Unlock the Secrets to Buying Your First Investment Property

Buying an investment property means borrowing to acquire a residential property you intend to rent out, not live in.

The distinction matters because lenders assess investment loan applications differently to owner-occupier applications. They price investor loans at a higher interest rate, typically between 0.20 and 0.50 percentage points above the equivalent owner-occupier product. Serviceability is tested against future rental income, not just your salary, and the buffer applied is 3.0 percentage points above the loan rate. Deposit requirements for investors usually start at 10 per cent, though some lenders will consider 5 per cent with Lenders Mortgage Insurance.

For Canberra buyers, the decision often comes down to whether you purchase locally or look interstate. Median dwelling values in the ACT have held relatively steady compared to other capitals, but rental yields in Canberra itself tend to sit below 4 per cent for houses and closer to 5 per cent for units. That creates a cash flow challenge if you're borrowing at current variable rates. Many first-time investors we work with look to regional NSW or Queensland for higher yields, but that introduces distance, unfamiliarity, and sometimes lender postcode restrictions.

How Much Can You Borrow for an Investment Property

Investor borrowing capacity is calculated using your income, existing debts, living expenses, and the rental income the property is expected to generate. Lenders will shade the rental income, usually applying between 70 and 80 per cent of the gross rent to account for vacancy periods, maintenance, and body corporate fees. They also apply the 3.0 percentage point serviceability buffer and assess repayments on a principal and interest basis even if you're applying for interest-only.

Consider a buyer earning $95,000 annually with a $400 monthly car loan and no other debts. At an assessed rate of around 9.0 per cent (assuming a variable rate of 6.0 per cent plus the buffer), the lender calculates what you can service after living expenses. If you're targeting a property that will rent for $550 per week, the lender applies 80 per cent of that figure, adding roughly $23,000 to your serviceable income. In this scenario, borrowing capacity might sit around $450,000 to $500,000 depending on the lender and your declared living expenses.

The debt-to-income limit introduced in February means lenders cannot write more than 20 per cent of new investor loans to borrowers with total debt exceeding six times their gross income. If your salary is $95,000, six times that figure is $570,000. A loan above that threshold doesn't disqualify you, but it does sit within the lender's restricted allocation, which can mean longer approval times or a decline if the lender has already filled their quota for the quarter.

Interest-Only or Principal and Interest for Investment Loans

Interest-only repayments keep your monthly outgoings lower during the interest-only period, which can help if the property is negatively geared or if you're planning to use surplus cash flow to build savings or pay down other debt. Most lenders offer interest-only terms of up to five years on investment loans, after which the loan reverts to principal and interest.

The trade-off is that you're not reducing the loan balance during the interest-only period, so the eventual reversion to principal and interest will lift repayments noticeably. A loan amount of $480,000 at 6.0 per cent interest-only costs around $2,400 per month. When it reverts to principal and interest with 25 years remaining, the repayment jumps to roughly $3,100 per month. That difference matters if your income or rental income hasn't increased in the meantime.

Principal and interest from the outset means you're reducing the debt and building equity faster, but it also means higher repayments and a larger negative cash flow position if the rent doesn't cover the mortgage. For investors who plan to hold the property long-term and want to reduce debt over time, interest-only investment loans offer flexibility in the early years without locking you into interest-only indefinitely.

Fixed Rate or Variable Rate for Investment Property Finance

Variable rates give you flexibility to make extra repayments without penalty and access features such as offset accounts, though offset accounts on investment loans are less tax-effective than on owner-occupier loans because the interest you save reduces your deduction. Fixed rates lock in your repayment and your interest deduction for the fixed period, which helps with budgeting and protects you if rates rise, but you lose flexibility and may face break costs if you repay early or refinance.

In the current environment, fixed rates for investors are sitting slightly below variable rates at some lenders, but the differential is narrow. Fixing all or part of your loan makes sense if you want certainty over your cash flow and your tax position for the next two to three years. Splitting the loan between fixed and variable gives you some certainty while retaining flexibility on the variable portion. We regularly structure split loans for rentvesting clients who want to manage rate risk without giving up all their repayment flexibility.

Deposit Requirements and Lenders Mortgage Insurance

Most lenders will lend up to 90 per cent of the property value for investment purchases, meaning you need a 10 per cent deposit plus costs. Borrowing above 80 per cent triggers LMI, which is calculated as a one-off premium based on the loan amount and loan-to-value ratio. At 90 per cent LVR on a $500,000 property, the LMI premium is typically between $12,000 and $16,000 depending on the insurer. You can capitalise that premium into the loan amount, though doing so increases your LVR and may push you into a higher premium band.

Some lenders will go to 95 per cent LVR for investment loans if you meet specific criteria, such as demonstrating strong savings history or holding professional qualifications, but most cap investor lending at 90 per cent. Guarantor arrangements can help you avoid LMI entirely by using equity in a parent's home to cover the shortfall between your deposit and the 80 per cent threshold, though guarantor investment loans introduce complexity around how the guarantee is structured and when it can be released.

If you're purchasing in Canberra or the ACT, stamp duty on investment properties is calculated at the standard rates without concession. On a $500,000 purchase in the ACT, duty is around $14,600. Add conveyancing, building and pest inspections, and loan establishment costs, and your total upfront cash requirement at 90 per cent LVR is roughly $65,000 to $70,000.

Choosing Between Canberra, Regional NSW, and Interstate Markets

Canberra's investment market is characterised by stable demand tied to public sector employment, low vacancy rates (currently below 1 per cent in many suburbs), and moderate capital growth. Rental yields on houses in established suburbs such as Chifley, Macgregor, and Kambah sit between 3.5 and 4.0 per cent. Units in Belconnen and Gungahlin can push above 5 per cent, but apartment oversupply in some precincts has flattened values and increased vacancy risk.

Regional NSW markets such as Queanbeyan, Goulburn, and Bathurst offer higher yields, typically between 5.0 and 6.5 per cent, but come with narrower buyer and tenant pools, longer selling times, and greater sensitivity to local employment changes. Interstate markets in Queensland and South Australia have attracted significant Canberra-based investor interest over the past two years, but distance makes property management and due diligence harder, and some lenders apply postcode overlays that restrict lending in certain high-density or high-investor-concentration areas.

We work with clients buying in all three categories. The decision hinges on whether you prioritise yield, growth, or familiarity. A regional NSW purchase within two hours of Canberra gives you higher income and the option to inspect the property yourself. An interstate purchase in a growth corridor might offer stronger capital appreciation but requires more reliance on remote property management and market research you can't verify in person. Interstate property investment loans are commonly written by national lenders, though some smaller ADIs restrict lending outside their home state.

Tax Treatment of Investment Property Borrowing Costs

Interest on an investment loan is deductible in the financial year it's charged, provided the property is rented or genuinely available for rent. Other holding costs, including council rates, insurance, property management fees, and repairs, are also deductible. Depreciation on the building and fixed assets can be claimed using a quantity surveyor's report, though capital works deductions for established properties purchased after May 2017 are limited.

From the 2027-28 income year, losses on established investment properties purchased after 12 May 2026 can only be offset against income from residential properties, not against salary or wage income. Properties under contract before that date, and eligible new builds purchased after that date, remain fully negatively geared. If you're buying an established property now, your holding costs and interest can still be deducted against all income until 30 June 2027, and fully from 2027-28 onwards provided you exchange contracts before mid-May. If you're planning to purchase after that date, structuring around a new build rentvesting property preserves full deductibility indefinitely and retains access to the 50 per cent capital gains tax discount on disposal.

Structuring the Loan Application for Investment Property Finance

Lenders assess investment loan applications using the same serviceability framework as owner-occupier loans, but they apply investor-specific criteria around rental income, LVR, and loan features. Rental income is shaded, typically to 80 per cent of the gross figure on the lease or the lender's estimated rental range if the property is vacant. If you're purchasing off-the-plan or before practical completion, some lenders won't include any rental income in serviceability until the property settles and is tenanted.

Your employment type, income stability, and credit history all carry the same weight as they would on an owner-occupier application. If you're self-employed, most lenders require two years of tax returns and financials, though some will accept one year if your income is strong and consistent. If you already own your home and are purchasing your first investment property, the lender will include your existing mortgage repayments in the serviceability calculation, which reduces how much additional debt you can service. If you're renting and buying an investment property as your first purchase, the lender replaces your current rent with a living expense benchmark, which often improves your serviceability.

Loan features such as offset accounts and redraw are less commonly used on investment loans because reducing the interest paid reduces your deduction. If you do want an offset account for flexibility, it's worth understanding how the lender calculates interest and how that affects your tax position. We cover this in detail in our guide to offset accounts on investment loans.

When to Refinance an Investment Loan

Refinancing an investment loan makes sense when you can secure a lower rate, access better loan features, or release equity for a second purchase. Rate discounts on investment loans vary widely between lenders, and the gap between the best and worst rates in the market can exceed 1.0 percentage point. On a $480,000 loan, a 0.80 percentage point reduction saves around $320 per month, which compounds over time and materially improves cash flow.

If you've held the property for several years and values have increased, refinancing lets you access equity without selling. Most lenders will lend up to 80 per cent of the current value without requiring LMI, so if your property has appreciated from $500,000 to $600,000 and your loan balance is $450,000, you can potentially access $30,000 in usable equity. That equity can fund a deposit on a second investment property, though the lender will assess your serviceability across both loans. Investment loan refinancing also gives you the chance to restructure between fixed and variable, adjust your interest-only period, or consolidate multiple loans under one facility.

Refinancing costs include valuation fees, discharge fees from your current lender, and application fees with the new lender. Most of these costs are deductible over five years if the loan is for investment purposes. The payback period on a refinance is typically between 12 and 24 months depending on the rate saving and the upfront costs involved.

Call one of our team or book an appointment at a time that works for you. We'll walk through your deposit position, borrowing capacity, and loan structure options, and help you work out whether buying locally or interstate makes sense for your circumstances and your timeline.

Frequently Asked Questions