Avoid These 7 Mistakes When Buying Investment Property

You Can Borrow for an Investment Property with a Deposit as Low as 10 Per Cent

Banks can lend on investment properties with a deposit of 10 per cent or more, though you will pay Lenders Mortgage Insurance if your deposit is below 20 per cent. The premium gets added to your loan or paid upfront, and it increases as your deposit shrinks. Consider a buyer looking at a rental property who has saved a 15 per cent deposit. The lender will require LMI, which might add several thousand dollars to the upfront cost or loan balance, depending on the loan amount and the lender's pricing. That cost is not claimable as a tax deduction in the year you pay it, but it can be claimed in equal portions over five years or the term of the loan, whichever is shorter.

If you already own a home, you may be able to use equity in that property instead of cash savings to fund the deposit and costs. Your broker will calculate how much equity you can access based on the combined loan-to-value ratio across both properties.

Investment Loans Usually Cost More Than Owner-Occupier Loans

Investor loans generally attract higher risk weights than owner-occupied principal-and-interest loans at the same LVR. That flows through to pricing. You can expect to pay a higher rate on an investment loan than you would on a home loan for the same amount and deposit size. The gap is usually between 0.20 and 0.50 percentage points, depending on the lender and your circumstances. Rate discounts are available, particularly if you hold multiple products with the one bank or borrow a larger amount, but those discounts tend to be smaller on investor lending than on owner-occupier lending.

Banks apply a serviceability buffer of at least 3.0 percentage points above the loan product rate when assessing your ability to repay. That means even if the advertised rate is 6.0 per cent, the bank will assess whether you can afford repayments at 9.0 per cent or higher. If you are buying in Perth's northern suburbs, where rental yields are typically stronger than in some inner-city areas, the rental income will help your serviceability, but the bank will usually only count 80 per cent of the expected rent to allow for vacancy and maintenance.

Interest-Only Repayments Lower Your Monthly Cost but Increase Your Risk

An interest-only loan lets you pay only the interest component for a set period, usually one to five years. Your repayments are lower during that period because you are not reducing the loan balance. Once the interest-only period ends, the loan switches to principal and interest repayments, and your repayments jump.

In a scenario where an investor borrows to purchase a property in Mandurah and selects a five-year interest-only term, the monthly repayment might sit comfortably below the rent received. When the loan reverts to principal and interest, the repayment could increase by 30 to 40 per cent depending on rates at the time. If the property is vacant or the rent has not increased in line with the higher repayment, the investor will need to cover the shortfall from their own income. A long-term interest-only residential loan is classified as non-standard where the LVR is greater than 80 per cent and the contractual interest-only period is greater than five years or is not specified. Non-standard loans usually come with higher rates or stricter lending criteria.

Negative Gearing Rules Changed for Properties Bought After May 2026

Losses from residential investment properties held at 7:30pm AEST on 12 May 2026, including properties under contract awaiting settlement at that time, continue to be fully deductible against other income, including salary and wages, until the property is sold. From the 2027-28 income year, losses related to established residential investment properties acquired after 7:30pm AEST on 12 May 2026 are deductible only against other income from residential properties, including capital gains on residential properties. Excess losses can be carried forward.

If you bought an established property after that date, you can no longer offset the loss against your salary. You can still claim all your holding costs, including interest, rates, insurance and property management fees, but any loss is quarantined and can only be used against residential property income in the current or future years. Eligible new builds include dwellings constructed on previously vacant land and dwellings replacing existing properties where the number of dwellings increases. New builds remain fully negatively geared under the old rules, which makes them more attractive from a tax perspective if you expect the property to run at a loss in the early years.

Capital Gains Tax Also Changed from July 2027

The 50 per cent CGT discount continues to apply to capital gains accruing on all residential property, including investment properties, up until 1 July 2027. From 1 July 2027, the 50 per cent CGT discount for individuals, trusts and partnerships on affected assets is replaced by cost base indexation using CPI and a 30 per cent minimum tax rate on real capital gains accruing from that date. If you sell a property you have held since before July 2027, the gain up to that date is taxed under the old rules and the gain after that date is taxed under the new rules. You can choose to get a valuation as at 1 July 2027 or use a formula the ATO will publish.

For new builds, you get a choice between the old discount method and the new indexed method when you sell, which gives you flexibility depending on how inflation and your marginal tax rate play out over the time you hold the property.

Banks Will Limit How Much You Can Borrow Based on Your Total Debt

APRA activated a DTI lending limit on 27 November 2025, effective from 1 February 2026, applying to all ADIs. Each ADI may lend, measured on a quarterly basis, up to 20 per cent of new investor loans and up to 20 per cent of new owner-occupier loans to borrowers with a total DTI ratio of six times or greater. If your total borrowing across all loans is more than six times your gross income, you may still be approved, but only if you fall within the bank's 20 per cent allocation for high-DTI lending that quarter. In practice, most banks manage their lending well below the limit to avoid hitting the cap, so borrowers with a DTI above six often face closer scrutiny or need to reduce their borrowing or increase their deposit.

If you are planning to build a portfolio of investment properties or already have a mortgage on your own home, your total debt across all loans will be counted when the bank calculates your DTI. Rental income helps your serviceability, but it does not reduce your debt figure for DTI purposes.

Get Your Loan Structure Right from the Start

You want to keep your investment borrowing separate from your personal borrowing. If you refinance later or access equity, a clean loan structure makes it easier to prove which interest is deductible and which is not. Do not use your investment loan to pay for personal expenses or renovations on your own home, even if you have access to a redraw facility or offset account on the investment loan.

Some investors split their loan between variable and fixed rates to balance repayment certainty with flexibility. A fixed rate locks in your repayment for one to five years, which can help with budgeting, but you lose the ability to make extra repayments or access redraw without paying a break cost. A variable rate gives you full flexibility and access to any offset or redraw features, but your repayment will move with rate changes. If you are weighing up whether to refinance your investment loan, your broker can model how a split or a switch between variable and fixed affects your repayment and your ability to pay down the loan early.

Holding Costs Add Up Faster Than Most People Expect

Every week the property sits vacant, you are covering the full loan repayment, plus rates, insurance, strata fees if applicable, and any other fixed costs. If the property needs repairs between tenants or the property manager charges a letting fee when a new tenant moves in, those costs come out of your cash flow as well. Most of these costs are claimable, but you still need to fund them upfront.

Perth's overall vacancy rate has been low in recent years, but that does not mean your specific property will rent immediately or stay tenanted continuously. If you are buying in an area with a high proportion of units or apartments, check the local vacancy rate and average time on market for rentals before you commit. Your broker can also help you understand how a period of vacancy would affect your ability to service the loan, particularly if you are borrowing close to your maximum capacity.

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