What are Investment Loans for New Properties?

An investment loan is a home loan used to buy a property you intend to rent out rather than live in.

The structure differs from an owner-occupier loan because lenders price it differently, assess your income differently, and expect rental income to contribute toward repayments. You still borrow from a bank or lender, you still need a deposit, and you still make regular repayments, but the product is built around the fact that someone else will be living in the property and paying you rent.

If you're looking at apartments near Maroubra Beach or units along Anzac Parade, you're stepping into a suburb with strong rental demand driven by hospital workers, university students, and young professionals. That demand makes Maroubra a practical choice for a first investment, but it also means you need to understand how lenders will assess your borrowing capacity and what product features will work for your situation.

How Lenders Assess Investment Loan Applications

Lenders treat investment loan applications differently to owner-occupier applications.

They'll still look at your income, expenses, and existing debts, but they'll also assess the property's rental income. Most lenders only include 80% of the expected rent when calculating your borrowing capacity. This is called a rental income shading, and it exists because tenants don't always pay on time and properties don't always stay occupied.

Consider a buyer who works full-time and earns around $95,000 a year. They're looking at a two-bedroom unit in Maroubra that could rent for $650 per week. The lender will only count $520 of that weekly rent toward their servicing calculation. That reduction affects how much they can borrow, even though the property might realistically stay tenanted most of the year.

Lenders will also apply a higher interest rate buffer when stress-testing your application. Where an owner-occupier loan might be assessed at the actual rate plus 3%, investment loans are often tested at a slightly higher serviceability rate. This doesn't change the rate you actually pay, but it does reduce the amount you can borrow.

Interest Only or Principal and Interest Repayments

One of the first decisions you'll face is whether to structure your loan as interest only or principal and interest.

With an interest only loan, you only pay the interest portion each month. Your loan balance doesn't reduce, but your monthly repayments are lower. This structure is common among property investors because it maximises cash flow and keeps more of the interest deductible for tax purposes. Most lenders offer interest only periods of one to five years, after which the loan reverts to principal and interest repayments.

With principal and interest repayments, you pay down the loan balance from day one. Your repayments are higher, but you're building equity in the property and reducing your overall debt. This structure suits investors who want to pay off the property faster or who plan to use the equity for portfolio growth later.

Neither structure is inherently better. It depends on your cash flow, your tax position, and your long-term plans. If you're holding the property for passive income and plan to use equity to buy another investment down the track, interest only might make sense. If you're focused on paying down debt and building wealth through equity, principal and interest might be the better fit.

Variable Rate or Fixed Rate Investment Loans

You'll also need to choose between a variable rate, a fixed rate, or a split loan.

A variable rate moves with the market. If the Reserve Bank changes the cash rate, your repayments will adjust. Variable rate loans typically offer more flexibility, including features like offset accounts, redraw facilities, and the ability to make extra repayments without penalty. For investors who want the option to pay down the loan faster or who expect rates to fall, variable rate products are often the default choice.

A fixed rate locks in your interest rate for a set period, usually between one and five years. Your repayments stay the same regardless of what happens in the broader economy. This structure suits investors who want certainty, particularly if they're managing cash flow carefully or if they believe rates are likely to rise. The trade-off is less flexibility. Most fixed rate loans restrict extra repayments and don't allow offset accounts.

A split loan divides your borrowing between fixed and variable. You might fix 50% of the loan for three years and leave the other 50% variable. This gives you some certainty while retaining access to flexible features on the variable portion. It's a middle ground that works well when you're not sure which way rates will move.

Loan to Value Ratio and Deposit Requirements

Your deposit determines your loan to value ratio, which directly affects your borrowing cost.

Most lenders will lend up to 90% of the property's value for an investment loan, which means you need at least a 10% deposit plus costs. If you borrow more than 80%, you'll pay Lenders Mortgage Insurance. LMI is a one-off cost that protects the lender if you default, and it can add several thousand dollars to your upfront expenses.

If you already own a home in Maroubra or elsewhere in Sydney, you might be able to use equity in that property as your deposit. This is called equity release, and it allows you to buy an investment property without using cash savings. The equity acts as security for the new loan, and you avoid the need to save a separate deposit. Lenders will typically allow you to access up to 80% of your home's value, minus what you still owe on the mortgage.

Some lenders also offer low deposit investment loans with reduced or waived LMI for certain professions, though these are less common than they are for owner-occupiers. If you're a doctor, accountant, or legal professional, it's worth asking whether you qualify.

Tax Changes from the May Budget

The Federal Budget handed down in May introduced significant changes to how investment properties are taxed, and those changes take effect from July next year.

If you bought an established property in Maroubra after Budget night on 12 May, the 50% capital gains tax discount will no longer apply from 1 July 2027. Instead, you'll calculate your capital gain using cost base indexation, which adjusts your purchase price for inflation, and you'll pay a minimum 30% tax on the gain. If you bought before Budget night, your existing arrangements are grandfathered.

Negative gearing has also changed. From 1 July 2027, if your rental property costs more to hold than it earns in rent, you can only claim that loss against rental income or capital gains from residential property. You can't offset it against your salary or other income. Losses can be carried forward, so they're not lost entirely, but the immediate tax benefit is gone.

These changes only apply to established residential properties. If you buy a new apartment or unit, you can still choose between the old 50% CGT discount and the new arrangements, whichever is more favourable. This makes new builds more attractive from a tax perspective, and it's worth keeping in mind if you're deciding between an established unit near Maroubra Junction and a new development closer to the coast.

Loan Features That Matter for Investment Properties

Not all loan features are useful for investors, but a few are worth prioritising.

An offset account linked to a variable rate investment loan reduces the interest you pay without reducing the loan balance. If you have $20,000 sitting in the offset, you only pay interest on the remaining loan balance. The benefit is that your loan balance stays high, which means your interest deductions stay high. This is particularly useful if you're negatively geared and want to maximise your tax deductions.

A redraw facility lets you access extra repayments you've made on the loan. This is helpful if you want to pay down the loan faster but still have the option to pull money out if you need it. The downside is that redrawing funds can affect your tax deductions, so it's worth discussing with an accountant before you use it.

Portability allows you to transfer your loan to a different property without refinancing. This feature isn't always necessary, but it can save you time and money if you decide to sell the Maroubra property and buy another investment elsewhere.

Rental Income and Vacancy Considerations

Lenders assume your property won't be tenanted 100% of the time, and you should plan for the same.

Maroubra's proximity to Prince of Wales Hospital, UNSW, and the eastern beaches means rental demand is generally strong, but vacancy periods still happen. Tenants move out, properties need maintenance, and it can take a few weeks to find a new tenant. Most investors budget for at least two to four weeks of vacancy per year, which means you need enough cash flow to cover the mortgage and body corporate fees during those gaps.

If you're buying a unit in a block with a pool, gym, or lift, body corporate fees can be $1,500 to $3,000 per quarter. Those costs are claimable as tax deductions, but they still need to be paid upfront, and they reduce your net rental yield. Make sure you factor them into your cash flow projections before you commit to a property.

Getting Your Investment Loan Approved

The application process for an investment loan is similar to an owner-occupier loan, but lenders will ask for additional documents.

You'll need proof of income, recent payslips, tax returns if you're self-employed, and details of your existing debts and expenses. You'll also need a rental appraisal for the property, which shows how much rent the property is likely to generate. Most lenders will accept an appraisal from a local real estate agent.

If you're using equity from another property, you'll need a valuation of that property as well. Lenders will organise this once you've applied, but it's worth getting a sense of your home's current value before you start the process so you know how much equity you have available.

Pre-approval is useful if you're planning to buy at auction or if you want to move quickly when the right property comes up. It gives you certainty around how much you can borrow and shows sellers that you're a serious buyer. Most pre-approvals are valid for three to six months, depending on the lender.

Call one of our team or book an appointment at a time that works for you. We'll walk you through the loan options that fit your situation, help you compare rates and features, and make sure your application is structured in a way that gives you the flexibility you need as your portfolio grows.

Frequently Asked Questions