Ep. 337: Buying Property in a Trust – Genius Strategy or Costly Illusion? Benefits, Borrowing Myths & Realities
Ep. 337: Buying Property in a Trust – Genius Strategy or Costly Illusion? Benefits, Borrowing Myths & Realities
In this episode, Cate, Dave, and Mike unpack a popular but misleading strategy being promoted by some on the internet…..The idea that investors can achieve “unlimited borrowing capacity” by buying each investment property in a separate trust.
The question comes from long-time listener Jeromy, who has built his portfolio sensibly and noticed red flags when a friend was pitched this “reset your borrowing every time” approach.
Cate outlines the premise: each trust holds one property, one loan, and supposedly one clean slate of borrowing capacity. But as Dave quickly explains, lenders don’t view trusts as standalone islands.
Dave dives into the key issue: The borrower remains the common link across every trust. Lenders look straight through the structure into personal income and liabilities, meaning all debt is ultimately aggregated.
Mike highlights that trust lending often involves higher interest rates, extra fees, and less generous serviceability assessments, making borrowing harder, not easier.
The Trio also explore the hidden cost layers: higher land tax thresholds in key states, annual accounting requirements, compliance expenses, and the loss of negative gearing benefits.
Dave notes that for the multi-trust approach to work, investors typically need gross rental yields well above 6%, significant personal income growth, or substantial value-add opportunities.
Cate reminds listeners that while trusts can provide asset protection and helpful estate-planning benefits, these advantages don’t translate into extra borrowing capacity.
The discussion also covers the practical frustrations: refinancing complexity, limited lender appetite for multi-entity portfolios, and the slower capital growth often associated with high-yield markets required to keep trust portfolios afloat.
Mike sums up the reality: trusts can be useful in the right circumstances, particularly for business owners needing risk separation, but they are not a path to infinite borrowing or rapid portfolio expansion.
The Trio emphasise the need for coordinated tax, legal, and lending advice before setting up even one trust, (let alone multiple). A structure only adds value when it fits the investor’s strategy, as opposed to being used as a loophole.
And our gold nuggets!…..
Cate Bakos’s gold nugget: Cate points out the reasons why borrowing capacity limitations are in place in the first place.
Mike Mortlock’s gold nugget: “The way that these things can find their way into marketing is often based on some truths, but as we have shared, there are a lot of nuances to it.” …. “It’s not a get rich quick scheme.”
Dave Johnston’s gold nugget: Dave talks about the limitations to engineering borrowing capacity through clever structuring. “Lenders assess YOU.”
Related episodes:
Upcoming ep: #338 – Using AI & ChatGPT for Property Advice – The Real Strengths & Weaknesses Investors Need to Know and What’s on the Horizon
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