How to buy an investment property between sales

What bridging finance does when you're buying an investment property

Bridging finance covers the gap when you want to buy an investment property but haven't sold your current home yet. The loan uses equity in your existing property as security, so you don't need a full deposit in cash. Once your home sells, you repay the bridging loan and move to a standard investment loan structure.

This matters for tutors who've built equity in their home over several years of teaching or running a tutoring business. That equity can become the deposit for your investment property without waiting months to sell first. You lock in the property you want, then sell your home on a timeline that suits you.

Consider a tutor in inner-west Sydney who owns a two-bedroom apartment worth $850,000 with a $320,000 mortgage. They've found a unit in Parramatta priced at $680,000 that would work well as a rental. Their equity sits at $530,000, enough to cover the deposit and costs for the investment property. A bridging loan lets them settle on the Parramatta unit within 30 days, then they have up to 12 months to sell the apartment. When the sale completes, the bridging loan closes and they refinance to a standard investment loan structure.

How the loan amount gets calculated

Lenders look at the combined value of both properties when working out how much you can borrow. They'll lend up to 80% of the total value across your existing home and the new investment property. If you need to borrow more than that threshold, lenders charge capitalised interest at a higher rate and may require lender's mortgage insurance.

The calculation starts with your current property value, subtracts what you owe, then adds the purchase price of the investment property. That total becomes the basis for your loan amount. Most lenders cap bridging finance at 80% loan to value ratio without additional costs, though some will go to 90% if your income supports the repayments.

Using the earlier example, the tutor's apartment is worth $850,000 and the investment property costs $680,000. Combined value is $1,530,000. At 80% LVR, they could borrow up to $1,224,000. They need $680,000 for the new purchase plus enough to clear the existing $320,000 mortgage when the apartment sells. The bridging loan covers $680,000 immediately, while the existing mortgage stays in place until settlement.

What bridging finance actually costs

Interest rates on bridging loans sit higher than standard home loans, typically between 0.5% and 1.5% above variable rates. Lenders also charge an establishment fee, which ranges from $500 to $1,200 depending on the lender. Some lenders charge a monthly administration fee during the bridging period.

Most bridging loans capitalise the interest, meaning it gets added to the loan balance each month rather than requiring monthly payments. This keeps your cash flow intact while you're managing two properties. When your original home sells, you repay the bridging loan including all capitalised interest in one transaction.

For a $680,000 bridging loan over six months at a rate 1% above standard variable rates, capitalised interest would add roughly $21,000 to the loan balance. That amount gets paid from your sale proceeds when the bridging period ends. You also need to factor in conveyancing fees for both the purchase and sale, plus any selling costs like agent commissions. Budget for total costs around 3% to 4% of the property value when planning the transaction.

How long the bridging period runs

Most bridging loans run for six to 12 months. Lenders want to see a clear exit strategy before approving the loan. That means your property needs to be ready to list, or already on the market, when you apply. Some lenders will extend the term if your property hasn't sold, but extension fees apply and the interest rate may increase.

You're not locked into selling within a set timeframe, but the longer the bridging period runs, the more interest you'll pay. A six-month bridging period works well if your property is already listed or you're confident it will sell quickly. If you're in an area with slower turnover, a 12-month term gives you more room. The key is having realistic expectations about your local market and pricing your property accordingly.

In our experience, tutors who list their property within a month of settling on the investment purchase tend to close the bridging loan within four to six months. That's enough time to attract buyers without rushing the sale or accepting a below-market offer. The bridging loan removes the pressure to sell before you're ready, but you'll still want to move the sale forward to minimise interest costs.

When bridging finance makes sense for tutors

Bridging finance works when you've found an investment property that won't wait and you have enough equity to support both loans. It's particularly useful in markets where good rental properties sell quickly, or when you're buying at auction and need to settle within 30 days.

It's less useful if your equity is marginal or your income won't support two properties at once. Lenders assess your ability to service both the bridging loan and your existing mortgage, even though you'll only be managing both for a short period. If your tutoring income is variable, or you're carrying other debts, you may not meet the serviceability requirements. In those situations, selling first and then buying with a longer settlement period might be more practical.

Bridging finance also works well when you're moving from owner-occupied to expanding your property portfolio. The loan structure lets you transition without needing to save a second deposit or access funds from other sources. You use the equity you've already built, which is often more than enough to cover a deposit on a well-priced investment property.

What lenders look for in the application

Lenders want to see stable income, strong equity, and a property that will sell within the bridging period. They'll ask for a current valuation on your existing property, a contract of sale or auction details for the investment property, and proof of income covering at least the past three months.

For tutors running their own business, lenders may ask for business financials or tax returns if your income isn't straightforward PAYG. If you're working through a tutoring agency or educational institution, payslips are usually enough. Lenders also want to see that your existing property is in good condition and won't need major work before listing. If repairs or renovations are needed, you'll need to show how you'll fund those and factor the time into your bridging period.

Approval usually takes between five and 10 days, faster than a standard home loan because the lending decision is based on equity rather than ongoing repayment capacity. Once approved, settlement can happen within two to three weeks. That timeline works well for auction purchases or properties with short settlement terms.

How you exit the bridging loan

The most common exit is selling your existing home and using the proceeds to repay the bridging loan. Any remaining funds go toward reducing the loan balance on your investment property, or you refinance into a standard investment loan structure that suits your long-term plans.

Some tutors choose to keep their original property and convert it to a rental instead of selling. In that scenario, you refinance both properties into separate investment loans once you've moved into a new owner-occupied home. This works if your income can support the repayments on both properties and you're comfortable managing two rental investments. It's less common with bridging finance because lenders approve the loan on the basis that you'll sell, but it's possible if your circumstances change and your serviceability supports it.

Your exit strategy needs to be clear before you apply. Lenders won't approve a bridging loan without a realistic plan to close it out. That means your property needs to be priced appropriately, located in an area with reasonable demand, and ready to list as soon as your investment purchase settles.

Bridging finance gives tutors with solid equity a way to secure an investment property without the timing pressure of selling first. The costs are higher than a standard loan, but the flexibility often justifies the expense when the alternative is missing out on a property that suits your investment goals. Call one of our team or book an appointment at a time that works for you.

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