Simple hacks to buy an investment property in Australia

Can you get an investment loan before buying your first home?

You can get an investment loan without owning a home already, but most lenders will want to see that you've managed a mortgage before or have strong savings discipline. From 13 May 2026 onwards, both the 50% CGT discount and full negative gearing deductions will no longer apply from 1 July 2027 for established residential properties, so understanding how the recent Federal Budget changes affect your timing matters more than ever.

Consider a couple renting in Melbourne's inner suburbs who want to buy an investment property in a growth area before tackling an owner-occupied purchase. They're both in stable jobs, they've saved a deposit, and they're comfortable staying renters for now while building wealth through property. Their broker structures the loan with a 10% deposit plus Lenders Mortgage Insurance, using rental income projections to support their application. Because they bought before Budget night, they're grandfathered under the old negative gearing and capital gains arrangements. The rental property generates around 80% of its holding costs through rent, and the shortfall is fully deductible against their combined salary income. After two years, they refinance and use equity from the investment property to fund a deposit on their own home.

That scenario still works if you're buying now, but the tax treatment changes from mid-2027 if you purchase an established property after 12 May 2026. You can still claim the loss, but only against future rental income or capital gains from residential property, not against your wages. New builds remain fully incentivised under both measures. If you're planning to buy your first investment property, the type of property you choose now has a bigger impact on your long-term tax position than it did before the Budget.

What deposit do you need for an investment loan?

Most lenders will lend up to 90% of the property value for an investment purchase, which means you'll need at least a 10% deposit plus costs. The deposit must come from genuine savings, equity in another property, or a family guarantee. If you're borrowing above 80% of the property value, you'll pay Lenders Mortgage Insurance, which protects the lender if you default. LMI on an investment loan is typically higher than on an owner-occupied loan because lenders see investment properties as higher risk.

Some lenders will go to 95% for investment purchases if you meet specific criteria, but those products are rare and come with stricter income and employment requirements. In our experience, couples with a 15% to 20% deposit have access to better rates and more flexible loan features. That deposit percentage also keeps your LMI bill lower and gives you a buffer if property values dip in the short term.

How lenders assess rental income on your application

Lenders don't use the full rental income when calculating how much you can borrow. Most will apply a shading rate of around 80%, meaning if the property is expected to generate $500 per week in rent, they'll only count $400 towards your income. The shading accounts for vacancy periods, maintenance costs, and the possibility that rental income fluctuates.

You'll also need to show that you can service the loan without relying entirely on rent. Lenders assess your application using a higher interest rate than the actual rate you'll pay, often adding a buffer of 2% to 3%. That means if the current variable rate is around 6%, they'll test your ability to repay at 8% or 9%. If you're applying jointly as a couple, your combined income makes that serviceability test much easier to meet, but any existing debts like car loans, personal loans, or buy-now-pay-later accounts will reduce what you can borrow. Paying those down before you apply can increase your borrowing capacity significantly.

Interest only or principal and interest repayments

Investment loans often come with the option to make interest only repayments for a set period, usually between one and five years. During that time, you only pay the interest portion of the loan, which keeps your monthly repayments lower and can improve your cash flow if the property is negatively geared. Once the interest only period ends, the loan reverts to principal and interest repayments, and your repayments increase because you're now paying down the loan balance as well.

Interest only can make sense if you're planning to use the extra cash flow to pay down your owner-occupied home loan faster, or if you're focused on maximising your tax deductions in the short term. The interest on an investment loan is fully deductible, so keeping your repayments as interest only means you're maximising that deduction each year. Just keep in mind that you're not building equity through repayments during the interest only period. Your equity growth comes entirely from capital growth in the property value. If the market stays flat or falls, you won't have the buffer of paid-down principal.

If you're planning to hold the property long term and you want to reduce debt over time, principal and interest repayments mean you're steadily building equity and lowering your loan balance. The tax deduction is slightly lower because part of your repayment is going towards the non-deductible principal, but you're in a stronger position if you want to sell or refinance in the future.

Fixed or variable rates for investment loans

Investment loan rates are typically higher than owner-occupied rates, regardless of whether you choose a fixed or variable structure. Variable rates give you flexibility to make extra repayments, access offset accounts, and refinance without break costs. Fixed rates lock in your repayment amount for a set term, which can help with budgeting if you're negatively geared and want certainty around your cash flow.

Some couples split their loan between fixed and variable, fixing a portion to protect against rate rises while keeping a variable portion for flexibility. That structure works well if you expect your income to increase over time and you want the option to make lump sum repayments without penalty. If you're refinancing an existing investment loan, comparing your current rate to what's available now can uncover significant savings, especially if your fixed term has expired and you've rolled onto a higher variable rate.

What you can claim as a tax deduction

You can claim the interest on your investment loan, but not the principal repayments. You can also claim property management fees, council rates, water rates, insurance, repairs and maintenance, body corporate fees if applicable, and depreciation on the building and fixtures. Stamp duty and other purchase costs aren't immediately deductible but can be factored into your cost base when you eventually sell, which reduces your capital gain.

Under the new rules from 1 July 2027, if you bought an established property after 12 May 2026, any net loss you make can only be offset against rental income or capital gains from residential property. You can carry forward unused losses to future years, so the deductions aren't lost, but they won't reduce your tax bill from salary income the way they do now. If you bought before Budget night or if you're buying a new build, the old rules still apply and you can claim the full loss against all your income.

It's worth speaking to an accountant who understands property tax, especially if you're buying as a couple and deciding how to structure ownership. Owning the property in unequal shares can be useful if one of you earns significantly more than the other, because the higher earner can claim a larger portion of the deductions.

How the capital gains tax changes affect your investment

The government will replace the current 50% CGT discount with a discount based on inflation (cost base indexation) and introduce a minimum 30% tax on capital gains, taking effect from 1 July 2027. If you bought your investment property before 13 May 2026, those changes only apply to the gain you make after 1 July 2027. The gain you've already made up to that date is still taxed under the old 50% discount.

Investors in new builds will be able to choose between the 50% CGT discount or the new arrangements, effectively giving them a choice of whichever is more favourable. That makes new builds particularly attractive right now if you're weighing up whether to buy an established property or something newly constructed. The ability to choose your CGT treatment gives you flexibility depending on how inflation and property values move over the time you hold the property.

If you're holding the property long term and you expect strong capital growth, the indexation method might actually be more favourable than the flat 50% discount, especially in a high inflation environment. If inflation averages 3% per year over a 10-year hold, indexation will reduce your taxable gain by around 34%, which is better than a flat 30% but not as good as the old 50% discount. The minimum 30% tax means even if indexation gives you a bigger adjustment, you'll still pay tax on at least 70% of your gain.

Structuring your loan to support future borrowing

If you're planning to buy an owner-occupied home in the next few years, how you structure your investment loan now affects how much you can borrow later. Lenders will assess your investment property as a liability when you apply for your next loan, even if it's generating rental income. Keeping your loan to value ratio below 80% on the investment property gives you access to the lowest rates and the most flexible products, and it means you won't be paying LMI on top of your ongoing repayments.

Using an offset account on your investment loan is generally not recommended if you're planning to claim the interest as a tax deduction, because any funds sitting in the offset reduce the interest you pay and therefore reduce your deduction. It's more tax-effective to keep your savings in a separate account and pay down non-deductible debt like a future owner-occupied loan instead. If you later want to release equity from your investment property to fund a deposit on your own home, the way you structure that drawdown matters. Borrowing against your investment property to buy an owner-occupied home means the new debt is not deductible, so keeping those loan splits separate from day one makes tax time much clearer.

Call one of our team or book an appointment at a time that works for you. We'll walk through your situation, your timeline, and how the recent changes affect your options, so you can move forward with confidence.

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