It's a common story for Australian property investors: you have a solid income and a clear goal to build a portfolio, but you quickly hit a wall. Your bank tells you that you've reached your maximum borrowing capacity. Meanwhile, you see seasoned investors acquiring their 10th, 20th, or even 30th property and wonder how it's possible on a similar income.

The answer often lies not just in what they buy, but how they buy. Sophisticated investors frequently use an advanced structuring strategy involving trusts to effectively create an almost unlimited borrowing capacity. This guide will break down this powerful technique, explain how it works, and outline the real-world challenges you need to navigate to implement it successfully.

The Common Borrowing Capacity Trap

For most people, the path to property investment is linear and finite. Let's consider a typical example:

Sarah earns a strong income of $120,000 per year. After a lender's assessment, she's told her maximum borrowing capacity allows her to purchase a property for $500,000. Whether this is her own home or an investment, she is now effectively 'maxed out'.

To grow her portfolio, the traditional options are limited:

1. Increase Income: Secure a significant pay rise or add a second income stream. 2. Decrease Expenses: Radically cut living costs or pay down existing debt over many years. 3. Add a Partner: Combine her income with a partner's, potentially doubling their capacity to purchase another one or two properties before hitting the same wall again.

While these methods work, they are slow and often leave investors stuck with only a few properties. This is where strategic structuring becomes a game-changer.

The Trust Strategy: A Path to Scalability

Instead of purchasing in her personal name, an informed Sarah decides to use a different vehicle: a trust. She establishes 'Trust 1' and applies for a loan to purchase an investment property.

Interestingly, the bank might assess her borrowing capacity inside the trust as slightly lower—say, $450,000 instead of $500,000. This is because loans to a trust don't typically offer the same negative gearing benefits that can sometimes slightly increase personal borrowing capacity. This initial step back can deter many, but it's crucial for the long-term play.

After purchasing a $450,000 property in Trust 1, Sarah is, once again, seemingly maxed out. If the property's expenses (mortgage, rates, insurance) exceed its rental income, it is negatively geared. Lenders see this shortfall being paid from Sarah's personal income, and therefore, they attribute the entire debt to her, blocking further borrowing. So, how do we break the cycle?

The Key: Achieving Self-Sufficiency

The entire strategy hinges on one critical concept: making the trust self-sufficient. A trust is considered self-sufficient when its total income (primarily rent) is greater than its total expenses. Even if it's cash flow positive by just $1, the magic happens.

Here’s how it works:

• Positive Cash Flow: The property within Trust 1 must generate enough income to cover all its own costs, including mortgage repayments, council rates, insurance, and maintenance.

• Accountant Verification: A good accountant can provide a letter to a new lender verifying that the trust is self-sustaining and does not require any financial support from the individual guarantor (Sarah).

• Debt Invisibility: When Sarah approaches a new lender (Lender 2) for her next purchase, her mortgage broker presents this letter. Because Trust 1 is self-sufficient, Lender 2 can effectively disregard its $450,000 debt. It's as if it doesn't exist in their serviceability calculation.

Suddenly, Sarah's full personal borrowing capacity of $450,000 is restored. She is now free to establish 'Trust 2' and repeat the process, purchasing another property. This creates a firewall between her personal finances and the debt held in each self-sustaining trust.

Rinse and Repeat: Building the Portfolio

By repeating this process, an investor can theoretically scale their portfolio far beyond traditional limits:

• Year 1: Sarah buys a $450k property in Trust 1 and focuses on making it cash flow positive.

• Year 2: With Trust 1 self-sufficient, she buys a second $450k property in Trust 2.

• Year 4: With both trusts now self-sufficient and capital growth occurring, she can potentially access equity to fund deposits for properties in Trust 3 and Trust 4.

This method allows an investor's portfolio to grow exponentially, limited only by their ability to find the right properties and secure the initial deposits.

Real-World Hurdles and Advanced Considerations

While this strategy sounds like a perfect hack, it is an advanced technique with significant challenges. It's not as simple as just setting up a trust.

Hurdle 1: The Upfront Capital Requirement

Achieving positive cash flow is the biggest challenge, especially in a high-interest-rate environment as noted by the Reserve Bank of Australia (RBA). To make a property self-sufficient from day one, you often need a much larger deposit to reduce the loan amount and subsequent mortgage repayments. Instead of a 10% deposit, you may need a 30% or even 40% deposit (i.e., a 60-70% Loan-to-Value Ratio). This means a much higher barrier to entry for the first purchase.

Hurdle 2: The Complexity of Accessing Equity

As your properties appreciate, you'll want to tap into that equity to fund future deposits. However, this isn't straightforward. To refinance and extract equity from Trust 1, the bank will re-assess your serviceability. They will calculate your ability to service the new, larger loan. If your personal income hasn't increased, you may not have the capacity to take on this extra debt, trapping the equity within the property.

Hurdle 3: Finding the Right Properties and Team

This entire strategy is theoretical without the right assets. You cannot make it work with low-yield, negative-gearing properties in major capital cities. Success depends on:

• The Right Properties: You must find investments with high rental yields that have the potential to be cash flow positive. This requires deep market knowledge and powerful real estate analytics to identify suburbs and specific properties that meet these strict criteria.

• The Right Broker: Over 90% of mortgage brokers are unfamiliar with this structure. You need a specialist investment broker who understands how to work with different lenders' policies regarding trust servicing.

• The Right Accountant: An accountant specializing in property investment is non-negotiable for setting up the trusts correctly and providing the necessary verification letters.

Conclusion: Protect Your Borrowing Power

The goal of the trust strategy is not just to acquire more debt, but to protect your personal borrowing capacity. By isolating debt within self-sufficient structures, you preserve your most powerful wealth-creation tool: your ability to secure finance.

While complex and demanding, this approach is how a small percentage of Australian investors build multi-million dollar portfolios that outperform the market. It requires careful planning, significant upfront capital, and a team of experts to execute.

Ready to find properties that fit an advanced investment strategy? HouseSeeker's real estate analytics platform is designed to help you uncover high-yield, positive cash flow opportunities across Australia. Start your data-driven search today.

Frequently Asked Questions

Is buying property in a trust more expensive?

Yes. There are upfront costs for establishing each trust and ongoing annual accounting fees for compliance and tax returns. Furthermore, some states have different land tax thresholds for trusts, which can be more costly than holding property in a personal name. It's essential to discuss these costs with your accountant.

Can I use this strategy for my first property purchase?

While possible, it's typically an advanced strategy. Most investors first utilize their personal borrowing capacity before moving on to more complex structures like trusts. Your decision should be based on a comprehensive plan developed with your financial advisors, not just on a desire to scale quickly.

What kind of properties are more likely to be positive cash flow?

Properties with higher rental yields are the best candidates. These are often found in strong regional centres, areas with diverse economies, or specific pockets of capital cities with high tenant demand. Using an AI Buyer's Agent can help you analyse thousands of listings to pinpoint properties that meet these specific financial criteria.