Here is a copy of an article that I wrote back in 2016:

Trust Strategies to Increase Borrowing Capacity
Here are a few of examples of how using a discretionary trust can increase borrowing capacity.
Example 1

Trust is set up to own property. Property increases in value. But the director of the trustee has suffered a credit blemish and no lender will lend.

Solution – change directors!
Get legal advice first!

Example 2

Trust is set up to own property. Property increases in value. But the director of the trustee no longer is able service with just his income and the trusts rental income.
Solution – bring the spouse on as a guarantor. You could do this with properties in personal names as well.
Solution 2 – bring a friend on as a guarantor. The friend may need to be a beneficiary of the trust and/or a director of the trustee.

Get legal advice first!
Example 3

Trust is set up to own property. Property increases in value. The director of the trustee suffers a court judgment and no lender will lend to him. If this was a property in his own name he would be stuffed for 5 years but with a trust there is a simple solution:
Solution

Director causes spouse/friend to be appointed director and then resigns. The loan is then refinanced with the new director providing a personal guarantee.
Get legal advice first!
Example 4

A trust is set up to own property and loans are obtained with personal guarantees from person A who is the director of X Pty Ltd the trustee.
After a while person A sets up a new trust with a new company Z Pty Ltd as trustee and himself as director. Person A does not tell the new lender about the personal guarantees he has given to the lender for the first trust. Since the new company, Z Pty Ltd, is a separate legal entity to the first company X Pty Ltd, its debts need not be disclosed.
If the lender asks person A about any personal guarantees he has given he should disclose those guarantees. If the lender does not ask person A need not disclose. Thus the borrowing capacity could be increased by setting up new entities.
This method has been promoted by a certain property author and criticised by various brokers, including myself in the past because the new lender would know about the personal guarantees given by person A as there would be a record on A’s credit file. However as time passes these credit file hits become less of an issue and will disappear from the file after 5 years.
Get legal advice first!

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But before doing anything described above each person and the trustee should seek legal advice as there are various legal implications involved.
To be balanced, here are some ways a trust can hinder borrowing capacity.
Example 5

The property’s rent is less than the interest on the loan.

Lenders will not be able to use negative gearing addbacks because the trust has no other income and it does not pay tax. This will reduce serviceability slightly.
Example 6

The property has a taxable loss of $10,000 per annum.

This could potentially save the individual $5,000 per year in tax but would result in a $10k carried forward loss for the trust with no immediate tax benefits unless the trust had other income.

This has 2 effects

Less cash to pay down non-deductible debt
Less cash flow making it slower to build equity.

Trusts are complex legal arrangements so see your lawyer before attempting any of this on your own.

trusts can’t borrow as they are not legal entities, but holding assets as trustee can improve borrowing cap, if the trustee is a company. I have written about this on here before.

These days with low interest rates I think buying a main residence first is ideal because

a) you get a CGT free asset (potentially)

b) no land tax

c) owner occ rates

d) improved serviceability over time

e) ability to debt recycle into investments at lower interest rates

f) ability to add value

g) emotional aspects

h) because it might cost more to rent the same place

i) ability to move out and rent the property yet still keep it CGT exempt.

etc

In that case the 6 year rule could reset as long as the property qualifies as your main residence.

But if you own another property you cannot choose both as the main residence for an overlapping period.

I presume you did a AB search?

A trust is a private relationship, not registered anywhere. You need to find out who is operating the business. It can’t be a trust but would be a company or an individual who is acting as trustee.

If you do a title search it will show who the owner of the property is, but it will probably be leased to someone else. However, with Commercial leasesthe tenant often registers their lease on the title to the property so you could prob find it that way.

Other than that the name will be on invoices, websites etc.

You could also do an ASIC search on the business name.

Why do you need an investor?

I am not sure what your comment about “lawyers, in my opinion, usually run good legal practices (small businesses), but otherwise make poor accountants, business advisers, and financial planners.” means or relates to. We were discussing whether non-lawyers can set up trusts and no one claimed lawyers can act as accountants etc.

The fact remains that a trust is a complex legal relationship in equity set up by deed, and only a lawyer should set them up and advise on the structuring of a trust. Once they are set up the trustee could then go and get accounting or financial advice depending on what they want to do. They would only need financial advice if investing in financial products perhaps, prob don’t need much accounting advice, but would need some tax advice along the way.

Tell me this Steve, would you let an accountant set up your will? Hopefully you would answer no.

If no, then why would you go to an accountant for a trust set up?

Yes plenty of accountants do set up trusts. But they have no qualifications or licensing to do – a hairdresser is just as qualified.

The accountant will argue they are not giving legal advice, but just providing a document drafted by a lawyer. If so why not go directly to the lawyer who can tailor the trust to suit your needs, advise on who should take what roles, terms of the deed, be able to modify the deed and more importantly be covered by insurance.

Cross Collateralising refers to using 2 or more properties as security for 1 loan.

Portfolio packages don’t necessarily involve crossing security but it will depend on how it is set up.

There is one well known ‘promoter’ that encourages the use of the St G Portfolio product which is just a big LOC

They way they suggest is terrible and involves crossing securities.