Investment Loans to Purchase an Investment Unit

Purchasing an investment unit requires different loan structuring than buying a house, and lenders assess these properties with additional criteria.

Most lenders apply loan to value ratio caps of 80% to 90% for units depending on location and building size, which means your investor deposit needs to be at least 10% to 20% of the purchase price. Properties in buildings with more than 50 units or developments where a single entity owns more than 20% of the lots often face stricter lending policies. If you're looking at a unit in a Melbourne CBD high-rise or a precinct like Docklands where apartment density is high, some lenders will limit your borrowing or require Lenders Mortgage Insurance even at lower LVR levels. The body corporate financial health also matters. Lenders review the strata report to confirm the sinking fund is adequate and that there are no pending special levies that could affect your ability to service the loan.

How Rental Income Affects Your Borrowing Capacity

Lenders typically use 80% of the expected rental income when calculating your borrowing capacity for an investment property finance application. The remaining 20% accounts for vacancy rate, maintenance costs, and body corporate fees. Consider a scenario where you're purchasing a two-bedroom unit in Southbank for $550,000 with a rental appraisal of $550 per week. The lender will assess this as $440 per week in usable income, reducing your net position by $110 weekly before factoring in loan repayments and other property expenses. If your existing income and liabilities already stretch your serviceability, this calculation can restrict the investment loan amount you qualify for. Some lenders offer more favourable rental income assessments of 90% or even 100% for certain property types or borrower profiles, which can make a material difference when your borrowing sits close to the serviceability threshold.

Interest Only Investment Loans and Cash Flow

Interest only structures are common for property investor loan arrangements because they reduce monthly repayments and preserve cash flow during the investment period. Setting your loan to interest only for five years means you only pay the interest charges each month without reducing the principal amount. On a $440,000 loan at current variable rates, this could lower your monthly commitment by several hundred dollars compared to a principal and interest loan. The cash flow difference allows you to manage holding costs, build an expense buffer, or direct funds toward additional investments. After the interest only period expires, the loan reverts to principal and interest unless you request an extension, which most lenders allow for investors up to a maximum total period of 10 or 15 years depending on policy. This structure suits investors focused on building wealth property portfolios rather than paying down debt quickly.

Variable Rate Versus Fixed Rate for Unit Investments

Variable interest rate loans offer flexibility and typically provide access to offset accounts and redraw facilities, which help you manage cash flow and reduce interest charges. Fixed interest rate options lock in your repayments for one to five years, protecting you from rate increases during that period but removing access to offset features and often attracting break fees if you refinance or sell before the fixed term ends. In our experience, investors purchasing units in areas with strong rental demand often prefer variable structures because they value the ability to make extra payments when rental income exceeds expectations and use offset accounts to park surplus funds. If you're purchasing in a precinct like Footscray or Coburg where gentrification is driving rental growth, a variable loan allows you to respond to changing cash flow without restriction. Some investors split their loan between fixed and variable portions to balance rate certainty with flexibility.

Maximising Tax Deductions on Your Unit Investment

Negative gearing benefits apply when your claimable expenses exceed your rental income, creating a tax-deductible loss that offsets other assessable income. For units, deductible expenses include loan interest, body corporate fees, council rates, landlord insurance, property management fees, repairs, and depreciation on fixtures and building components. Newer units in developments completed within the past few years offer higher depreciation schedules because the building structure and plant items like air conditioning, carpets, and appliances can be claimed over their effective life. A unit purchased in a building completed within the last decade in an area like Hawthorn East could generate $8,000 to $12,000 in annual depreciation deductions, substantially increasing your tax benefits even if the property generates positive cash flow before tax.

Equity Release and Portfolio Growth Strategy

Once your unit increases in value, you can leverage equity to fund additional purchases without selling the property. If you purchased a unit in Richmond for $500,000 and it appreciates to $575,000 over four years, you've built $75,000 in equity plus the principal you've repaid if using a principal and interest structure. Lenders typically allow you to borrow up to 80% of the property's current value, meaning you could access up to $460,000 in total lending against that property. If your existing loan sits at $400,000, you could release $60,000 in equity toward a deposit on a second investment. This approach accelerates portfolio growth and compounds your passive income streams. Investors targeting financial freedom often use this method to acquire multiple properties across different Victorian suburbs, spreading risk and capturing growth in varied markets. Refinancing to access equity also provides an opportunity to review your investment loan structure and ensure your rate and features remain suitable.

Stamp Duty and Upfront Costs for Victorian Units

Stamp duty in Victoria varies based on purchase price and property type, with investment properties not eligible for first home buyer concessions or exemptions. On a $550,000 unit purchase, stamp duty would be approximately $30,000, plus additional costs including conveyancing, building and pest inspections, strata report fees, and loan establishment costs. These upfront expenses add 5% to 7% to your total investment outlay, which means a $550,000 purchase could require $80,000 to $90,000 in cash if you're borrowing at 80% LVR. Factoring these costs into your initial borrowing capacity assessment prevents shortfalls at settlement and ensures you retain adequate reserves for holding costs during any vacancy periods.

Call one of our team or book an appointment at a time that works for you to discuss your investment property loan structure and access investment loan options from banks and lenders across Australia.

Frequently Asked Questions