Buying an Established Investment Property: Loan Guide

If you are buying an established investment property, the date you acquire it now affects how any rental loss is taxed, and your loan structure should reflect that.

The rules that apply to the property itself do not change based on your profession. This article covers the points that shape your decision: tax treatment, LVR, interest-only terms, rental income and structure.

How Does Negative Gearing Apply to an Established Investment Property?

From the 2027-28 income year, net rental losses from established residential properties acquired after 7:30pm AEST on 12 May 2026 can only be deducted against other residential property income, including residential capital gains. Excess losses can be carried forward.

Properties acquired between that time and 30 June 2027 can be negatively geared under the current rules until 30 June 2027 only. Properties held at 7:30pm AEST on 12 May 2026, including those under contract awaiting settlement at that time, keep full deductibility of losses against other income, including salary, until sold. The change does not affect whether interest is deductible. It affects how a net rental loss can be used.

For a salaried judicial officer, this means a loss on a newly bought established property may no longer reduce your salary tax from 2027-28. The loan should be affordable from your income, not reliant on a tax offset. Confirm how this applies to you with your accountant.

How Much Can You Borrow for an Investment Property?

Your investment loan amount depends on your income, existing debts and the lender's policy. Lenders assess income against their own policies, and you will need to provide the usual income evidence. Banks must test your ability to repay at a rate at least 3.0 percentage points above the loan rate.

That buffer applies to authorised deposit-taking institutions, such as banks, credit unions and building societies. Non-bank lenders are not bound by it. APRA also limits each bank's new lending at a debt-to-income ratio of six times or more to 20 per cent of its new mortgage lending. This is a portfolio limit, not a cap on you personally.

Existing debts count as well. Lenders ask about your current balances, rates and terms, and may apply a notional repayment to credit card limits, so ask your broker how unused limits are treated. You can test your position with our borrowing capacity page.

Rental Income: How Much Will a Lender Count?

APRA's view is that prudent lenders count no more than 80 per cent of expected rent, to allow for vacancy. This haircut does not cover management fees, repairs or other holding costs.

Lenders generally place less weight on a rental appraisal than on actual rent received. What each lender accepts for a new purchase, and for how long, is set by its own policy. Ask your broker which evidence suits the property before you sign a contract.

Deposit, LVR and Lenders Mortgage Insurance

Lenders mortgage insurance is generally required when the loan-to-value ratio (LVR) is above 80 per cent. The 80 per cent figure is a lender threshold, not a legal limit on borrowing.

Above 80 per cent, the lender and the insurer must both approve the loan. The borrower pays the premium, and the cost rises with the loan amount and LVR. Offset balances do not reduce the loan amount when LVR is calculated. Some lenders offer LMI waivers to certain professions, and criteria vary by lender and occupation. See our pages on LMI waivers for lawyers and no LMI loans for lawyers to check what may apply to legal professionals.

The trade-off: a larger investor deposit lowers the loan and can avoid LMI, but it ties up cash you might otherwise keep in an offset account for flexibility.

Interest Only or Principal and Interest on an Investment Loan?

Interest-only repayments are lower in the short term, while principal and interest repayments reduce the debt from the start. An interest-only period is usually one to five years.

An interest-only feature does not increase borrowing capacity. Lenders assess you as if principal and interest repayments applied over the remaining term after the interest-only period ends. A 30-year loan with a 5-year interest-only period is assessed over 25 years.

As an example, take a $800,000 loan at an illustrative 6.75% p.a. Interest-only repayments are about $4,500 a month. Principal and interest over 30 years is about $5,189 a month. If the loan reverts to principal and interest after 5 years, the repayment over the remaining 25 years rises to about $5,527 a month, because the balance has not fallen. The monthly saving of roughly $690 during the interest-only period is therefore followed by a higher repayment later.

For tax, only the interest portion of a repayment is deductible under either structure. The principal portion is not. Ask your accountant how this applies to your circumstances. To explore the structure further, read about interest only loans for lawyers.

Variable or Fixed Rate: What Is the Trade-Off?

A variable rate moves with the lender's pricing, while a fixed rate sets your repayment for a period. Fixing gives certainty but may limit features such as offset accounts or extra repayments, depending on the lender.

Break costs can apply if you exit a fixed loan early, and the method varies by lender. A split between the two is common. Confirm each portion's features before you commit. Rate discounts also vary by lender, and our page on getting a lower interest rate explains how to ask for one.

Protecting Deductibility When You Use Equity or Redraw

Interest is deductible based on what the borrowed money is used for. Under ATO Taxation Ruling TR 2000/2, each redraw or drawdown is treated as a separate borrowing, so private use is not deductible.

Consider a magistrate who buys an established investment property with a loan, then redraws $40,000 for a family holiday. That portion of the loan is now private debt, and its interest is not deductible. Had the holiday been paid from a separate account, the investment loan would have stayed clean. The practical outcome is to keep investment borrowing separate from personal spending and keep clear records for your accountant.

If you plan to fund a later purchase from equity, the same principle applies. Our equity release loans for lawyers page covers the mechanics, and investment loans for lawyers sets out the wider options.

If you are weighing up an established purchase, call one of our team or book an appointment at a time that works for you. We will compare lenders across Australia and structure the loan around your income, your deposit and your tax advice.

Frequently Asked Questions