Beginner's Guide to Investment Loans for Units

An investment loan for a unit works the same way as any property investor loan, but lenders treat units differently when it comes to risk, deposit, and borrowing capacity.

The key difference is the loan-to-value ratio. Most lenders cap investment loans on units at 90 per cent LVR, which means you need at least a 10 per cent deposit plus costs. Some lenders apply an 80 per cent cap depending on the location, building size, or body corporate structure. If you borrow above 80 per cent LVR, you'll pay Lenders Mortgage Insurance, and that premium is higher for investor loans than it is for owner-occupiers.

How Lenders Assess Units Differently

Lenders classify a unit based on zoning, title type, and building composition. A residential strata unit in a building with fewer than six storeys is treated as standard security. A unit in a high-rise building, a serviced apartment complex, or a property with commercial zoning may be classed as non-standard or specialist, which can reduce your maximum LVR or limit your choice of lender.

Consider a buyer looking at a two-bedroom unit in a 15-storey tower near the Brisbane CBD. The purchase price sits at the suburb median, the buyer has a 15 per cent deposit, and their income comfortably services the loan. Three lenders decline the application because the building has more than 12 storeys. A fourth lender approves it but caps the LVR at 80 per cent, which means the buyer needs to increase their deposit or accept a smaller loan. The issue is not the buyer's financial position but the lender's appetite for that type of security.

Body corporate records matter. Lenders check sinking fund balances, insurance coverage, and whether there are outstanding defects or special levies. A building with a low sinking fund or unresolved structural issues can trigger a valuation reduction or a loan decline, even where the buyer meets all other criteria.

Variable Rate or Fixed Rate for Investment Units

Most investors choose a variable rate because it offers offset account access and unlimited additional repayments. An offset account linked to an investment loan does not reduce your tax deductions, because the loan balance stays the same and interest continues to accrue on the full amount. The offset simply reduces the interest you pay, which lowers your out-of-pocket cost without affecting the deductible portion.

A fixed rate locks in your repayment for one to five years and can be useful if you want certainty during the early years of ownership, particularly if you expect rental income to fluctuate or if you're managing multiple properties. The downside is that most fixed rate products do not offer offset accounts, and additional repayments are capped at around $10,000 to $30,000 per year depending on the lender.

Some lenders offer split loan structures, where part of the loan is fixed and part is variable. This allows you to combine rate certainty with offset flexibility, but it adds complexity when you're calculating repayments and planning for refinance.

Interest-Only Repayments and Cashflow

Interest-only repayments are commonly used on investment property loans because they lower the monthly repayment and improve cashflow in the early years. You pay only the interest portion each month, and the loan balance does not reduce. Most lenders offer interest-only periods of one to five years, after which the loan reverts to principal and interest unless you apply to extend the interest-only term.

An interest-only structure does not reduce your borrowing capacity with most lenders, but it does mean your loan balance remains static unless you make voluntary repayments. The rental income covers a higher proportion of the repayment when the loan is interest-only, which reduces the amount of negative gearing in the early years and can make the property cashflow-neutral or close to it, depending on the rent and interest rate.

From the 2027-28 income year, investors who purchase established residential property after 12 May 2026 will only be able to deduct losses, including interest costs, against income from other residential properties. Units purchased before that date, or units classed as eligible new builds, are not affected by the change and can continue to deduct losses against salary or other income. The distinction between eligible and non-eligible properties will affect how investors structure their loans and whether they prioritise principal reduction or cashflow.

Deposit, Stamp Duty and Upfront Costs

You need a cash deposit or equity to cover the deposit component of the purchase, plus stamp duty, legal fees, and any LMI premium. Stamp duty for investors is calculated at the standard residential rate in most states, not the concessional first home buyer rate. In New South Wales, Victoria, and Queensland, stamp duty on a unit near the median price can range from $15,000 to $35,000 depending on the suburb and price point.

If you're using equity from your home or another investment property, the lender will assess the available equity based on the current valuation of that property, less any existing debt. Most lenders allow you to borrow up to 80 per cent of the property value without LMI, which means you can access equity if your property has increased in value or if you have paid down the loan. Accessing equity above 80 per cent is possible with some lenders, but it will trigger an LMI premium on the new borrowing.

For borrowers funding the purchase entirely with cash, the deposit and costs need to be verified as genuine savings or a gift from an immediate family member. Lenders define genuine savings as funds held in your account for at least three months. Proceeds from the sale of another asset, such as shares or a previous property, are generally accepted without a waiting period.

Rental Income and Borrowing Capacity

Lenders use rental income to support your borrowing capacity, but they do not count 100 per cent of the rent. Most lenders apply a shading factor of 80 per cent to account for vacancy, maintenance, and property management costs. If the unit generates $500 per week in rent, the lender will assess your income as $400 per week, or $20,800 per year.

Some lenders accept a rental assessment based on a valuer's opinion if the property is vacant at the time of application. Others require a signed lease or evidence of comparable rentals in the same building or suburb. The rental income is treated as assessable income for serviceability purposes, but it does not replace your employment income. You still need to demonstrate that your total income, including the shaded rental figure, can service the proposed loan plus any other debts you hold.

Vacancy is a real cost. A unit in an oversupplied area or a building with high investor ownership can sit vacant for several weeks between tenants, and that lost income reduces your cashflow. Property management fees typically range from 5 per cent to 8 per cent of the weekly rent, plus letting fees when a new tenant is found. Body corporate fees on units range from $1,000 to $5,000 per year or more, depending on the building amenities and size of the complex. These are claimable expenses, but they still need to be funded from your cashflow or offset by rental income.

Tax Deductions and Holding Costs

Interest on the investment loan is fully deductible against rental income for the period the property is rented or genuinely available for rent. Other deductible costs include council rates, water rates, insurance, property management fees, repairs, and depreciation on the building and fixtures. Depreciation can be claimed on units built after 1985, and a quantity surveyor's report is required to calculate the annual deduction. The cost of the report, typically $600 to $1,200, is also deductible.

Capital works such as renovations or improvements are not immediately deductible but can be depreciated over 40 years if the work qualifies as a capital improvement. Loan establishment fees and LMI premiums can be deducted over five years or the life of the loan, whichever is shorter.

Negative gearing refers to the situation where your deductible costs, including interest, exceed your rental income. The net loss can currently be deducted against other income such as salary, which reduces your taxable income and generates a tax refund. For properties purchased after 12 May 2026 that are not eligible new builds, losses from the 2027-28 income year onward can only be offset against income from other residential properties, not against salary or wages. Excess losses can be carried forward indefinitely to offset future residential property income, including capital gains.

Refinancing and Portfolio Growth

Investment loan products are reviewed regularly, and lenders adjust their rates, LVR limits, and policy settings based on market conditions and regulatory requirements. Refinancing an investment property loan can provide access to a lower rate, release equity for further investment, or consolidate debt across multiple properties.

Most lenders allow you to refinance after settlement without penalty if you hold a variable rate loan. Fixed rate loans may incur break costs if you refinance before the fixed term ends, and those costs can be substantial if interest rates have fallen since you fixed. If you're planning to expand your portfolio or access equity within the first few years of ownership, a variable rate structure or a short fixed term will give you more flexibility.

If you're considering your options for purchasing an investment unit or structuring your loan to suit your property goals, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions