How Smart Investors Use Trusts and Companies to Unlock More Borrowing Capacity
If you have already built up two or three investment properties in your own name and you are starting to hear "computer says no" from the banks, you are not alone. There is a serviceability ceiling that hits almost every investor eventually. The good news is that for portfolio builders aiming at five, ten, or more properties, there is a way to keep the wheels turning. It involves structure, and crucially, it involves timing.
I work with investors every day who use trusts and companies to keep adding to their portfolios. This post breaks down how it works, why timing is everything, where the wins are, and where the traps are. I am not a registered tax agent or financial advisor, so please treat this as general information and get personal advice from your accountant before pulling any triggers.
The serviceability ceiling problem
When you apply for a loan, the lender runs the same formula every time. They add up your income, subtract your expenses, stress-test your existing debt at a higher rate (the current rate plus a 3% buffer), then convert what is left over into a loan amount. Once that calculator says you cannot afford any more, you are done. It does not matter how strong your deposit is, how good the deal is, or how confident you feel about the cashflow. The bank says no.
Most investors hit this wall around property three or four. That is where structure becomes the lever.
How the bank works out your borrowing capacity
Before we go anywhere near trusts, it is worth understanding what the bank is actually calculating. The same formula sits behind every loan application you will ever submit, whether it is in your personal name or in a trust.
The single biggest misconception I correct
A trust is a borrowing container, not a separate source of capacity. When the trust applies for a loan, the lender still uses your personal income, your personal expenses, and your existing debts to do the math, because you are the guarantor. If your personal surplus is zero, your trust surplus is zero too. Trusts do not multiply your borrowing power. They let you deploy the same borrowing power in a smarter container.
Step 1: Personal name first (use the cheapest debt while you can)
Loans in your personal name come with the lowest interest rates, the lowest deposits, and the easiest approvals. Almost every investor should use their personal name first to get the first one or two properties on the board.
The catch is that every loan in your personal name sits directly on your personal serviceability calc, with no way to ring-fence it. Stack a few of those and the calculator quickly runs out of headroom.
Step 2: Move into a trust BEFORE you hit zero
This is the timing rule that separates investors who scale from investors who stall.
When you set up a trust and borrow inside it, the lender still does the same serviceability math, but the loan and the property sit in a separate legal container. If that property is at least neutrally geared (the rent covers the stressed debt service in the bank’s calc), the deal does not drag your remaining personal capacity down. You can effectively redeploy that same capacity into another SPV.
But here is the critical part. You have to set up trust lending while you still have personal capacity left. Once your personal capacity has hit zero, your trust capacity is also zero, because the bank uses the same formula either way. There is no rescue trust you can spin up after the fact to keep buying.
That is the basis of SPV stacking. SPV stands for Special Purpose Vehicle, which is just a fancy way of saying a separate trust or company set up to hold a property (or small group of properties).
The compounding effect of neutral gearing
This is where the strategy gets interesting. Let me walk you through what happens with two investors who start in exactly the same place. Emma has $1,000,000 of borrowing capacity. She has two choices for what to do with it.
Path A. Emma uses her $1,000,000 in her personal name. The loan and property go straight onto her personal calc. Her remaining capacity drops to $0. She now cannot borrow another dollar, in her own name or in a trust, until her income grows, her debts come down, or interest rates fall. End of strategy.
Path B. Emma puts $1,000,000 into Trust 1, buying a neutrally geared property where rent covers the stressed debt service. Her personal capacity is preserved. She then puts another $1,000,000 into Trust 2, same outcome. Then Trust 3. By the time she is done she has deployed $3,000,000 (or more) of property, and she still has the option of finishing with a personal-name loan on top.
Same starting capacity. Same person. Roughly four times the deployable firepower. The whole game lives or dies on whether each property is neutrally or positively geared. If a property runs at a $1,000-a-month shortfall, that shortfall sits inside the bank’s serviceability calc as a real, ongoing cost and consumes a chunk of Emma’s personal capacity. The structure is not the magic. The cashflow is. The structure just lets the cashflow work in your favour.
The real trick: keeping each trust profitable
So the goal is not simply to "buy in a trust." It is to make sure every property inside every SPV is at least neutral, ideally positively geared. The investors who do this well do not wait for the market to hand them a positive cashflow deal. They engineer it.
Buy a multi-income property. A duplex, a dual-occupancy build, a small block of units, or a house with a granny flat already on title produces two or more rents from a single purchase. Two rents against one set of bank repayments is usually the fastest way to get a property cashflow positive on day one.
Run a cosmetic renovation. A tactical paint, flooring, kitchen and bathroom refresh under $30,000 can lift the weekly rent by $50 to $150 and immediately shift the math.
Add a granny flat. A second dwelling on the same block (where council and zoning allow) can add $400 to $600 a week of rent, typically paying itself back in 5 to 8 years.
Or all three. The investors I see scaling fastest combine a multi-income purchase with a cosmetic reno and a granny flat. One property, three layers of yield uplift, then move to the next SPV.
Trust vs company: which one?
Both structures can hold investment property. They are assessed slightly differently for tax and asset protection, so this is genuinely your accountant’s call. A discretionary trust (family trust) gives flexibility to distribute income to beneficiaries each year. A fixed unit trust locks each unit holder’s entitlement in set proportions, and can access the NSW land tax threshold if drafted properly. A company pays a flat tax rate but misses the 50% CGT discount, usually the deal-breaker for residential property. Most portfolio builders use a discretionary trust with a corporate trustee.
The downsides nobody loves to talk about
Higher interest rates. Most lenders apply a small premium to trust loans, typically 0.10% to 0.30% above the equivalent personal rate. Some will not lend to trusts on their residential book and push the deal to commercial, where the premium can balloon. Choosing the right lender matters, and not all brokers know who plays nicely with trust structures.
Setup and ongoing costs. Roughly $1,500 to $3,000 to set up a discretionary trust with a corporate trustee, then $1,000 to $2,500 a year on accounting and ASIC fees. Multiply that by every SPV.
NSW land tax is the big one. The 2026 NSW land tax threshold is $1,075,000 of taxable land value. As an individual you get that threshold. Trusts split.
Discretionary trusts in NSW are treated as "special trusts". Special trusts get no land tax threshold. You pay 1.6% from the very first dollar of taxable land value, then 2% above the premium threshold. On a property with $900,000 of land value, that is roughly $14,400 a year in land tax versus zero in your personal name.
Fixed unit trusts can access the threshold, but only if the deed satisfies Section 3A of the NSW Land Tax Management Act. Unit holders need a present entitlement to both income and capital, fixed in defined proportions. Most off-the-shelf deeds do not comply, so this needs careful drafting by a lawyer who knows the NSW rules.
Negative gearing in a trust (this matters less now)
Traditionally, the big downside of trust ownership was that a loss inside a trust is trapped. The trust can only carry it forward against its own future income. You cannot pull it out to reduce tax on your personal salary.
Here is what has changed. The May 2026 Federal Budget announced rules that quarantine negative gearing losses on established residential properties bought after 12 May 2026, with effect from 1 July 2027. Under the new regime, losses on established residential properties owned in personal names can only be offset against future residential property income, not against your salary. That is effectively the same treatment a trust has always had.
The detail is still being finalised and nothing has passed yet. But if the rules land roughly where they have been announced, the traditional negative-gearing advantage of personal-name ownership largely disappears for new purchases of established stock. That makes trust structures look materially more favourable than they did 12 months ago. Talk to your accountant about how this lands for you, but the strategic implication is real: post-2026, the case for buying through a trust has got stronger, not weaker.
Shortfall in a trust still drains your personal capacity
If a trust property runs at a $1,000-a-month shortfall, the bank does not treat the trust as a magic ring-fence. You guarantee the trust’s debt, so when you go for the next loan (in any entity) the lender adds that $1,000 back into your personal commitments. As a rough rule, every $1,000 a month of trust shortfall costs roughly $150,000 to $200,000 of personal borrowing capacity.
This is the mirror image of the compounding chart earlier. Neutral or positive cashflow preserves capacity. Negative cashflow drains it. The structure does not change the maths, it just changes the container the maths sits inside.
Already at capacity? Levers we can still pull
If you think you have already used up your personal capacity and missed the window, do not shelve the strategy. There are levers we can pull without changing the ownership of your current portfolio:
Refinance to better rates. Lower repayments mean a smaller stress-tested commitment, which frees up surplus and feeds straight into capacity.
Restructure loan terms. Longer terms, or reviewing principal and interest versus interest-only on specific loans, can lift capacity without touching the assets.
Clean up consumer debt. Credit card limits (even unused) are assessed at 3.8% of the limit. Car loans, BNPL and personal loans all bite. Closing or consolidating these often unlocks more than people expect.
Income optimisation and lender selection. Bonuses, side income, dividends and trust distributions that lenders will actually count can shift the calc, and different lenders treat rental shading, HEM and guarantor trust debt very differently. The right lender can find capacity others cannot.
Almost no client is genuinely "at zero" once we run the full picture across the right lender.
Putting it together
Structure is a tool. It does not multiply your capacity and it does not turn a bad deal into a good one. What it does is let a strong investor with strong cashflow keep deploying capital across multiple containers instead of burning it all in one place. The investors who do this well treat capacity as a single personal pool, set up trust lending while they still have capacity left, engineer each SPV positive, use the right structure in the right state, and review it with their accountant every year.
If you are approaching the serviceability wall, or you think you may have already passed it, that is a conversation worth having early.
Approaching the serviceability wall?
If you are scaling a portfolio and starting to hear no, let us map your real capacity and structure across the right lenders before the window closes. One short call, no obligation.
Book a free strategy callMatty Teague, Mortgage Broker, Powered by Flint. Credit Representative 573962. Flint Group Pty Ltd ACL 488313.
FAQs
Does a trust increase my borrowing capacity?+
No. A trust is a borrowing container, not a separate source of capacity. The lender still uses your personal income, expenses and debts to do the maths, because you guarantee the trust loan. If your personal surplus is zero, your trust surplus is zero. What a trust does is let you deploy the same capacity in a smarter container.
When should I move into a trust?+
Before you hit zero personal capacity, not after. Once your personal capacity is exhausted, your trust capacity is zero too, because the bank uses the same formula either way. There is no rescue trust you can spin up after the fact. Timing is the rule that separates investors who scale from investors who stall.
Trust or company for investment property?+
Both can hold property and it is genuinely your accountant’s call. A discretionary (family) trust gives flexibility to distribute income. A company pays a flat tax rate but misses the 50% CGT discount, which usually rules it out for holding residential property directly. Most portfolio builders use a discretionary trust with a corporate trustee.
Why do discretionary trusts pay more NSW land tax?+
In NSW a discretionary trust is treated as a "special trust" and gets no land tax threshold, so it pays 1.6% from the first dollar of taxable land value. On $900,000 of land value that is roughly $14,500 a year versus zero in your personal name. A fixed unit trust can access the threshold, but only if the deed satisfies Section 3A, which needs careful drafting.
Does negative gearing work in a trust?+
Traditionally a loss in a trust is trapped and can only offset the trust’s future income, not your salary. But the May 2026 Budget announced rules quarantining negative gearing on established residential property bought after 12 May 2026 (effective 1 July 2027), which largely removes that advantage from personal-name ownership too. The detail is not final, but it makes trust structures relatively more favourable than before.
What does a trust cost to run?+
Roughly $1,500 to $3,000 to set up a discretionary trust with a corporate trustee, then around $1,000 to $2,500 a year in accounting and ASIC fees, multiplied by each entity. Trust loans also usually carry a small rate premium of around 0.10% to 0.30%.
Matty helps investors structure and finance growing portfolios across the right lenders, so capacity gets deployed, not burned.
Book a Free Chat