When it comes to buying property in a trust, investors often hear bold promises.
One of the most popular claims is that you can achieve unlimited borrowing capacity by setting up multiple trusts and separating each property into its own structure.
It sounds enticing and is often marketed as a clever way to outsmart lender serviceability rules, fast-track portfolio growth and protect your assets all at once.
The reality is very different.
How the Multiple Trust Strategy Is Sold to Investors
At first glance, the strategy looks simple:
- You buy each property through a separate trust.
- Each trust holds its own loan and its own rental income.
- As equity grows, you refinance to extract equity to purchase the next property.
- Because each trust appears separate, you supposedly start with fresh borrowing capacity each time.
In theory, it paints a picture of isolated risk, isolated debt and clean borrowing assessments.
In practice, lenders don’t see it this way at all.
Why Borrowing Capacity Does Not Reset With Each Trust
Every trust loan typically requires a personal guarantee from you.
This is the crucial piece often left out when the strategy is marketed.
That guarantee links all your trust-owned properties back to your personal serviceability.
Lenders still
- Aggregate all trust loans under your name.
- Shade rental income to allow for vacancies and expenses.
- Apply a buffer to stress-test interest rates for trust lending.
- Consider trust loans as higher risk which often means higher interest rates.
- So even with a dozen trusts, you still hit a borrowing wall.
There is no reset button.
Why Trust Loans Often Reduce Borrowing Capacity Instead of Expanding It
For the trust model to work as advertised, each property needs to be strongly cash flow positive.
That is difficult because:
- Lenders typically shade rental income by about twenty percent
- Refinancing to release equity increases the repayments
- Trust loans often come with higher interest rates
- Trusts incur higher accounting, compliance and legal costs
- Land tax can be significantly higher depending on the state
- You pay extra for legal, accounting and taxation fees for the trust
These costs compound quickly. For most investors, serviceability weakens rather than improves.
The Hidden Cost of Land Tax on Trust-Owned Property
Land tax is one of the biggest financial drawbacks to using a trust.
In several states, including Victoria, Queensland, South Australia and New South Wales, trusts either receive lower land tax thresholds or no threshold at all.
A quick Victorian example:
- An individual with $600,000 of taxable land value pays about $2,250
- A trust with the same land value pays about $4,263
Over a portfolio, these extra costs add up and eat into borrowing capacity.
The Loss of Negative Gearing When Buying Through a Trust
This is another overlooked issue.
If a trust-held property makes a loss, you cannot offset that loss against your personal taxable income.
You lose the personal tax benefit normally available when holding negatively geared property in your own name.
When Buying Property in a Trust Can Make Sense
Despite the risks and limitations, trusts certainly have their place in a smart property strategy.
They can be highly effective when used for the right reasons, such as:
1. Asset Protection
Ideal for business owners or individuals with higher risk profiles who want separation between personal assets and investment liabilities.
2. Ring-Fencing Risk Between Properties
Holding each property in its own trust can contain the financial risk of any single asset.
3. Tax Flexibility
Discretionary trusts can distribute income among beneficiaries in a tax-effective way.
4. Estate Planning Advantages
Transferring control of a trust is often far simpler and more tax-efficient than transferring ownership of an individual property.
5. High Yield or Value-Add Strategies
Trusts can work in scenarios with very strong yields, substantial renovations or development that quickly boost income and equity.
The Downsides Investors Often Miss
Using trusts in property investment can create several challenges, including:
- Higher lending rates for trust loans
- Extra accounting and legal costs
- More complex refinancing requirements
- Limited choice of lenders
- Higher land tax in many states
- Slower equity growth if buying high yielding assets in lower growth areas
- No access to personal negative gearing benefits
These trade-offs need to be weighed carefully.
So, Do Trusts Help You Borrow More?
In almost all cases, the answer is no.
The idea of unlimited borrowing through multiple trust structures is a myth. Lenders always assess your overall position and rely on your personal income regardless of how many trusts you create.
Trusts can be powerful tools when used for asset protection, estate planning and tax distribution, but they rarely increase borrowing power and can often reduce it.
If you are considering buying property in a trust or want to understand how trust loans affect serviceability, it is essential to get personalised advice from a strategic mortgage broker, accountant and solicitor who understand trust-based portfolios.
For more information, listen to the Property Trio Podcast
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If you would like to discuss your next steps, property plans, and mortgage strategy, get in touch with us today. Our team of experts is here to guide you through the complexities of the market and help you achieve your property goals.
