Understanding the basics of property investment loans

What makes an investment loan different from a home loan?

An investment loan is assessed differently because the property won't be your home. Lenders look at rental income alongside your own income, and they apply a different set of risk weightings to the application. That means the rate you're offered, the deposit you'll need, and the loan features available can all vary from what you'd see on an owner-occupier loan.

In our experience, first-time investors around Joondalup often assume their borrowing capacity will be similar to what they had when buying their own home. It rarely is. Lenders typically assess rental income at 70 to 80 per cent of the actual rent collected, to allow for vacancy periods and maintenance costs. If you're looking at a unit near Central Park or a house in Edgewater, the lender will want to see evidence of comparable rental returns before they factor that income into your serviceability.

The investment loans you have access to can include variable, fixed, or split rate options, and you'll also need to decide whether to structure repayments as interest-only or principal and interest. Each choice affects your cash flow, tax position, and how quickly you build equity in the property.

How much deposit do you need for an investment property?

Most lenders require a 20 per cent deposit to avoid paying Lenders Mortgage Insurance on an investment property. If you have a smaller deposit, you can still borrow, but LMI will be added to your costs and will increase the amount you need to fund upfront or capitalise into the loan.

Consider a buyer who already owns a home in Joondalup and wants to purchase a rental property in Kinross. They have $80,000 in available equity and want to use it as their deposit. The lender will value their existing home, calculate 80 per cent of that value, subtract what they owe, and determine how much equity can be released. If the investor is borrowing more than 80 per cent of the purchase price for the new property, LMI becomes payable. In some cases, depending on the lender and the applicant's income, borrowing up to 90 per cent or even 95 per cent is possible, but the LMI premium increases sharply at higher loan to value ratios.

You'll also need to budget for stamp duty, conveyancing, building and pest inspections, and any upfront lender fees. In Western Australia, stamp duty on investment property is calculated at the standard residential rate, and it's not tax deductible. If you're refinancing to access equity for your deposit, speak to a broker who can help you structure that release without triggering unnecessary costs or delay.

Interest-only or principal and interest repayments?

Interest-only repayments mean you're only paying the interest portion of the loan each month, which keeps your repayments lower and can improve cash flow, particularly if the property is negatively geared. Principal and interest repayments reduce your loan balance over time and build equity faster, but your monthly repayment will be higher.

For properties held at 12 May 2026 or earlier, or for new builds acquired after that date, you can still claim all your interest and holding costs against your other income, including salary, which makes interest-only a common choice for investors wanting to maximise tax deductions in the early years. For established properties purchased after 12 May 2026, losses can only be offset against income from other residential properties from the 2027-28 income year onward, which changes the tax benefit calculation.

Interest-only periods are typically approved for five years at a time and can sometimes be extended, depending on the lender and your circumstances. Once the interest-only period ends, the loan reverts to principal and interest unless you apply to renew. It's worth noting that long-term interest-only loans with an LVR above 80 per cent and an interest-only period longer than five years are classified differently under the prudential standards, which can affect pricing and availability.

Should you fix, go variable, or split the loan?

A variable rate gives you flexibility to make extra repayments, redraw funds if needed, and avoid break costs if you want to refinance or sell. A fixed rate locks in your repayment for a set period, which can help with budgeting, but you'll lose flexibility and may face significant break costs if you exit early.

Many investors around Joondalup choose a split loan, where part of the loan is fixed and part is variable. That way, you get some rate certainty while keeping the ability to make extra repayments on the variable portion. The right mix depends on your risk tolerance, your cash flow, and how long you plan to hold the property. If you're planning to refinance within a few years to fund another purchase, locking in too much on a fixed rate can work against you.

Rate discounts on investment loans are typically smaller than on owner-occupier loans, and interest-only loans generally sit at a higher rate than principal and interest loans, even on the same product. Your rate will also depend on your deposit size, with lower LVRs attracting lower rates. If you're comparing refinancing options, make sure you're looking at the comparison rate and any ongoing or exit fees, not just the headline interest rate.

What loan features matter for property investors?

An offset account can be valuable if you're holding surplus cash and want to reduce the interest you're charged without losing access to those funds. Redraw facilities let you pull back any extra repayments you've made, which can be handy for covering maintenance or funding further purchases, but access can be restricted by some lenders, particularly during interest-only periods.

If you're planning to grow a portfolio, look for a loan that doesn't charge a fee every time you make a change or add a new property. Some lenders allow you to add securities or split loans without rewriting the entire facility. Others will treat each property as a standalone loan, which can mean more paperwork and higher fees as your portfolio grows.

Portability can also matter if you think you might sell one property and buy another within a short timeframe. A portable loan lets you transfer the existing loan to a new property without refinancing, which can save you time and money. Not all lenders offer this, and there are usually conditions around timing and loan amount.

How does rental income affect your borrowing capacity?

Lenders assess rental income at a discount, usually between 70 and 80 per cent of the advertised or contracted rent. That discount is called a shading factor, and it's applied to account for vacancy periods, repairs, and property management costs. If you're buying a property that's currently tenanted, the lender will want to see a copy of the lease. If it's vacant, they'll ask for a rental appraisal from a licensed property manager.

For someone looking at a two-bedroom unit near Lakeside Joondalup Shopping City, the advertised rent might sit around $450 to $500 per week depending on condition and proximity to the train station. The lender will shade that income and assess serviceability at current variable rates plus a 3 percentage point buffer. If your existing commitments are high, or if you're borrowing at a high LVR, the shaded rental income may not be enough to support the loan on its own, and the lender will rely more heavily on your personal income.

Debt-to-income limits also apply to investment lending. From February 2026, lenders can only write up to 20 per cent of their new investment loans to borrowers with total debt of six times their income or more. If you're close to that threshold, your borrowing capacity may be capped even if you can comfortably service the repayments. This is where working with a broker who understands lender policy becomes useful, because not all lenders calculate DTI the same way, and some have more room than others within that 20 per cent limit.

What costs can you claim and what can't you?

Interest on your investment loan is fully deductible for the period the property is rented or genuinely available for rent, as are ongoing costs like council rates, insurance, property management fees, strata fees if it's a unit, repairs, and depreciation. Stamp duty and conveyancing costs are not deductible, but they can be included in your cost base when you eventually sell, which reduces your capital gain.

If you've borrowed funds for a private purpose and secured that loan against an investment property, the interest on that portion is not deductible. That's a common mistake when investors refinance and pull out equity for personal use without splitting the loan correctly. The ATO is clear on this, and if your loan purpose is mixed, you need to keep separate accounts or at least separate splits to claim the deduction correctly.

Lenders Mortgage Insurance premiums are also not deductible upfront, but they do form part of your cost base for capital gains purposes. Loan establishment fees and ongoing account-keeping fees are deductible in the year they're incurred, provided the loan is used to purchase or hold the investment property.

How do the negative gearing changes affect new investors?

For properties you already own, or for new builds, the negative gearing rules haven't changed. You can still offset your property losses against salary and other income. For established properties purchased after 12 May 2026, losses can only be offset against income from residential property, including capital gains, from the 2027-28 income year onward.

That doesn't mean you lose the deduction. It just means the loss is quarantined and carried forward until you have rental income or a capital gain to offset it against. If you're holding the property long-term and expecting it to deliver a capital gain on sale, the quarantined losses will reduce that gain. If you sell within a few years and the property hasn't generated much rental income, you may not get full value from those deductions.

New builds are still exempt, which includes dwellings built on vacant land and developments that increase the dwelling count on a site. A knock-down rebuild that results in the same number of dwellings is not exempt. For investors in growth areas like Joondalup, where there's a reasonable pipeline of new apartment and townhouse developments, that exemption can make a material difference to after-tax returns, particularly in the first few years when the property is negatively geared.

What happens when you want to add a second or third property?

Once you've held your first investment property for a few years and built some equity, you can often use that equity as a deposit for your next purchase. The lender will revalue your existing property, calculate how much equity is available, and determine whether you have enough serviceability to support another loan.

Your borrowing capacity for a second property depends on how much equity you can access, how much rental income the new property will generate, and how much of your income is already committed to existing loans. The serviceability test includes all your loans, not just the new one, so if your first property is still negatively geared, that will reduce how much you can borrow for the second.

Some lenders will let you cross-securitise, meaning both properties are used as security for both loans. That can make it easier to access equity and avoid LMI, but it also means you can't sell one property without the lender's consent to release that security. Other lenders prefer to keep each property on a standalone loan, which gives you more flexibility but may require a higher deposit or LMI on each purchase.

Call one of our team or book an appointment at a time that works for you. We'll look at your current position, talk through your goals, and help you structure your lending so it supports your next move without locking you into something that's hard to unwind later.

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