The Benefits of Buying Property in a Trust for Growing Your Portfolio in Australia
For property investors looking to expand their portfolio, purchasing property through a trust, or special purpose vehicle (SPV) offers several key advantages. One notable benefit is that lenders often disregard trust debt in personal borrowing assessments, provided an accountant's letter confirms that the trust can meet its own financial commitments. Here’s how using a trust can support long-term portfolio growth:
1. Separation of Liabilities
When properties are held in a trust, the associated debt remains within the trust, separate from your personal finances. This means that lenders will often exclude trust debt from their assessment of your personal borrowing capacity. With an accountant’s letter verifying that the trust can meet its financial obligations, you can access additional finance without increasing your personal liabilities, allowing you to continue growing your portfolio.
2. Increased Borrowing Power
By isolating trust debt, your personal financial profile remains stronger, which can enhance your borrowing power. Lenders view you as less risky when trust liabilities don’t weigh down your personal finances. This separation, confirmed by an accountant, allows you to secure more financing to expand your portfolio faster.
3. Tax Efficiency
A trust can provide tax advantages by allowing income and capital gains to be distributed to beneficiaries in a tax-efficient manner. For example, income can be allocated to family members with lower tax rates, reducing the overall tax liability. This flexibility in managing profits and gains can result in significant tax savings as your portfolio grows.
4. Asset Protection
Properties held in a trust are generally protected from personal creditors, offering a layer of asset protection. In the event of personal financial issues, your trust-held properties remain secure, making this structure especially useful for those in high-risk professions or with business interests.
5. Continued Expansion Without Personal Financial Strain
With trust debt kept separate from your personal financial commitments, you can continue growing your property portfolio without affecting your personal borrowing capacity. As long as the accountant’s letter confirms the trust can cover its own commitments, lenders are more likely to approve financing for further acquisitions.
6. Estate Planning Benefits
A trust can simplify estate planning by ensuring that assets are managed and distributed according to your wishes, without becoming part of your personal estate. This is particularly useful for passing on a substantial property portfolio to future generations.
Purchasing property through a trust can help you grow your portfolio more efficiently, with the benefit of keeping trust debt separate from your personal liabilities. An accountant’s letter confirming the trust’s ability to meet its own commitments can enhance your borrowing power, allowing you to expand while protecting your personal finances and maximizing tax efficiency.
If you’re looking to grow your property investments, consult an accountant or financial advisor to explore how a trust structure could work for you.
