Smart ways to fund your next investment property

Choosing the Right Investment Loan Structure

Your repayment structure affects your cash flow from settlement day. Interest-only repayments keep monthly costs lower during the holding period, which matters when you're covering the gap between rent and loan costs. Principal and interest reduces your debt over time but increases the monthly outlay.

Consider an investor purchasing a two-bedroom unit near the Runaway Bay marina. At a 20 per cent deposit, the loan might be around $400,000. Interest-only at 6.5 per cent costs roughly $2,170 each month. Principal and interest on a 30-year term costs closer to $2,530. If the unit rents for $550 per week, that's about $2,380 monthly income before costs. The interest-only option leaves a smaller gap to cover, particularly once you factor in strata fees, insurance, and rates. That structure gives you breathing room while the property appreciates, but you're not paying down the debt. The principal and interest option builds equity faster but narrows your cash flow.

Most lenders offer interest-only periods of one to five years on investment loans. After that period, the loan reverts to principal and interest unless you apply to extend. That reversion increases repayments significantly, so plan for it when you're modelling your holding costs.

How Negative Gearing Rules Changed in 2026

Negative gearing used to let you offset rental losses against your wage income. From 1 July 2027, that changes for most new purchases. Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, losses on residential properties bought after 7:30pm on 12 May 2026 can only be offset against other rental income or carried forward. You can't reduce your tax on salary or wages using those losses anymore.

That rule doesn't apply if you're buying a qualifying new build. A dwelling constructed on previously vacant land, or a development that increases the number of dwellings on a site, still qualifies for unrestricted negative gearing. A knock-down rebuild that replaces one house with one house doesn't qualify. If a new build is occupied for more than 12 months before you buy it, you also lose access.

Properties you already own at 7:30pm on 12 May 2026 are grandfathered under the old rules. If you settled a contract between that date and 30 June 2027, you can negatively gear under the old rules until 30 June 2027 only. After that, the quarantine applies.

Deposit Requirements and Lenders Mortgage Insurance

Most lenders want a 20 per cent deposit for an investment property. Anything below that and you'll pay Lenders Mortgage Insurance. LMI protects the lender if you default, but you pay the premium. On a $500,000 loan with a 10 per cent deposit, LMI can add $15,000 to $20,000 to your upfront costs. That premium can be capitalised into the loan, but it increases your borrowing and your ongoing repayments.

Some lenders will go as low as 10 per cent for investors, particularly if you have a strong income or existing equity. A handful will consider 5 per cent deposits for owner-occupiers upgrading to investors, but that's rare and usually comes with rate loading.

If you're using equity from your Runaway Bay home to fund the deposit, the lender values both properties and lends against the combined security. That keeps LMI off the table if your total loan to value ratio stays under 80 per cent. The calculation gets more involved when you're holding multiple properties, and borrowing capacity tightens under the debt-to-income caps introduced in February 2026.

How Lenders Assess Rental Income

Lenders don't use the full rent when calculating what you can borrow. Most apply a shading factor of 80 per cent to account for vacancy, arrears, and management costs. If the property rents for $550 per week, the lender treats it as $440 per week in your servicing assessment.

That shading reduces your borrowing capacity compared to an owner-occupied loan. If you're refinancing or purchasing a second investment property, the rental income from your existing property is also shaded, which compounds the effect. In areas with higher vacancy rates, some lenders apply a lower percentage or require evidence of a signed lease before they'll include the income at all.

Runaway Bay units, particularly those near the water or with marina access, tend to hold tenants well. Proximity to the shopping precinct on Lae Drive and the light rail at Southport supports rental demand. Even so, expect lenders to model a vacancy buffer into their calculations.

Interest Rate Differences Between Owner-Occupied and Investment Loans

Investment loans typically carry a rate premium of 0.20 to 0.50 percentage points above an equivalent owner-occupied loan. That gap reflects the higher default risk lenders price into investor lending. A variable rate that might be 6.20 per cent for an owner-occupier could be 6.50 per cent for an investor on the same deposit and loan term.

Fixed rates for investors also sit higher than owner-occupied fixed rates. The difference narrows during rate rises and widens when the market expects cuts. Some lenders offer rate discounts when you hold multiple products with them, such as offset accounts or bundled insurance, but those discounts rarely close the gap entirely.

A 0.30 per cent difference on a $400,000 loan adds roughly $100 per month to your repayments. Over a five-year interest-only period, that's an extra $6,000 in interest. Factor that cost into your cash flow projections before you settle.

Tax Deductions Available to Property Investors

Interest on your investment loan is deductible in the year you incur it, provided the property is rented or available for rent. That deduction applies whether you're negatively geared under the old rules or holding a grandfathered property. Strata fees, council rates, landlord insurance, property management fees, and repairs are also deductible.

Depreciation on the building and fixtures adds another deduction stream. A quantity surveyor can prepare a depreciation schedule that sets out the annual claim. Older properties built before 1987 don't qualify for building depreciation, but you can still claim plant and equipment such as air conditioning, dishwashers, and blinds.

Stamp duty and loan establishment fees aren't immediately deductible. Stamp duty forms part of the property's cost base for capital gains tax purposes. Loan fees can be deducted over five years or the life of the loan, whichever is shorter. If you refinance within that period, any remaining balance is deductible in the year you refinance.

Using Equity to Fund Your Next Purchase

If you own a property in Runaway Bay and it's increased in value, you can borrow against that equity to fund the deposit on an investment property. Lenders call this equity release. You're not selling your existing property, you're increasing the loan against it and using the funds for the new purchase.

The lender will revalue your home and calculate how much usable equity you have. If your home is worth $800,000 and you owe $400,000, you have $400,000 in equity. The lender will typically let you borrow up to 80 per cent of the value without LMI, which means you can access up to $640,000 in total debt. Subtract the $400,000 you already owe, and you have $240,000 available to use as a deposit.

That approach keeps your cash in offset accounts or other investments, but it increases your debt and your servicing requirements. The interest on the additional borrowing is deductible if the funds are used to purchase an income-producing asset. Keep the equity loan separate from your owner-occupied loan so the deduction stays clear for the ATO.

Debt-to-Income Caps and What They Mean for Investors

From 1 February 2026, lenders are restricted in how many loans they can write at a debt-to-income ratio of six times or more. If your total debt is six times your gross annual income or higher, you fall into that category. The cap applies separately to investor and owner-occupier loans, and no more than 20 per cent of new investor lending can sit above that threshold.

If your household income is $120,000 and you're applying for a $500,000 investment loan on top of an existing $400,000 owner-occupied loan, your total debt is $900,000. That's a DTI of 7.5, which puts you above the six-times threshold. Lenders can still approve you, but they face portfolio limits on how many loans like yours they can write each quarter.

In practice, that means lenders are more selective about high-DTI applications. You may need a larger deposit, stronger income evidence, or a lower loan amount to stay under the cap. The restriction doesn't apply to finance for new dwelling construction or the purchase of newly erected dwellings, which gives you another reason to consider a new build if you're stretching your borrowing capacity.

Choosing Between Variable and Fixed Rates for Investment Property

Variable rates give you flexibility to make extra repayments, redraw funds, and refinance without penalty. Fixed rates lock in your repayment for a set term, usually one to five years, but come with restrictions. If you want to sell, refinance, or pay down the loan early during a fixed term, you'll likely face break costs.

For investment loans, most investors either stay fully variable or split the loan. A 50-50 split gives you rate certainty on half the debt while keeping flexibility on the other half. If rates fall, the variable portion benefits. If rates rise, the fixed portion holds steady.

Fixed rates for investors are currently sitting between 6.00 and 6.80 per cent depending on the lender and term. Variable rates for investors are around 6.30 to 6.70 per cent. The gap between fixed and variable narrows when the market expects rate cuts, and widens when cuts seem unlikely. Fixing doesn't always save you money, but it does smooth your cash flow if you're holding the property through uncertain rate cycles.

Building a Portfolio Without Overextending

Adding a second or third investment property means each loan is assessed on top of the others. Lenders add up all your debt, shade all your rental income, and apply the serviceability buffer to every loan. That tightens your capacity quickly, even if each individual property is positively geared.

In our experience, investors who build sustainable portfolios focus on borrowing capacity as much as deposit. You might have $200,000 in equity available, but if your income can't service another $500,000 loan under the buffer, the equity doesn't help. Runaway Bay properties with strong rental yields, low body corporate fees, and stable tenant demand give you the income side of that equation. Apartments in newer complexes near the marina or Anglers Esplanade typically rent well, but strata fees on waterfront buildings can run $150 to $200 per week, which eats into your serviceability.

Staggering purchases across financial years, paying down non-deductible debt first, and increasing your household income all widen your capacity. Some investors shift to interest-only on their owner-occupied home loans to free up servicing room for the next investment loan, but that strategy only works if the numbers support it and you're comfortable with the debt not reducing.

Call one of our team or book an appointment at a time that works for you. We'll model your borrowing capacity, compare investment loan options from lenders across Australia, and structure the finance so it fits your portfolio and your tax position. Whether you're buying your first Runaway Bay investment property or adding to an existing portfolio, we'll make sure the loan works from settlement through to sale.

Frequently Asked Questions