The easiest way to buy an investment property

Buying an investment property means borrowing money to purchase a home you will rent to tenants rather than live in yourself.

Lenders assess investment applications differently to owner-occupier loans because rental income is not guaranteed every week. They look at your personal income first, then add rental income at a reduced amount to account for vacancies and maintenance. Most lenders will include between 70 and 80 per cent of the expected rent when calculating what you can borrow.

How lenders calculate what you can borrow for an investment property

Your borrowing capacity starts with your salary or business income, minus your existing debts and living expenses. Lenders then add a portion of the expected rental income, typically 75 to 80 per cent, to reflect the fact that properties sit vacant between tenants or require repairs that reduce cash flow.

Consider a buyer in Laverton earning $85,000 a year with no debt. A two-bedroom unit near Aviation Road might rent for $380 per week. The lender would include roughly $300 of that rent in serviceability calculations, not the full amount. That difference affects how much the bank will lend, particularly if you already have a mortgage or other commitments.

Lenders also apply a serviceability buffer, currently set at 3 percentage points above the actual loan rate. If the variable rate is 6.3 per cent, they assess your ability to repay at 9.3 per cent. That buffer exists to protect you and the lender if rates rise after settlement.

Interest only or principal and interest repayments

Investment loans can be structured as interest only or principal and interest. Interest only means you pay only the interest charge each month, with the loan balance staying the same. Principal and interest means each repayment reduces the amount you owe.

Interest only repayments are lower, which can improve cash flow if the rent does not fully cover the loan cost. Most lenders offer interest only terms for up to five years, after which the loan converts to principal and interest. The appeal is that you keep more cash available each month to cover other expenses or save for the next property.

Principal and interest repayments are higher but reduce your debt over time. If you plan to hold the property long term and want to own it outright eventually, this structure makes sense. For buyers in Laverton looking at established units near Skeleton Waterholes Creek or near the new estates closer to the Princes Freeway, the choice between these two structures often comes down to cash flow in the first few years and long-term wealth plans.

What deposit do you need for an investment property

Most lenders require a 20 per cent deposit to avoid Lenders Mortgage Insurance on an investment purchase. Some will lend with 10 or 15 per cent down, but LMI applies and adds several thousand dollars to your upfront costs. Unlike owner-occupier loans, investment purchases do not qualify for the Home Guarantee Scheme, so there is no government support to reduce the deposit.

If you already own a home, you may be able to leverage equity rather than saving a cash deposit. Equity is the difference between what your home is worth and what you owe on it. If your Laverton home is valued at $550,000 and you owe $320,000, you have $230,000 in equity. Lenders will let you borrow against up to 80 per cent of your property's value, which in this scenario means you could access around $120,000 without selling.

Using equity lets you buy an investment property without draining your savings, but it increases the debt secured against your home. If the investment property does not perform or you cannot meet repayments, your home is at risk.

Variable rate or fixed rate for your investment loan

Variable rates move up or down with the market. Fixed rates lock in a set rate for a period, typically one to five years. Variable loans usually offer more flexibility, including offset accounts, unlimited extra repayments, and the ability to redraw funds you have paid ahead. Fixed loans provide certainty over your repayments but often come with restrictions on extra payments and no offset access.

Investment buyers often split their loan, fixing part and leaving part variable. That structure gives you some rate protection while keeping access to features that help manage cash flow. Offset accounts are particularly useful because every dollar in the offset reduces the interest you pay without affecting your ability to access that cash.

Rental income is taxable, and loan interest is deductible. Keeping the interest charge as high as legally possible can reduce your tax, which is why many investors avoid paying down investment loans quickly and instead park surplus cash in an offset account.

Recent changes to negative gearing and capital gains

From 1 July 2027, losses from residential investment properties purchased after 7:30pm on 12 May 2026 can only be offset against other rental income or future property gains, not against salary or wages. Properties purchased before that time continue under the existing rules, which allow you to offset rental losses against any income.

For buyers purchasing now or in the next 12 months, the existing negative gearing rules still apply until mid-2027. If you buy an established property in Laverton and the rent does not cover your loan repayments, rates, and other costs, that shortfall can reduce your taxable income until 30 June 2027. After that date, losses are quarantined.

New residential properties that add to housing supply, such as newly built homes on vacant land, remain eligible for negative gearing under the old rules even after July 2027. If you are comparing an established villa unit near the Laverton town centre against a new townhouse in a development closer to the western growth corridor, the tax treatment differs.

Capital gains tax changes also apply from July 2027. The 50 per cent discount for individuals is replaced with cost base indexation and a 30 per cent minimum tax rate on real gains for affected properties. New builds retain access to the 50 per cent discount. These changes do not apply to properties you already own or purchase before mid-2026 if settled before July 2027.

What you can claim as a deduction

Loan interest, property management fees, council rates, water charges, insurance, repairs, and depreciation on fixtures and fittings are all deductible when the property is rented or available for rent. Stamp duty and other purchase costs are not immediately deductible but form part of your cost base for capital gains purposes.

If you use a property manager, their fee is typically 7 to 9 per cent of the weekly rent plus a letting fee when a new tenant moves in. Those costs are fully deductible. Repairs that maintain the property in its current condition are deductible in the year you incur them. Renovations that improve the property are added to the cost base or depreciated over time.

Body corporate fees for units are deductible, as are charges for common area maintenance. Laverton has a mix of older low-rise units and newer townhouse developments, and quarterly body corporate costs can vary widely. Older blocks near Cherry Lake often have lower fees but higher maintenance needs. Newer estates closer to the Princes Freeway may have higher levies but include more common facilities.

How Simple Lending helps Laverton investors structure their loan

We work with buyers at every stage, from understanding how much you can borrow through to comparing loan features across more than 40 lenders. Investment loans are assessed differently to home loans, and we explain what each lender looks for so you know where you stand before you make an offer.

If you already own property, we can arrange a valuation to determine your usable equity and structure a loan that keeps your owner-occupier debt separate from your investment borrowing. That separation matters because interest on investment debt is deductible but interest on your home loan is not. Keeping the two loans separate makes tax time clearer and protects your flexibility if you want to refinance your investment loan later.

We also work with buyers expanding their property portfolio who need to manage multiple loans and balance cash flow across several properties. Laverton's location between the CBD and Geelong, close to the Princes Freeway and with direct train access, makes it a realistic option for investors targeting affordable entry points in Melbourne's west.

Call one of our team or book an appointment at a time that works for you. We will walk through your income, your deposit or equity position, and the type of property you are considering, then show you what loan structures are available and what each one costs over time.

Frequently Asked Questions