Top Strategies to Finance an Investment Unit Purchase

Buying a Unit as an Investment Is Different from Buying a House

Investment loans for units are assessed differently by lenders. A unit purchase attracts higher risk weighting than a house on the same street, which means lenders price the loan accordingly and apply tighter serviceability tests. The property type matters because lenders factor in higher body corporate costs, lower resale liquidity, and concentration risk if the building contains many similar units.

Consider a teacher looking at a two-bedroom unit with plans to rent it out immediately. The lender calculates borrowing capacity using rental income at 80 per cent of the gross figure, then applies a serviceability buffer of 3.0 percentage points above the actual interest rate. Body corporate fees of $1,200 per quarter are deducted from usable income. Once those adjustments are made, the borrowing capacity may be 10 to 15 per cent lower than it would be for a house at the same price.

Lenders also treat units in high-density developments differently depending on the total number of units in the complex. Buildings with more than 50 units may be classified as non-standard security, which can limit the number of lenders willing to provide finance or require a larger deposit. If the building is still under construction or has fewer than 70 per cent of units sold, most lenders will not provide a loan at all until the building reaches practical completion and the required presale threshold.

Deposit Requirements and LMI on Investment Unit Loans

Most lenders require a minimum 10 per cent genuine savings deposit for an investment property loan, regardless of whether the property is a unit or a house. Some will accept a 10 per cent deposit with LMI, while others set the threshold at 20 per cent to avoid LMI entirely.

For high school teachers, LMI waivers for teachers may be available on owner-occupied loans but typically do not extend to investment lending. If you are borrowing above 80 per cent LVR for an investment unit, expect to pay LMI. The premium is calculated on a sliding scale based on loan amount and LVR, and in some states, stamp duty applies to the premium itself.

If you already own a home, you may be able to use equity in that property to fund the deposit and avoid dipping into cash savings. Lenders will assess the combined loan-to-value ratio across both properties and apply cross-collateralisation, which means both properties secure both loans. That structure can work well if you want to preserve liquidity, but it also means you cannot sell one property without the lender's consent to release the security.

Interest Only or Principal and Interest for Investment Units

Interest-only loans are commonly used for investment properties because they reduce the monthly repayment and increase cash flow, particularly during the early years when rental income may not cover all holding costs. The interest-only period is typically between one and five years, after which the loan reverts to principal and interest repayments.

Under the current prudential framework, a loan with an interest-only period longer than five years and an LVR above 80 per cent is classified as non-standard, which increases the lender's capital cost and may result in a higher interest rate or outright decline. Most lenders cap the interest-only period at five years for investment loans, regardless of LVR.

From a tax perspective, principal repayments are not deductible. Interest is deductible as long as the loan is used to acquire or hold the investment property and the property is rented or genuinely available for rent. If you choose principal and interest from the outset, your monthly repayment will be higher, but you will reduce the loan balance over time and build equity faster. That equity can then be used to fund a second investment property if portfolio growth is part of your longer-term strategy.

In our experience, teachers who plan to hold the property for more than ten years often start with interest-only to manage cash flow in the early years, then switch to principal and interest once their income increases or other debts are cleared. That approach keeps the loan flexible without locking you into a structure that may not suit your circumstances five years from now.

Variable or Fixed Rate Investment Loans

Variable rate investment loans allow you to make extra repayments, redraw funds, and switch to a different loan product without paying break costs. Fixed rate loans lock in the interest rate for a set period, usually between one and five years, but come with restrictions on extra repayments and often carry significant break costs if you need to refinance or sell before the fixed term ends.

For investment property finance, variable rates are more common because they offer flexibility to respond to changes in your financial situation or the property market. If you receive a pay rise, inherit money, or decide to sell the property, a variable rate loan allows you to act without waiting for a fixed term to expire.

Some investors split the loan, fixing a portion for rate certainty and leaving the remainder on a variable rate for flexibility. That structure can work if you want to manage repayment risk while retaining the ability to make lump sum payments or access redraw. The downside is that you are managing two loan accounts, each with its own terms and conditions, and the fixed portion will still carry break costs if you exit early.

If you are buying a unit in a suburb with strong rental demand and low vacancy, the variable rate structure usually gives you more control. At current variable rates, the flexibility typically outweighs the short-term benefit of locking in a rate that may be higher than the prevailing variable rate within 12 to 18 months.

Rental Income and Serviceability for Unit Purchases

Lenders assess rental income at 80 per cent of the gross figure, meaning they discount the income by 20 per cent to account for vacancy, maintenance, and management costs. If the unit you are buying is currently tenanted, the lender will use the existing lease as evidence of rental income. If the unit is vacant or you are buying off the plan, the lender will rely on a rental appraisal from a licensed property manager.

Body corporate fees are treated as a holding cost and are deducted from your serviceability calculation. For a unit with body corporate fees of $1,500 per quarter, that is $6,000 per year that reduces your borrowing capacity before the lender even considers council rates, insurance, and property management fees.

Under the debt-to-income limit introduced in early 2026, lenders can only write 20 per cent of new investment loans to borrowers with a total DTI ratio of six times or more. If your salary is $100,000 and you already have $400,000 in home loan debt, adding a $250,000 investment loan would push your total debt to $650,000, giving you a DTI ratio of 6.5. That loan may still be approved, but it will fall within the 20 per cent cap, which means the lender may apply additional scrutiny or decline the application if they have already reached their quarterly limit.

For teachers considering an investment loan, structuring the application to stay below the six-times threshold, or splitting the purchase across two financial years, can improve approval odds. Speaking with a mortgage broker for teachers before you start looking at properties gives you a clear picture of what you can borrow and how lenders will treat your application.

Negative Gearing Rules for Units Bought After May 2026

From the 2027-28 income year, losses on established residential investment properties purchased after 12 May 2026 can only be offset against income from other residential properties, not against your salary. If you buy an established unit after that date and the property runs at a loss, you can carry that loss forward and use it to offset rental income or capital gains from residential property in future years, but you cannot claim it against your teaching income in the year the loss occurs.

Properties bought before 12 May 2026, or under contract at that time, are grandfathered under the old rules and can continue to be negatively geared against salary indefinitely. New builds purchased after 12 May 2026 are also exempt and can be negatively geared in the traditional way.

If you are buying an established unit now, the change means you need to structure the investment to be cash flow neutral or positive from the outset, or accept that the tax benefit will be deferred until you sell the property or acquire additional rental income. That shifts the investment case away from relying on salary subsidies and toward relying on capital growth and rent increases over time.

For a teacher on a salary of $95,000, a negatively geared property that loses $8,000 per year would previously have reduced taxable income to $87,000, saving roughly $2,500 in tax. Under the new rules, that $8,000 loss is carried forward, and the $2,500 saving does not materialise until you have rental income or a capital gain to offset it against. The property still builds wealth through capital growth, but the annual cash flow impact is higher because you are funding the full loss out of after-tax income.

Established Unit or New Build for Investment Purposes

New builds qualify for depreciation deductions on both the building structure and the fixtures and fittings, which can reduce taxable rental income for up to 40 years. Established units typically have lower depreciation because much of the plant and equipment has already been written off by previous owners, and building write-off only applies to construction completed after 1987.

Under the negative gearing rules that take effect from the 2027-28 income year, new builds are also exempt from the restriction on offsetting losses against salary. If you buy a new unit and it runs at a loss, you can claim that loss against your teaching income, just as you could under the old rules.

The trade-off is that new builds are generally more expensive per square metre than established units in the same suburb, and there is a risk of oversupply if many similar units are being completed at the same time. We regularly see new unit precincts where 20 or 30 identical two-bedroom units hit the rental market within a six-month window, which pushes rents down and increases vacancy periods.

If you are looking at a new build, check the rental appraisal carefully and compare it to current rents for established units in the same suburb. If the appraisal assumes a rent that is 10 or 15 per cent higher than comparable established stock, that is a warning sign. Lenders will often shave the appraisal by another 10 per cent, and if the property does not lease at the projected rent, your cash flow will be worse than forecast.

Settlement Costs and Ongoing Holding Costs for Investment Units

Settlement costs for an investment unit include stamp duty, legal fees, building and pest inspection, strata report, and loan establishment fees. Stamp duty is calculated on the purchase price and varies by state. In New South Wales, a unit at the median price in a suburban location would attract stamp duty in the range of $20,000 to $30,000, depending on the exact price. In Victoria, the figure would be similar. There is no stamp duty concession for investment properties.

Ongoing holding costs include body corporate fees, council rates, water rates, landlord insurance, property management fees, and loan interest. Body corporate fees for a unit in a complex with a lift, pool, or gym can exceed $2,000 per quarter. Property management fees are typically 6 to 8 per cent of the gross rent plus letting fees and inspection fees.

All of these costs are deductible against rental income, but they still need to be funded from your cash flow. If the property is vacant for four weeks between tenants, you will need to cover the full holding cost out of your salary during that period. Keeping a buffer of three to six months of holding costs in a separate offset account is a practical way to manage vacancy risk without needing to draw on redraw or sell other assets.

Call one of our team or book an appointment at a time that works for you. We will walk through your borrowing capacity, loan structure, and deposit options based on your current situation and the type of property you are looking at.

Frequently Asked Questions