Top Strategies to Finance an Investment Unit

Understanding Investment Loans for Unit Purchases

An investment loan is finance used to purchase a property you intend to rent out rather than live in. The main difference from an owner-occupier loan is that lenders price investor lending higher and apply different serviceability tests because rental income can fluctuate and vacancy creates risk.

When you borrow to buy a unit as an investment, lenders assess your ability to service the loan using rental income from the property, discounted by a buffer, plus your existing employment income. Most lenders apply a rental income haircut of 20 to 30 per cent to account for vacancies, maintenance periods, and tenant turnover. They also add a serviceability buffer of 3 percentage points above the actual loan rate to ensure you can still make repayments if rates rise. These measures mean your borrowing capacity for an investment loan is typically lower than for an owner-occupied purchase.

Bellevue Hill buyers often consider units in neighbouring areas like Double Bay, Edgecliff, and Bondi Junction for their proximity to transport and consistent rental demand from professionals and downsizers. The concentration of corporate tenants in these precincts can support stable occupancy rates, which helps with serviceability when you apply.

Deposit and Equity Requirements for Investor Loans

Most lenders require a minimum 20 per cent deposit for investor purchases. If you borrow above 80 per cent loan to value ratio, you will pay Lenders Mortgage Insurance, which adds several thousand dollars to your upfront costs and is generally not tax deductible. For a unit at the current median in nearby Bondi Junction, a 20 per cent deposit would be around $240,000, plus stamp duty and other settlement costs.

If you already own property in Bellevue Hill, you may be able to leverage equity from your home to fund part or all of the deposit. Lenders will value your existing property and lend up to 80 per cent of that value minus any existing debt. This approach allows you to acquire the investment without saving a new deposit, but you need enough surplus income to service both the existing loan and the new investor loan simultaneously. The serviceability test applies to the combined debt, so rental income from the new unit becomes important in the approval.

In practice, using equity means your total debt increases but your cash savings remain intact. This can be useful if you want to retain liquidity for other opportunities or if you prefer not to liquidate other investments to fund the deposit.

Interest Only Versus Principal and Interest Repayments

Investor loans can be structured as interest only or principal and interest. An interest only loan means your repayment covers only the interest component for a set period, usually one to five years. The loan balance does not reduce during that time, but your monthly repayment is lower. This structure can increase cash flow if you want to direct surplus income into other investments or offset accounts, and it maximises your tax deduction because the full interest amount is deductible.

Principal and interest repayments reduce the loan balance over time. The monthly repayment is higher, but you build equity in the property and pay less interest over the life of the loan. Some investors prefer this approach once they reach a certain stage in their portfolio or when they are closer to retirement and want to reduce debt.

Consider a buyer who purchases a two-bedroom unit in Double Bay using an interest only structure. The loan amount is $800,000 at a variable investor rate. The interest only repayment is around $4,800 per month, compared to approximately $5,300 per month on a principal and interest basis. The unit rents for $1,100 per week, or about $4,750 per month. After the lender applies a 20 per cent rental discount, the assessable income is $3,800 per month. The buyer's salary income covers the shortfall, and the full interest expense is deductible against the rental income. After five years the loan reverts to principal and interest unless the buyer refinances or extends the interest only period with lender approval.

Variable Rate or Fixed Rate for Investment Property

Variable rate loans allow your interest rate to move with market conditions. You can make extra repayments without penalty, redraw funds if the loan allows, and access offset accounts to reduce interest. Most investor variable rates sit 0.3 to 0.5 percentage points higher than owner-occupier variable rates.

Fixed rate loans lock your interest rate for a set term, typically one to five years. Your repayment stays the same during that period, which can help with budgeting. However, fixed rate investor loans generally have higher break costs if you repay early or refinance, and most do not allow extra repayments beyond a small annual cap or access to offset accounts.

Some buyers use a split structure, fixing part of the loan and keeping the rest on a variable rate. This approach gives you some rate certainty while retaining flexibility on the variable portion. The decision depends on your view of rate movements and how much flexibility you need. If you plan to sell within a few years or expect to refinance, a variable rate usually makes more sense.

Body Corporate Costs and Lender Restrictions

Units come with body corporate fees that cover shared costs like building insurance, common area maintenance, and sinking fund contributions. These fees can range from $1,000 to $3,000 per quarter depending on the building size and facilities. Lenders do not include body corporate fees in the loan repayment, but they do factor them into serviceability because they reduce your disposable income.

Some lenders also apply lending restrictions based on the number of units in the building, the percentage of owner-occupiers versus investors, and whether the building has any known defects or pending litigation. Buildings with fewer than six units, or where a single owner holds more than 50 per cent of the lots, can be harder to finance. Lenders may also decline or apply higher rates for buildings with large numbers of serviced apartments or where the body corporate has insufficient sinking fund reserves.

Before you sign a contract, ask the agent or seller for a copy of the strata report and the latest body corporate financials. Your broker can review these and confirm whether any of the lenders on your shortlist have concerns. This step avoids delays or declined applications after you have already committed to the purchase.

Changes to Negative Gearing and Capital Gains Tax from July 2027

Under new legislation that takes effect from 1 July 2027, net rental losses on residential properties purchased after 7:30pm AEST on 12 May 2026 can only be offset against other residential rental income or carried forward. You can no longer offset those losses against salary or other employment income. Properties bought before that date and time are not affected and continue under the existing rules.

The only exception is for eligible new builds, which are defined as dwellings constructed on previously vacant land or projects that increase the number of dwellings on a site. Knock-down rebuilds that do not increase dwelling numbers do not qualify. If you buy a new build, you can still offset rental losses against your other income as before.

The capital gains tax discount for individuals also changes from 1 July 2027. The 50 per cent discount is replaced with cost base indexation and a minimum 30 per cent tax on real gains, but the change applies only to gains that accrue after that date. Gains accrued before 1 July 2027 remain under the existing discount rules. Eligible new builds let you choose between the 50 per cent discount and the new indexed method.

These changes do not affect the loan structure itself, but they do change the after-tax return on an established unit purchased now. If you are weighing an established unit in Bellevue Hill or a neighbouring suburb against a new apartment in a development precinct, the tax treatment from mid-2027 onwards is something to factor into your projections.

Rental Income and Vacancy Rates in the Eastern Suburbs

Rental yield on units in Bellevue Hill and the surrounding areas typically sits between 2.5 and 3.5 per cent gross, which is lower than many other parts of Sydney. Buyers in this market are often balancing capital growth expectations with cash flow. The proximity to the CBD, quality schools, and harbour foreshore supports long-term price stability, but the initial income return is modest.

Vacancy rates in the eastern suburbs have been consistently low, often below 2 per cent, driven by undersupply of rental properties and strong demand from professionals, students at nearby universities, and international workers. A lower vacancy rate reduces the risk of extended periods without rental income, which improves serviceability in the eyes of lenders and makes holding costs more predictable for you.

If you are buying a unit in a building with a high proportion of investor-owned apartments, check whether the building has a history of stable tenancies. Buildings dominated by short-term or serviced apartments can experience higher turnover and may be less attractive to long-term tenants looking for a stable home.

Accessing a Range of Lenders and Loan Products

Different lenders have different credit policies for investor loans. Some offer rate discounts for larger loan amounts or for borrowers with multiple properties financed through the same lender. Others have more flexible serviceability policies or will accept a higher proportion of rental income. A broker gives you access to investment loan options from banks and lenders across Australia, which can make a material difference to the rate you pay and the amount you can borrow.

If you are self-employed or earn part of your income from bonuses or commissions, some lenders are more willing to include that income in the serviceability assessment than others. If you already have several investment properties, portfolio lending policies vary and some lenders will cap the number of properties they will finance for a single borrower. A broker can identify which lenders suit your circumstances before you apply, reducing the chance of a declined application that then appears on your credit file.

You can also review whether refinancing an existing loan improves your overall position. If you purchased an investment property several years ago and rates have moved or your equity has increased, a refinance may free up capital or lower your repayment without needing to sell.

Tax Deductions and Claimable Expenses for Investment Units

Interest on your investment loan is fully deductible against rental income, along with body corporate fees, council and water rates, property management fees, insurance, repairs, and depreciation on the building and fixtures. Keeping accurate records of all expenses is important because the ATO requires substantiation for every claim.

Depreciation is often overlooked but can provide a deduction of several thousand dollars per year, especially in newer buildings. A quantity surveyor prepares a depreciation schedule that sets out the deductible amounts for the building and the fixtures and fittings. The cost of the report itself is also deductible.

From 1 July 2027, if the unit you purchased falls under the new negative gearing rules, any net rental loss can only be offset against other residential rental income or carried forward. If you have no other rental properties, the loss accumulates and can be used when you eventually sell the property to reduce capital gains tax, or if you acquire another rental property in future.

How BlueGrey Financial Can Help You Structure Your Investment Loan

Every buyer's situation is different. The amount you can borrow, the rate you pay, and the loan structure that works for you depend on your income, existing debt, deposit source, and what you plan to do with the property over the next few years. We work with clients in Bellevue Hill and across the eastern suburbs to structure investment loans that align with their goals and circumstances.

We can assess your borrowing capacity before you start looking, review strata reports and lender policies for specific buildings, and coordinate with your accountant or tax adviser to confirm the loan structure supports your tax position. If you are using equity from your home, we can arrange the finance so that the deductible and non-deductible portions are separated correctly from the outset.

Call one of our team or book an appointment at a time that works for you. We can walk through the numbers, compare your options, and get your application moving once you have found the right property.

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