An investment loan is assessed differently from the loan on your own home — mainly because the lender counts the expected rent as income, but only part of it. That single haircut, plus how the lender treats your existing mortgage, decides most of what you can borrow. Two lenders looking at the same investor and the same property routinely land hundreds of thousands apart.
How lenders assess an investment purchase
Rental income is discounted
Lenders do not count the full rent. They apply a discount to allow for vacancy, management fees, rates, insurance and maintenance. The proportion counted varies between lenders, and on a portfolio that difference compounds quickly.
Your existing debts are stress-tested
Your current home loan is assessed at a rate above what you actually pay. If you have other investment loans, the same applies to each. This is why the second and third purchases feel much harder than the first, and why some investors find capacity disappears even though the properties are cash-flow positive.
The property itself matters
Some lenders restrict or refuse: small apartments below a floor-area threshold, high-density developments, serviced apartments, student accommodation, and properties in postcodes they consider oversupplied. Learning this after you have signed a contract is an expensive way to find out.
Deposit and LVR
Investment lending typically requires more equity than owner-occupied. Above 80% LVR you pay LMI, and some lenders cap investment lending below the level they would allow on a home.
Using equity instead of cash
Most investors do not save a fresh deposit. They release equity from a property they already own.
The usable amount is generally the difference between 80% of the current value and what you still owe. On a home worth $700,000 with $350,000 owing, that is roughly $210,000 available — subject to the lender’s valuation and your ability to service the larger total debt.
Two things worth understanding before you do this:
- The valuation decides everything, and lender valuations are often more conservative than what an agent tells you.
- Keep the loans separate. If you release equity for an investment, structure it as a distinct split rather than mixing it into your home loan. Mixed loans make the deductible portion difficult to evidence and can create problems at tax time. Your accountant will thank you.
Interest-only, or principal and interest?
Interest-only keeps repayments lower during the term and, for an investment property, keeps the deductible interest higher — which is why many investors use it. The trade-offs are real:
- You are not reducing the debt, so total interest over the life of the loan is higher.
- Interest-only rates are usually priced above principal-and-interest.
- When the interest-only period ends, repayments step up sharply because the same principal now has fewer years to be repaid over. Plan for that date rather than being surprised by it.
- Some lenders assess interest-only applications more conservatively.
Which suits you depends on your cash flow, your tax position and how long you intend to hold. That is a conversation involving your accountant, not a rule that applies to everyone.
Tax: the general principles only
We are a credit representative, not tax advisers, so this is the general shape and nothing more — your accountant applies it to your circumstances.
- Negative gearing means the property costs more to hold than it earns, and the shortfall may reduce your taxable income. It is a way of managing a loss, not a way of making money. A property only makes sense negatively geared if you expect the capital growth to more than cover the losses along the way.
- Interest is generally deductible where the borrowed money was genuinely used to produce income. What the money was used for matters, not which property secures it — another reason to keep loan splits clean.
- Depreciation on the building and fittings can be significant, particularly on newer properties. A quantity surveyor’s schedule usually pays for itself.
- Capital gains tax applies on sale, with a discount generally available where the asset has been held longer than twelve months.
Common questions
How much deposit do I need for an investment property?
Commonly 20% to avoid LMI, though lending above that is available with LMI. Many investors use equity from an existing property rather than cash.
Can I use my home’s equity as the deposit?
Usually yes, if you have equity and can service the combined debt. Structure it as a separate split so the investment portion stays clearly identifiable.
Do lenders count all of my rental income?
No. A discount is applied, and the proportion differs between lenders. For a property that is not yet tenanted, lenders generally use a market rent assessment rather than your estimate.
Can I get an investment loan while self-employed?
Yes — income is assessed the same way as any self-employed application. See self-employed home loans.
Why did my borrowing capacity drop after my first investment?
Because the new debt is assessed at a buffered rate while only part of the rent is counted. This is the main constraint on building a portfolio, and it is where lender selection matters most — the spread between the most and least generous assessment is often large.
Should I buy in a trust or company?
It depends on asset protection, land tax and your broader tax position, which is your accountant’s and solicitor’s territory. What we can tell you is how each structure affects lending: fewer lenders, different documentation, and sometimes different pricing.
Work out your real capacity first
Knowing what you can borrow — and which lenders will treat your existing debts most favourably — before you start looking saves you from bidding on something you cannot finance.
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This page is general information only and does not take your objectives, financial situation or needs into account. It is not credit assistance, a credit quote, financial product advice, or taxation or legal advice — obtain independent advice before acting. Lender policies vary and change. Nothing here is a guarantee of approval or of investment returns. Easy Loan Finance is a Credit Representative (CRN 568863) of Beagle Finance Pty Ltd, Australian Credit Licence 383640.
