What makes a property a strong investment?
A strong investment property generates consistent rental income and has potential for value growth over time. The property should appeal to tenants in that area, be affordable to hold during vacancies, and align with your financial capacity and timeline.
Keilor offers a mix of older homes close to the shopping precinct and newer developments near Steele Creek Trail. Consider a buyer who's looking at a three-bedroom brick veneer unit near the Calder Freeway. The rent might cover most of the loan repayments, but if similar units in the area sit vacant for eight weeks between tenants, that's two months of holding costs. The location near transport makes it appealing to renters working in the city, but the body corporate fees and the age of the building add ongoing costs that reduce what you actually take home each month.
The property needs to work within your borrowing capacity too. Lenders assess investment property applications differently to owner-occupier loans, and they factor in only a portion of the expected rental income when calculating what you can afford. If you're holding other debt or your income fluctuates, the amount you can borrow may be less than you expect.
How does rental demand affect property selection?
Rental demand determines how quickly you'll find tenants and how much rent you can charge. In Keilor, properties near Keilor Village and within walking distance of schools tend to attract families looking for longer tenancies, which means fewer vacancy periods and more stable income.
You're not just looking at current rental listings. Check how long properties stay on the market and whether advertised rents are being achieved or reduced after a few weeks. A suburb might look appealing based on median rent figures, but if landlords are regularly dropping asking prices or offering incentives to secure tenants, that tells you demand is softer than it appears.
Rental income directly affects your loan serviceability. Lenders typically assess around 80% of the expected rent when determining how much you can borrow, so a property that rents for less than comparable homes in the area will reduce your borrowing power. If you're planning to expand your portfolio later, starting with a property that delivers reliable rental income gives you a stronger position when applying for your next investment loan.
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What are the holding costs you need to factor in?
Holding costs include everything you pay to own and maintain the property beyond the loan repayment itself. These include council rates, water rates, body corporate fees if applicable, landlord insurance, property management fees, and maintenance or repairs.
In Keilor, an older home might have lower body corporate fees but higher maintenance costs, particularly if the plumbing, electrical work, or roof hasn't been updated recently. A newer townhouse might have higher body corporate fees but fewer unexpected repair bills in the short term. Both scenarios affect your cash flow differently, and you need to be comfortable holding the property through periods when it's not generating rent.
Most of these costs are tax deductible, which helps reduce the net cost of holding the property, but you still need to have the cash available to cover them when they're due. If your rental income doesn't cover the loan repayment and holding costs, you'll be negatively geared, meaning you're funding the shortfall from your own income. That can build wealth over time if the property increases in value, but it requires a steady income and enough buffer to manage vacancies or repairs without financial strain.
If you bought an established property in Keilor after Budget night in May, recent changes to negative gearing will apply from July next year, meaning losses on that property can only be offset against other property income, not your wage. New builds remain exempt, so the holding cost equation shifts depending on what type of property you choose.
How do loan features affect your investment strategy?
The loan structure you choose affects how much flexibility you have and how much the property costs you over time. Most investors use interest-only repayments for investment properties because it keeps the monthly repayment lower and maximises the tax deduction, since only the interest portion is claimable.
Consider a scenario where you borrow for an investment property in Keilor and choose a five-year interest-only period on a variable rate. Your repayments stay lower during that period, which helps with cash flow, but you're not reducing the loan balance. At the end of the interest-only term, the loan converts to principal and interest repayments, and the monthly cost increases. If you're planning to hold the property long-term, you need to be prepared for that shift, or you'll need to refinance before the interest-only period ends.
Some investors split the loan between fixed and variable portions to manage rate risk while keeping access to features like offset accounts and extra repayments. A fixed rate gives certainty over repayments for a set period, but if you need to sell or refinance before the fixed term ends, you may face break costs. Variable rates offer more flexibility but expose you to rate increases. If you're considering investment loan refinancing down the track, a loan with minimal exit fees and flexibility around early repayment makes that process easier.
Should you focus on capital growth or rental yield?
Capital growth refers to how much the property increases in value over time, while rental yield measures the income the property generates relative to its purchase price. Some properties deliver strong rental returns but slower growth, while others appreciate quickly but rent for less relative to their value.
Keilor sits around 20 kilometres from Melbourne's CBD, with established homes near the Maribyrnong River and newer estates closer to Keilor Downs. Properties closer to the village and train station tend to hold value better due to proximity to amenities, but they may not offer the highest rental yield compared to newer units further out. A unit in a newer complex might rent well to young professionals or couples, but the number of similar units in the area can limit how much rent you can charge and how quickly the property appreciates.
Your strategy depends on your timeline and financial position. If you need the rental income to help service the loan, yield becomes a priority. If you have strong cash flow from other sources and you're comfortable holding the property through periods of lower income, focusing on areas with better long-term growth potential might suit you better. There's no universal answer, but the decision should be deliberate, not accidental.
What loan amount can you actually access?
Your borrowing capacity for an investment property depends on your income, existing debts, living expenses, and the rental income the property is expected to generate. Lenders assess investment loans more conservatively than home loans, and they apply a rental income shading, usually around 80%, meaning they only count a portion of the rent when calculating serviceability.
If you're earning a salary and applying for your first investment loan, the lender will look at your current commitments, including your home loan, credit cards, car loans, and even buy-now-pay-later accounts. They'll also assess your living expenses, either based on what you declare or using a benchmark figure if your declared expenses seem low. The rental income helps, but it's not a dollar-for-dollar addition to your income.
If you're self-employed or earn variable income, the lender will want to see at least two years of tax returns and may average your income across that period. A strong rental income on the investment property can improve your serviceability, but it won't override concerns about income stability. If you're planning to build a property portfolio, starting with a loan structure that leaves room for future borrowing is important, which is where speaking to a broker early helps you avoid locking yourself into a loan that limits your options later.
Talking through your situation with someone who understands how lenders assess investment loan applications means you can structure the purchase in a way that supports your goals, not just the immediate transaction.
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Frequently Asked Questions
What should I look for when choosing an investment property in Keilor?
Look for properties with strong rental demand, manageable holding costs, and alignment with your financial capacity. Properties near transport, schools, and Keilor Village tend to attract stable tenants and experience shorter vacancy periods.
How do lenders assess rental income when calculating borrowing capacity?
Lenders typically apply a rental income shading of around 80%, meaning they only count about 80% of the expected rent when determining how much you can borrow. This conservative approach ensures you can service the loan even during vacancies or rent reductions.
Should I choose a property based on rental yield or capital growth?
It depends on your financial position and timeline. If you need rental income to service the loan, prioritise yield. If you have strong cash flow and can hold the property long-term, focusing on capital growth potential may suit you better.
What holding costs do I need to budget for with an investment property?
Holding costs include council rates, water rates, body corporate fees, landlord insurance, property management fees, and maintenance. You need enough cash flow to cover these costs during vacancies or when unexpected repairs arise.
How do recent changes to negative gearing affect my investment property decision?
If you bought an established property after May 12th, losses from July next year can only be offset against other property income, not your wage. New builds remain exempt, which shifts the holding cost equation depending on the type of property you choose.
