Question 1

How do lenders treat rental income on an investment loan application?

Accepted Answer

Most major lenders shade gross rental income to between 70% and 80% to allow for vacancy, agent fees, rates, insurance and ongoing maintenance. The exact shading rate varies by lender. Where the property is not yet purchased, lenders use a market-appraisal letter or a property valuer's estimate. Where it is already tenanted, the rent ledger and lease agreement are typically required.

Question 2

Should I use principal-and-interest or interest-only on an investment loan?

Accepted Answer

It depends on cash flow, the investment strategy, and the way the loan and the underlying property interact with your overall tax position. Interest-only loans typically have a higher rate and a maximum interest-only period (e.g. 5 years); principal-and-interest loans build equity over time. We model both with the tax side of the practice in mind, but the decision is yours and should be made based on personal advice for your specific circumstances.

Question 3

Is loan interest on an investment property tax deductible?

Accepted Answer

Where money is borrowed and used to produce assessable income — such as rent from an Australian investment property — interest on the borrowed money is generally deductible against that assessable income under current law, subject to current ATO rules and your individual circumstances. This is general information only; the deductibility of interest in any specific case depends on the use of the borrowed funds, the documentation, and the overall structure. Note the Government announced changes to negative gearing in the 2026–27 Federal Budget that are not yet law and are intended to apply from 1 July 2027 if enacted — we work from the law current for the relevant income year. Personal tax advice should be sought.

Question 4

What is debt recycling and is it for me?

Accepted Answer

Debt recycling is a strategy that progressively converts non-deductible home-loan debt into deductible investment debt, by paying down the home loan and using a redraw or split facility to invest. It works only in specific personal circumstances, requires careful documentation of loan purpose, and carries investment risk on the asset side. Whether it is appropriate depends on your tax position, cash flow, risk tolerance and investment objectives, and should be assessed in personal financial product advice from a licensed financial adviser alongside the tax and lending work.

Question 5

Should the investment loan use an offset or a redraw?

Accepted Answer

Generally, an offset account is preferred over redraw on an investment loan because offset balances do not affect the deductibility character of the underlying loan, whereas redraw functions as new borrowing each time. The correct positioning depends on whether you intend to switch the property between investment and owner-occupier use over time. We discuss the considerations; the tax side of the practice prepares any year-end documentation that follows.

Question 6

How does borrowing capacity differ for investment vs owner-occupier loans?

Accepted Answer

Lenders generally include shaded rental income on the income side but also include the full new loan repayment and any holding costs (rates, insurance, body corporate) on the expense side. Net effect on borrowing capacity varies by lender. Some lenders apply tighter LVRs, higher rate margins, and stricter expense verification for investment loans. We model your shape against multiple lenders before any formal application.

Question 7

Can I borrow through a family trust or SMSF to buy an investment property?

Accepted Answer

Yes, but the lender shortlist narrows. Trust borrowing requires the trust deed to permit it and lenders typically require personal guarantees from the trustees. SMSF property borrowing is via a Limited Recourse Borrowing Arrangement (LRBA) and is a separate, more complex transaction with specific SIS Act compliance requirements — covered separately in our SMSF content as a separate scoping engagement.

Question 8

What documentation does the lender need beyond a standard home-loan application?

Accepted Answer

Additional documents typically include: a copy of the contract of sale (or contract for an off-the-plan purchase), the rental appraisal or current lease, any existing investment property statements (if you already hold investment property), and the rental schedules from your prior-year tax return. For trust or company applications: the trust deed or company constitution, identification for all directors/trustees, and beneficiary or shareholder information.

Investment Property Loans

Investment loans sit at the intersection of tax and lending.

What an investment loan engagement covers.

Investors we typically arrange loans for.

First-time investors

Established investors growing the portfolio

Owner-occupier becoming investor

Trust and company borrowers

From scoping to settlement — typically 4–8 weeks.

Scoping call

Structure recommendation

Lender shortlist

Pre-approval (where applicable)

Property & full approval

Settlement & tax handover

Investment property loans — common questions.

Where this fits in the bigger picture

Investment property loan broker

Mortgage broker for property investors

Equity release for investors

Property investor mortgage & tax strategy

Tax planning & strategy

Refinancing

How One Roof works