Proven tips to finance your first investment property

Buying your first investment property feels different to buying your own home. The deposit rules are tighter, the rates are slightly higher, and lenders look at your income differently because you're not going to live there yourself.

An investment loan is a mortgage taken out to purchase a property you intend to rent out rather than occupy. The lender assesses your ability to repay based on both your personal income and the rental income the property is expected to generate. Because the lender takes on more risk with an investor than an owner-occupier, you'll typically need a larger deposit and the interest rate will be slightly higher.

How much deposit you'll need

Most lenders require at least 20 per cent of the purchase price as a deposit for an investment property. If you put down less than that, you'll be asked to pay Lenders Mortgage Insurance, which protects the lender if you can't repay the loan. The premium is calculated on a sliding scale based on how much you're borrowing and is typically added to your loan amount.

Consider a buyer in Perth who wants to purchase a unit in Canning Vale to rent out. They have $50,000 saved and are looking at properties in the lower price range for the area. With a 15 per cent deposit, they would trigger LMI, which could add several thousand dollars to the amount they need to borrow. By waiting a few more months and increasing their deposit to 20 per cent, they avoid that cost entirely and start with a lower loan balance. The rental income covers a larger share of the mortgage from day one.

If you're considering your first property purchase and want to understand how deposit size affects your overall position, the principles around low deposit loans for first home buyers apply in a similar way to investors, though the thresholds and costs differ.

How lenders assess rental income

Lenders don't use the full advertised rent when calculating what you can afford. Most will only count 80 per cent of the expected rental income in their serviceability calculations. That 20 per cent buffer accounts for vacancy periods, maintenance costs, and the possibility that the property sits empty between tenants.

In a scenario like this, a property advertised at $450 per week would be assessed as generating $360 per week in usable income. That figure is then added to your salary and any other income streams, and the lender applies the standard serviceability test to see whether you can cover the repayments at a rate three percentage points above the actual loan rate.

Perth's rental market has seen strong demand in recent years, particularly in suburbs close to employment hubs and public transport. Even so, lenders in Western Australia apply the same 80 per cent rule regardless of local conditions. If you're self-employed or earning income from multiple sources, understanding how lenders treat different income types becomes even more important. You can read more about that in our guide on getting approved with multiple income sources.

Interest only or principal and interest

When you take out an investment loan, you'll choose between repaying principal and interest from the start or making interest-only repayments for an initial period, usually up to five years. Interest-only repayments are lower because you're not paying down the loan balance, which can improve your cash flow in the early years.

Many property investors choose interest-only terms because the interest on an investment loan is tax deductible, and keeping the loan balance higher for longer can increase the size of that deduction. Once the interest-only period ends, the loan reverts to principal and interest repayments, and the monthly cost increases.

If you're planning to use equity from your existing home to fund the deposit, the structure you choose matters. Interest-only terms can give you breathing room while you adjust to managing two properties. We cover the mechanics of accessing equity in more detail in our article on equity release loans.

Fixed or variable rate

Investment loans are available on both fixed and variable rates. A fixed rate locks in your repayment amount for a set period, usually between one and five years. A variable rate moves with the market, which means your repayments can go up or down depending on what lenders do with their rates.

Variable rates on investment loans tend to sit slightly higher than variable rates for owner-occupiers, typically by 0.2 to 0.4 percentage points. Fixed rates follow a similar pattern. The gap reflects the additional risk lenders associate with investment properties.

Some borrowers split their loan, fixing part of it for certainty and leaving the rest on a variable rate for flexibility. That approach can work well if you want to make extra repayments without hitting the limits that come with most fixed-rate products.

What expenses you can claim

Once your investment property is tenanted, most of the costs associated with owning and managing it become tax deductible. That includes loan interest, property management fees, council rates, insurance, repairs, and depreciation on the building and fixtures.

For properties purchased on or after 12 May 2026, new rules around negative gearing will apply from 1 July 2027. If your property expenses exceed your rental income, you won't be able to offset that loss against your salary or other non-rental income. Instead, the loss can only be used against future rental income or capital gains when you sell. Properties purchased before that date, or those already under contract, will continue under the existing rules.

New builds are exempt from the change. If you buy a property that has been newly constructed on previously vacant land, or one that increases the number of dwellings on a site, you can still negatively gear it under the current rules. That exemption is designed to encourage investment in housing supply.

If you're weighing up whether to buy an established property now or wait and purchase a new build later, the tax treatment is one factor to consider alongside location, rental yield, and your overall timeline. Our guide to buying your first investment property walks through the broader decision points.

How your borrowing capacity changes

If you already own your own home and are looking to purchase an investment property, your borrowing capacity will be affected by your existing mortgage. Lenders add up all your current debts, estimate your new investment loan repayments at the higher serviceability rate, and compare that total to your income.

Because only 80 per cent of the rental income is counted, the new loan often has a bigger impact on your borrowing capacity than you might expect. In practice, that means you may not be able to borrow as much for an investment property as you could for an owner-occupied purchase, even if the rental income is strong.

One way to improve your position is to reduce other debts before you apply. Paying down credit cards, car loans, or personal loans can free up borrowing capacity and make it easier to get the loan amount you need. We discuss strategies for this in more detail in our article on maximising your borrowing capacity.

What happens during the application

The application process for an investment loan is similar to applying for a home loan, but lenders ask for additional information. You'll need to provide a rental appraisal or show evidence of the expected rent, usually in the form of a letter from a property manager or recent listings for comparable properties in the same area.

Lenders will also want to see your most recent tax returns, payslips, and bank statements covering at least three months. If you're self-employed, expect to provide two years of financials. The lender uses all of this to verify your income and confirm you can service the loan alongside your other commitments.

Once the loan is approved and you've settled on the property, the rental income should start flowing within a few weeks. Make sure you keep records of all property-related expenses from day one, as these will be needed when you lodge your tax return.

If you're also in the process of buying your next home and need to coordinate settlement dates or manage two purchases at once, a bridging loan can sometimes help, though these are less common for investment purchases.

Getting your loan structure right from the start

The way your investment loan is structured affects both your tax position and your flexibility down the track. If you're using equity from your home to fund the deposit, it's important to keep that borrowing separate from your main home loan. The interest on funds borrowed for investment purposes is deductible, but interest on your home loan is not.

Some investors set up their loan with an offset account linked to the investment loan. Any money sitting in the offset reduces the interest charged, but because offset balances don't reduce the loan amount for tax purposes, you still claim the deduction on the full loan balance. That setup works well if you want to park rental income or savings while keeping your tax deductions intact.

Another consideration is whether to include features like extra repayments or redraw. If you think you'll want to pay down the loan faster or access those funds later, a variable rate loan with a redraw facility gives you that option. Fixed-rate loans typically don't allow extra repayments beyond a small annual limit.

Call one of our team or book an appointment at a time that works for you. We'll walk through your situation, explain what loan features make sense for your investment strategy, and help you compare options from lenders across Australia.

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