Choosing an investment property and choosing the loan are one decision, not two. The type of property, its purchase date and the loan structure all change what you can borrow and how any rental loss is treated at tax time.
For investors in Edens Landing and surrounding areas, the practical question is whether a particular property suits your finances. Whether it looks good on paper is a separate question. This article covers the three tests that matter most: tax treatment, lender serviceability and repayment structure.
Does the Type of Investment Property Change the Tax Result?
Yes. Under current law, an established property bought after 7:30pm AEST on 12 May 2026 is treated differently from a property held at that time or an eligible new build. The rules sit in the Treasury Laws Amendment (Tax Reform No. 1) Act 2026.
From the 2027-28 income year, net rental losses from those established properties can only be deducted against other residential property income, including capital gains on residential property. Excess losses can be carried forward. Properties bought between 12 May 2026 and 30 June 2027 can still be negatively geared under the current rules until 30 June 2027 only.
Eligible new builds acquired after 12 May 2026 can continue to deduct losses against all income. That covers dwellings built on previously vacant land, and replacements that increase the number of dwellings. Knock-down rebuilds that do not add dwellings are not eligible, and neither are substantial renovations. A new build occupied for more than 12 months before sale to a later investor loses this treatment for that buyer.
The trade-off is that a new build may suit the tax rules while carrying construction timing and pricing risks. Tax outcomes depend on your circumstances, so speak with your accountant before you choose a property. Interest itself remains deductible when the borrowing is used for the rental property, but only the interest part of a repayment is deductible, not the principal.
How Do Lenders Count Rental Income on an Investment Loan Application?
Lenders generally count only part of the expected rent. APRA's guidance says prudent serviceability policies apply a minimum 20 per cent haircut, so no more than 80 per cent of expected rent is counted.
That haircut allows for periods without a tenant. It does not cover management fees, repairs or other holding costs, which you still pay. Lenders also place less weight on a rental appraisal than on actual rent received, so the evidence they accept for a new purchase varies by lender.
Banks must also test your ability to repay at a rate at least 3.0 percentage points above the loan rate. Non-bank lenders are not bound by that buffer, though they set their own policies. Because lenders differ, your borrowing capacity can vary between them, and a broker can compare how several assess the same property.
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Interest-Only vs Principal and Interest: A Worked Example
An interest-only loan lowers repayments during the interest-only period, but the loan balance does not fall and repayments rise afterwards. The following example is illustrative and uses a rate of 6.75% p.a. for every figure.
Consider an investor in Edens Landing who plans to borrow $500,000 for a rental property. On a 30-year principal and interest loan, the repayment is about $3,243 a month. On interest-only, the repayment is about $2,813 a month, or $33,750 in interest over the year, a saving of roughly $430 a month. The investor wants this lower cash outlay in the first five years.
When the five years end, the loan reverts to principal and interest over the remaining 25 years. Repayments then rise to about $3,454 a month, which is around $211 more than the 30-year principal and interest repayment. The balance is still $500,000 at that point, because nothing was paid off.
The outcome is a clear cost: lower repayments now in exchange for higher ones later and no reduction in debt. Lenders also assess interest-only applications using the shorter remaining term, so the feature does not lift your borrowing capacity. Only the interest is deductible under either structure, and your accountant can confirm how that applies to you. You can test your own numbers with our mortgage repayment calculator.
What Deposit and Loan-to-Value Ratio Should You Plan For?
Lenders' policies set the deposit you need, and a loan-to-value ratio (LVR) above 80 per cent generally requires Lenders Mortgage Insurance (LMI). The 80 per cent figure is where LMI generally starts, not a legal borrowing limit.
Borrowing above 80 per cent needs approval from both the lender and the LMI insurer. The premium is paid by the borrower, and it adds to the cost of the purchase. Each lender sets its own maximum LVR for investors, so the deposit you need depends on the lender and the property.
If you already own a home, you may be able to use equity as the investor deposit. Equity release has a cost: the new borrowing increases your total debt, and interest is only deductible when the funds are used to buy or hold the rental property. Redrawing or releasing money for personal use makes that portion non-deductible. Offset account balances do not reduce the loan amount for LVR purposes.
Property Selection Checks Before You Apply for an Investment Loan
Before you sign a contract, confirm how the property is classified for tax and for the lender. A property with a body corporate adds levies to your holding costs, and these reduce your cash flow even though rent is the only income counted.
Check whether the lender will accept the rental evidence you have. Confirm the repayment structure you want, and ask how the loan would work if you later refinance. If you already hold a loan, a loan health check or a review of refinancing options may show how existing debt affects the next purchase.
If the purchase is a new build, check that it meets the definition of an eligible new build before you rely on the tax treatment.
Our investment loans team can help you compare lenders. Call one of our team or book an appointment at a time that works for you, and we will test the property and the loan together before you commit. You can also read about our local service at Mortgage Broker in Edens Landing.
Frequently Asked Questions
How much rental income do lenders count for an investment loan?
APRA's guidance says prudent policies count no more than 80 per cent of expected rent. Each lender sets its own rules on the evidence it accepts.
Does interest-only increase how much I can borrow?
No. Lenders assess interest-only loans on principal and interest repayments over the shorter remaining term, so the feature does not lift borrowing capacity.
Is the interest on an investment loan tax deductible?
Interest on borrowings used for a rental property is generally deductible, but the principal part of a repayment is not. Speak with your accountant about your situation.
When does an investment loan need LMI?
LMI is generally required when the LVR is above 80 per cent. The premium is paid by the borrower and depends on the lender and insurer.
