Top Strategies to Finance an Investment Apartment

Investment apartments open a clear path into the property market when houses feel financially out of reach.

The right loan structure can determine whether your apartment purchase generates positive cash flow or creates ongoing financial strain. For Perth-based investors, understanding how lenders assess apartments differently to houses, and how to structure your borrowing accordingly, matters more than chasing the lowest advertised rate.

How Much Deposit Do You Need for an Investment Apartment?

Most lenders require a 20 per cent deposit to avoid Lenders Mortgage Insurance on investment apartment purchases. A $400,000 apartment would require $80,000 in genuine savings plus settlement costs including stamp duty, conveyancing and building inspection fees.

Some lenders will accept a 10 per cent deposit with LMI, but this adds significant upfront cost and not all apartment types qualify. High-rise apartments, particularly those over 50 metres or with more than 50 per cent non-residential floor space, face tighter lending criteria. Several major banks cap lending at 70 or 80 per cent LVR for these buildings regardless of your deposit size.

In our experience, investors who start with a rentvesting strategy often leverage equity from an existing property rather than saving a separate deposit. This approach suits buyers who already own their principal place of residence and want to expand into investment property without liquidating savings.

Interest-Only or Principal and Interest: Which Suits Apartment Investors?

Interest-only investment loans reduce monthly repayments during the initial fixed period, typically five years, which improves cash flow when rental income doesn't fully cover the mortgage.

Consider an investor purchasing a two-bedroom apartment in Scarborough for $450,000 with a 20 per cent deposit. On a principal and interest loan at current variable rates, monthly repayments would exceed typical rental income for that property type by around $200 to $300 per month. Switching to interest-only for the first five years reduces the gap to roughly $50 to $100 per month, making the holding cost more manageable while you build equity elsewhere or prepare for rate changes.

Interest-only loans don't reduce the loan amount, so you're not paying down the debt during that period. Some investors prefer this because it frees up cash flow for additional property purchases or offsets the cost of holding a negatively geared asset. Others prioritise principal and interest from day one to reduce long-term debt and build equity faster.

Do Lenders Treat All Apartments the Same Way?

Lenders classify apartments by height, age, location and strata complexity. A low-rise apartment in a well-maintained complex near the Perth CBD will typically qualify for higher LVR lending than a high-rise unit in a mixed-use building with commercial tenants on lower floors.

Buildings with more than 50 per cent non-residential use often face restricted lending, with some lenders capping loans at 70 per cent LVR or declining the application outright. Apartments smaller than 50 square metres can also trigger restrictions, as can buildings with known cladding issues or deferred maintenance flagged in strata reports.

Body corporate fees matter too. Lenders assess your borrowing capacity by including these fees as an ongoing expense, which reduces the loan amount you can service. A $450,000 apartment with $1,500 per quarter in body corporate fees will support a lower loan amount than a $450,000 house with no equivalent cost.

When selecting an investment loan for units and apartments, focus on properties that meet mainstream lending criteria. This keeps your refinancing options open and avoids limiting your borrowing capacity down the track.

Variable or Fixed Rate for Investment Apartment Loans?

Variable rates allow flexibility to make extra repayments, redraw funds and refinance without break costs. Fixed rates lock in your repayment amount for a set period, which helps with budgeting but removes flexibility if your circumstances change.

In the current environment, lenders assess your serviceability at a rate at least 3 percentage points above the loan product rate regardless of whether you choose variable or fixed. A split loan structure lets you fix part of the loan for rate certainty while keeping the remainder variable for flexibility.

Some investors fix 50 to 70 per cent of the loan and leave the rest variable. This approach suits buyers who want predictable repayments on the majority of the debt but still want access to offset accounts or the ability to make additional payments without penalty.

How Rental Income Affects Your Borrowing Capacity

Lenders typically assess 80 per cent of the expected rental income when calculating your borrowing capacity for investment apartment loans. If the apartment you're purchasing is expected to rent for $500 per week, the lender will include $400 per week as income in their serviceability assessment.

This rental income assessment reduces the impact of the new loan on your overall borrowing capacity, but it doesn't eliminate it. You still need to demonstrate you can service both your existing debts and the new investment loan, including the serviceability buffer, from your total income.

Vacancy periods reduce cash flow but don't change the loan repayment. Investors who rely heavily on rental income to service the loan should maintain a buffer equivalent to at least three months of repayments to cover gaps between tenants or unexpected maintenance costs.

Tax Deductions and Loan Structure

Interest on borrowings used to purchase or hold a rental property is deductible against your assessable income. If you borrow $360,000 to purchase an investment apartment and pay $20,000 in interest during the financial year, that $20,000 is claimable as a deduction provided the property is rented or genuinely available for rent.

Offset accounts on investment loans reduce the interest charged but also reduce your tax deduction. An offset balance of $50,000 on a $360,000 loan means you're only paying interest on $310,000, which reduces your deductible interest expense by roughly $2,500 per year at current rates. Some investors prefer to park surplus cash in an offset linked to their owner-occupier loan instead, where the interest isn't deductible, and maximise the deductible interest on their investment loan.

For a detailed breakdown of tax treatment, refer to our guide on negative gearing and how it applies to rental properties.

What Happens If You Want to Refinance Later?

Investment loan refinancing becomes relevant when your current rate is uncompetitive, your borrowing capacity has improved, or you want to access equity for a second purchase.

Apartments in certain buildings can become harder to refinance if the lender's policy changes or if strata issues emerge. Buildings with high investor concentration, unresolved defects or cladding concerns can be reclassified by lenders, which restricts your refinancing options even if your loan is performing.

Before purchasing, check the building's strata report for any flags around special levies, legal disputes or deferred maintenance. These issues don't always prevent you from securing a loan initially, but they can limit your ability to refinance or release equity later.

Structuring Your Loan for Portfolio Growth

Investors planning to purchase a second property within a few years should structure their first loan to preserve borrowing capacity. Keeping the investment loan separate from your owner-occupier loan avoids cross-collateralisation and makes it easier to refinance individual properties as your portfolio grows.

If you're purchasing your first investment apartment while renting elsewhere, your loan structure should align with your broader rentvesting strategy. This might mean prioritising cash flow in the short term by choosing interest-only repayments, or focusing on debt reduction by selecting principal and interest from the outset.

For investors looking to scale beyond one property, our guide on growing a rentvesting portfolio covers how to structure loans and release equity without overextending.

Getting your investment apartment loan structure right from the start gives you control over cash flow, tax deductions and future refinancing options. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions