When to Buy an Established Investment Property

Buying an established investment property means purchasing a dwelling that has been lived in before.

The financing works differently to an owner-occupied loan. Lenders treat the application as higher risk, which usually translates to a larger deposit requirement, higher interest rates, and tighter borrowing capacity. Recent changes to negative gearing and capital gains tax have also shifted how you need to think about the return on an established property compared to a new build.

How Much Deposit Do You Need for an Established Investment Property?

Most lenders require a minimum 10 per cent deposit for an investment loan, though some will lend at higher loan-to-value ratios if you pay Lenders Mortgage Insurance.

If you borrow above 80 per cent of the property value, you will pay LMI. That cost gets added to the loan or paid upfront. For an established unit near your current rental in an inner suburb, LMI on a 90 per cent loan could add several thousand dollars to what you owe. Teachers sometimes have access to LMI waivers or reduced premiums depending on the lender, which can make a 10 per cent deposit more viable without the additional insurance cost.

You also need cash for stamp duty, conveyancing, building and pest inspections, and any immediate repairs. Stamp duty alone in most states will be several thousand dollars on a median-priced unit, and it is not rolled into the loan.

Interest Rates on Investment Loans Compared to Owner-Occupied Loans

Investment loan interest rates sit higher than owner-occupier rates, typically by 0.3 to 0.6 percentage points depending on the lender and loan features.

That difference exists because lenders see investment borrowing as higher risk. If your circumstances change, you are more likely to sell or stop repaying an investment property than your own home. The rate gap applies to both variable and fixed products. Some lenders offer rate discounts if you hold other accounts with them or borrow a larger amount, but the investment rate will still sit above the equivalent owner-occupied product. You can compare what is available across lenders without being locked into one bank, and getting a lower interest rate often comes down to how the application is structured and which lender suits your income type.

Using Equity from Your Home to Fund the Deposit

If you own your home and have paid down some of the loan, you can borrow against that equity to cover the deposit and costs for the investment property.

This approach means you do not need to save a separate cash deposit. The lender will value your home, calculate how much equity is available, and allow you to borrow up to 80 per cent of that value without paying LMI. In some cases you can go higher, though that usually triggers insurance. The equity you release gets added to your home loan, and the funds are used to settle the investment purchase. The investment property is then secured by a separate loan. You end up with two loans, one on your home and one on the investment, both with their own repayment schedules. Equity release can be a faster way to build a portfolio, but it does increase your overall debt and the repayments you need to service each month.

What Changed with Negative Gearing in Mid-2026?

From 1 July 2027, rental losses on established residential properties purchased after 7:30pm on 12 May 2026 can only be offset against other residential rental income or carried forward.

If you bought an established unit after that cut-off time and the rent does not cover the loan repayments, rates, and other costs, the loss cannot be claimed against your teaching salary to reduce your tax. It gets quarantined and can only be used against future rental income or capital gains when you sell. Properties bought before that time, or under contract before that time, are grandfathered and continue under the old rules where losses can be offset against any income including wages. New builds on previously vacant land or developments that increase the dwelling count remain eligible for full negative gearing even after the cut-off.

This does not make established properties unviable, but it does mean the tax benefit that used to soften the holding cost is no longer available for most teachers buying now. You need to run the numbers assuming you will carry the full loss each year until the property is cash-flow positive or sold.

Interest-Only Repayments and How They Affect Cash Flow

An interest-only loan means you pay only the interest portion each month and do not reduce the principal during the interest-only period, which is usually one to five years.

This keeps the monthly repayment lower, which can help if the rental income does not cover a principal-and-interest repayment. After the interest-only period ends, the loan reverts to principal and interest and the repayment increases. Some investors use interest-only to maximise the tax deduction, since all the interest on an investment loan is usually deductible if the property is rented or available for rent. Others use it to manage cash flow in the early years while building equity in other properties. The downside is that you do not pay down the loan balance during that period, so you are not building equity through repayments. You rely on capital growth to increase your equity position. Interest-only loans are not suitable for everyone, but they are common in investment lending and worth understanding if rental income is tight.

How Lenders Assess Rental Income When Calculating Borrowing Capacity

Lenders typically use 80 per cent of the expected rental income when calculating your borrowing capacity, not the full amount.

The 20 per cent reduction accounts for vacancy periods, repairs, and other costs. If the property is already tenanted, they will use the current lease amount and apply the 80 per cent factor. If it is vacant, they will use a rental appraisal. Some lenders are more conservative and apply 75 per cent. The reduced income figure is added to your salary, and your existing debts and living expenses are then subtracted to work out what you can afford to borrow. Teachers on permanent contracts usually have an advantage because the income is stable and predictable, but the rental income calculation still gets discounted. Your total borrowing capacity for the investment loan will be lower than if you were buying an owner-occupied property with the same income, because lenders apply a higher interest rate buffer and a lower income recognition for rent.

Capital Gains Tax Changes from July 2027

From 1 July 2027, the 50 per cent capital gains tax discount is replaced with cost base indexation and a 30 per cent minimum tax rate on real gains for most investment properties.

The change applies only to gains that accrue after 1 July 2027. If you bought in early 2027, any gain up to 30 June 2027 is still calculated under the old 50 per cent discount rule. The portion of the gain after that date uses the new indexation method. Eligible new builds get a choice between the old discount and the new indexation approach. For established properties, there is no choice. The practical effect is that your after-tax return on sale will be lower than it would have been under the previous rules, particularly if you hold the property for a long time and inflation is moderate. The 30 per cent minimum rate means even if your marginal tax rate is lower, you will pay at least 30 per cent on the indexed gain. This makes the holding period and exit strategy more important than it used to be.

Should You Buy an Established Property or Wait for a New Build?

It depends on what is available in the area you are targeting and whether you can afford to wait.

New builds retain full negative gearing and offer a choice on capital gains tax treatment, but they are less common in established suburbs close to schools and transport. Established properties are available now, often in locations with better rental demand and stronger historical growth, but the tax settings have changed. If you are buying in an area where new stock is limited and you want to be close to where you work or already live, an established property may still be the right call despite the tax changes. The capital growth and rental yield matter more over the long term than the first few years of tax deductions. If there are new developments in areas you are prepared to consider, and the numbers work, the tax treatment gives those properties an edge. There is no universal answer, and the choice comes down to your timeline, the local market, and how long you plan to hold the property.

When Refinancing an Investment Loan Makes Sense

Refinancing can reduce your interest rate, release equity for another purchase, or switch from interest-only to principal-and-interest repayments when your circumstances change.

If you took out the loan a few years ago and rates have moved, or your lender has not passed on cuts, refinancing to a lower rate will reduce your monthly repayment and improve cash flow. If the property has increased in value and you have paid down some of the loan, you may be able to release equity without refinancing, but moving to a new lender sometimes gets you both a lower rate and access to equity in one transaction. Investment loan refinancing also makes sense if your current loan has features you no longer need or lacks features you now want, such as an offset account or the ability to make extra repayments. Refinancing has costs, including discharge fees from your current lender, application fees for the new loan, and valuation costs, so the benefit needs to outweigh those expenses.

Call one of our team or book an appointment at a time that works for you. We will walk through the numbers, confirm what you can borrow, and explain how the recent tax changes affect your specific situation.

Frequently Asked Questions