The Pros and Cons of Buying a Duplex as an Investment

Buying a duplex means you own two separate dwellings on one title, which can mean two rental incomes and a single set of settlement costs.

The structure matters because lenders, insurers and the tax office all treat duplexes differently depending on whether both units are strata-titled individually or sit on a single freehold title. Most established duplexes in older suburbs remain on a single title. Newer developments sometimes strata-title each half separately, which changes how you borrow and who you can sell to later.

Two Incomes on One Loan Application

A duplex on a single title generates rental income from two tenancies, and lenders will factor both income streams into your serviceability assessment.

Rental income is typically assessed at 80 per cent of the market rent to account for periods between tenants and holding costs. If one side of the duplex rents for $550 per week and the other for $500 per week, the lender will assess $840 per week as rental income when calculating whether you can service the loan. That additional income often makes the difference between meeting the serviceability buffer and falling short, particularly under the debt-to-income limits that apply from February this year.

From 1 February 2026, lenders can approve no more than 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or more. If your gross household income is $120,000 and you already hold $400,000 in debt on your home, a duplex purchase that takes your total borrowing above $720,000 may require additional scrutiny or an exemption. Rental income helps, but the limit still applies to total debt across all loans.

Deposit and Lenders Mortgage Insurance Costs

Most lenders require a 20 per cent deposit for an investment property loan to avoid Lenders Mortgage Insurance.

Some lenders will accept a 10 per cent deposit if you agree to pay LMI, which is calculated as a one-off premium based on the loan amount and loan-to-value ratio. The premium is usually capitalised into the loan. For a teacher borrowing at 90 per cent LVR on a duplex, LMI can add several thousand dollars to the loan balance. A handful of lenders offer LMI waivers for teachers on investment loans, though these are less common than waivers for owner-occupied purchases and usually cap at 90 per cent LVR.

Deposit for an investment loan must come from genuine savings, equity in another property, or a gift from an immediate family member with a statutory declaration. Recent large deposits that cannot be explained may delay your application. If you are using equity from your home, the lender will assess serviceability on both loans combined and require a valuation on both properties.

Interest-Only Loans and Holding Costs

Most investors choose an interest-only period to reduce monthly repayments and improve cash flow during the early years of ownership.

Interest-only terms on investment loans typically run for one to five years, after which the loan reverts to principal and interest unless you apply to extend. The monthly repayment difference can be significant. At current variable rates, a $500,000 loan on interest-only terms might cost around $2,000 per month in interest, while the same loan on principal and interest could be closer to $2,900. The difference helps absorb body corporate fees, insurance, council rates and property management costs without drawing on your salary.

Under current tax law, interest on the full loan amount remains deductible for as long as the property is rented or available for rent, regardless of whether you are making principal repayments. If you are purchasing an established duplex now, that treatment continues for as long as you own the property. Interest deductibility for established investment properties purchased after 12 May 2026 will be restricted from the 2027-28 income year, meaning losses can only be offset against other residential property income.

Strata-Titled Versus Single Title Duplexes

A duplex on a single freehold title can only be sold as a whole, while a strata-titled duplex allows you to sell one side and retain the other.

Single title duplexes are often more affordable to purchase because the buyer pool is limited to investors or owner-occupiers who want to live in one half and rent the other. Strata-titled duplexes attract owner-occupiers for each unit, which typically pushes the combined sale price higher. The trade-off is flexibility. If you need to access equity or reduce debt, you cannot sell half a single title duplex without subdividing, which requires council approval, surveyor and legal costs, and time.

Strata title also means two separate body corporate accounts, two sets of strata levies, and two insurance policies if each unit is insured individually. Single title means one insurance policy and no strata levies, though you are responsible for all maintenance on both dwellings and any shared structures like driveways or fences.

Capital Gains Tax Treatment From July 2027

For duplexes purchased now and sold after 1 July 2027, capital gains will be split into a pre-July 2027 portion and a post-July 2027 portion.

Gains accruing before 1 July 2027 remain eligible for the 50 per cent discount if you have held the property for more than 12 months. Gains accruing after that date will be subject to cost base indexation using CPI and a 30 per cent minimum tax rate on the indexed gain. You can choose to obtain a market valuation as at 1 July 2027 or use an ATO apportionment formula. For a duplex held for 10 years, this could mean a complex calculation at sale, particularly if you have undertaken renovations or added structures that change the cost base.

If you purchase a duplex that qualifies as an eligible new build, meaning it was constructed on previously vacant land or replaced an existing dwelling and increased the number of dwellings on the site, you retain the choice between the 50 per cent discount and the indexed method at the time of sale. A knock-down rebuild that does not increase dwelling numbers is not an eligible new build.

Borrowing Capacity for Teachers on Salary

Lenders assess your borrowing capacity by applying a serviceability buffer of at least 3 percentage points above the loan product rate.

If the investment loan rate is 6.5 per cent, the lender will test whether you can service repayments at 9.5 per cent. For a $600,000 loan, that means proving you can afford repayments of around $4,800 per month on principal and interest, even if you are applying for interest-only terms. Rental income is included, but only at 80 per cent of market rent. Your salary as a primary school teacher is assessed at net income after tax, HECS, superannuation and any other salary deductions.

If you are on a temporary or contract teaching position, some lenders will require evidence of ongoing employment or a history of continuous contract renewals. Permanent teachers on the state or territory pay scale are generally viewed as low-risk borrowers, which can help when applying for an investment loan on top of an existing mortgage for teachers.

What This Means for a Duplex Purchase in Your Situation

You need a clear view of your total debt position, your deposit source, and your after-tax income before you start looking at properties.

Consider a teacher earning $95,000 gross with an existing home loan of $450,000. If you want to purchase a duplex and borrow $550,000, your total debt is $1,000,000. Your DTI ratio is 10.5, which puts you above the six-times threshold and into the 20 per cent lending cap. That does not mean you cannot borrow, but it does mean the lender will apply closer scrutiny to your income, expenses and rental assumptions. If both sides of the duplex rent for $500 per week, the lender will add $800 per week to your income, which may be enough to satisfy the serviceability test at the 3 percentage point buffer.

If you are using equity from your home as the deposit, the lender will require a valuation and a clear statement of your intended use. Refinancing your home to access equity for investment purposes means the interest on the increased loan amount is not deductible unless the funds are used to purchase an income-producing asset. You cannot claim a deduction for interest on money borrowed to cover stamp duty, legal fees or LMI, even though those costs relate to the investment property.

Call one of our team or book an appointment at a time that works for you. We work with lenders who understand investment loans for teachers and can structure your application to make the most of the rental income and your salary position.

Frequently Asked Questions