Investment Property Loans

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.

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.

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 that changes to residential-property deductions are enacted law: under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49 of 2026, Royal Assent 26 June 2026), from the 2027–28 income year residential-property deductions that exceed the income from the property are quarantined — carried forward rather than deducted against other income in that year — and the CGT changes in the same Act apply to CGT events on or after 1 July 2027. The current rules apply until then; our guide on how negative gearing works sets out the detail, and we work from the law that applies to the relevant income year. Personal tax advice should be sought.

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.

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.

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.

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. Note that for LRBAs entered into on or after 10 August 2026, real property acquired under the arrangement must be business real property — so new SMSF borrowing to buy residential investment property is not available under those rules. See our SMSF property loans page for the detail; it is a separate scoping engagement.

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.

Lenders read an investment application through your tax position — rental schedules, add-backs, depreciation and the way income is reported across entities. When the same practice prepares the returns and arranges the loan, those records are assembled and explained consistently, and the loan-purpose documentation that supports interest deductibility can be kept tidy from the outset. We do not give personal tax or financial product advice on this page; the tax points are general information, deductibility depends on the use of the borrowed funds and your circumstances, and any approval depends on the lender's assessment.