Avoid These 5 Mistakes When Buying an Investment Unit

Underestimating Your Upfront Costs

Buying a unit as an investment involves more than just the deposit. You need to budget for stamp duty, legal fees, building and pest inspections, body corporate searches, and Lenders Mortgage Insurance if your deposit is under 20 per cent.

Consider a buyer looking at a two-bedroom unit in Subiaco. With the median unit price sitting around $500,000, a 10 per cent deposit means $50,000 upfront, plus roughly $18,000 in stamp duty, another $2,000 to $3,000 in legal and inspection costs, and LMI that could range from $8,000 to $15,000 depending on the lender. That puts the total cash requirement closer to $78,000 rather than the $50,000 they initially budgeted. Coming up short at settlement can derail the entire purchase.

If you do need to borrow with a deposit under 20 per cent, the LMI premium is usually added to the loan amount rather than paid separately, but that increases your overall debt and your monthly repayments. Some lenders will also apply a higher rate to loans with LMI, which compounds the cost over time.

Choosing the Wrong Loan Structure for Tax Planning

Interest-only repayments let you claim the full interest charge as a deduction while keeping your cash flow tight. Principal-and-interest repayments build equity faster but reduce the amount you can claim each year.

Most investors start with interest-only for the first few years to maximise their deductions while rental income is lower and other expenses are high. After that initial period, you can switch to principal and interest or refinance into another interest-only term depending on your circumstances. The key is to structure the loan in a way that keeps your personal funds separate from the investment. Never redraw money from an investment loan to pay for private expenses, because the interest on that portion stops being deductible.

In our experience, investors who mix personal and investment funds in the same loan account end up with messy tax returns and disputes with the ATO years later. Keeping the loan purely for the property purchase and holding costs makes everything cleaner.

Ignoring Body Corporate Fees in Your Serviceability Calculation

Lenders assess your capacity to service the loan by looking at your income, your existing debts, and the rental income the property will generate. They also factor in the property's ongoing costs, and for a unit, that includes body corporate fees.

A unit in South Perth might have body corporate fees of $1,200 per quarter, or close to $5,000 a year. The lender will deduct that amount from the expected rental income when calculating how much you can borrow. If the unit rents for $550 a week, that's roughly $28,600 a year, but after body corporate fees, council rates, insurance, and a vacancy buffer, the net income used for serviceability drops to around $18,000. That reduction can cut your borrowing power by $80,000 to $100,000 compared to a freestanding house with no strata fees.

Some lenders are more flexible with how they treat body corporate fees, particularly if the complex has a strong sinking fund and low special levy history. If you know the unit you want has high fees, talk to a broker before you make an offer so you know exactly how much you can borrow.

Buying Before You Understand the New Negative Gearing Rules

If you buy an established unit now, you will not be able to offset rental losses against your wage income from 1 July 2027 onward. Losses can only be used to reduce tax on other rental income or carried forward to reduce capital gains tax when you eventually sell.

For someone earning $90,000 a year who was expecting to claim a $10,000 rental loss and save $3,250 in tax, that cash flow benefit disappears under the new rules. You still own the property, you still have the same expenses, but your take-home pay does not get the top-up it used to. That changes the math on whether the property is affordable in the short term.

The new rules do not apply to properties purchased before 7:30pm on 12 May 2026, so any property you already own or had a signed contract for before that date continues under the old system until you sell. They also do not apply to eligible new builds, which means a unit in a newly completed development may still allow full negative gearing even after 1 July 2027. The definition of eligible new build is tight, though. It has to be newly constructed on previously vacant land or part of a development that increases the total number of dwellings. A renovated unit or a knock-down rebuild that does not add extra dwellings will not qualify.

Failing to Plan for Vacancy and Maintenance Costs

Most investors budget for the mortgage repayment and assume the rent will cover it. Then the tenant moves out, or the air conditioner breaks, or the strata levies a special assessment for roof repairs, and suddenly there is a $5,000 gap with no rental income to cover it.

Lenders typically assume a rental income figure that is 20 to 30 per cent lower than the advertised rent to account for vacancy, maintenance, and management fees. You should plan the same way. If a unit in Fremantle rents for $500 a week, budget as though you will only receive $350 to $400 on average over the year once you factor in the weeks it sits empty, the cost of a property manager, and the occasional repair. That buffer keeps you solvent when the inevitable costs hit.

A common mistake is to assume that because the property is new or recently renovated, maintenance will be minimal. Even new units have defects, and body corporate repairs can be expensive when they involve common areas. If the sinking fund is low, the body corporate may levy all owners to cover the shortfall, and you will have no choice but to pay.

Overlooking the Impact of Debt-to-Income Limits

From February this year, lenders have been restricted in how many loans they can approve at a debt-to-income ratio of six times or higher. If you earn $100,000 and want to borrow $600,000 or more, the lender may decline the application even if you meet all other criteria, because they have already hit their limit for high-ratio lending that month.

This does not mean you cannot borrow that amount, but it does mean you may need to wait, switch lenders, or adjust your application. In practice, buyers with strong savings, stable employment, and low existing debt are still getting approved at higher ratios, but the process is slower and less predictable than it was a year ago. If you are borrowing close to the limit, expect your application to take longer and have a backup lender in mind.

The limit applies separately to investor and owner-occupier loans, so the restrictions are tighter for investment purchases. A loan health check before you start looking at properties will show you where you sit and whether you need to pay down other debts or increase your deposit to improve your chances.

Understanding What Lenders Actually Assess

When you apply for an investment loan, the lender will assess the property as well as your financial position. They want to know the unit will hold its value and rent reliably, so they look at the size, the location, the body corporate finances, and the local rental market.

A one-bedroom unit in a high-rise with 200 other units might rent quickly, but it will also have more competition when your tenant leaves. A two-bedroom unit in a smaller complex with parking and storage tends to hold its value and attract longer-term tenants. Lenders know this, and they adjust their valuation and loan terms accordingly.

Some lenders will not lend on units with certain characteristics, such as studio apartments under 40 square metres, buildings with more than 50 per cent investor ownership, or complexes with ongoing defect disputes. If the property you want falls into one of those categories, your finance options narrow significantly. Checking the lender's property policy before you make an offer can save you from a declined application or a last-minute scramble to find alternative funding.

Call one of our team or book an appointment at a time that works for you. We will walk through your situation, run the numbers, and help you set up a loan structure that works for the property you want and the tax outcome you need.

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