower than the individual threshold, and in some states, additional land tax surcharge rates apply.
• For companies, the treatment varies by state — some states offer thresholds, while others do not.
• Understanding the ongoing land tax liabilities is essential, especially as your portfolio grows.

4. Increased Leverage = Increased Risk

• Expanding your portfolio via trusts or companies increases your overall debt exposure.
• More properties and higher debt magnify both potential gains and risks.
• Solid risk management, adequate cash buffers, and strategic planning are vital.

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What About Transferring Existing Properties into a Trust or Company?

Some investors consider transferring their existing properties into a trust or company to facilitate this strategy.

While this can be done, it is often costly and complex:

• Capital Gains Tax (CGT) would be triggered when transferring an investment property.
• Stamp Duty would be payable on the transfer.
• For your principal residence, CGT may be exempt (main residence exemption applies), but stamp duty costs and loan refinancing complexities remain.
• You would need to apply for a new loan for the entity to acquire the property.
• Plus, additional loans would be needed for future purchases.

This makes it a high-cost, advanced strategy, suitable only in specific scenarios and typically requiring significant capital and expert advice.

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Final Thoughts

Using trusts and companies can be a powerful strategy for property investors looking to grow beyond typical borrowing limits. However, it’s not a one-size-fits-all solution and carries risks that must be managed carefully.

Key Takeaways:

• Ensure the property is self-sustaining.
• Weigh the trade-offs between yield and capital growth.
• Carefully consider land tax implications for trusts and companies.
• Manage debt responsibly, as higher leverage amplifies risk.
• Always work with an experienced finance broker and accountant.

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Disclaimer

This article is for general informational purposes only and does not constitute financial, legal, or tax advice. You should seek independent professional advice tailored to your personal circumstances before making any investment or financial decisions.