Smart ways to choose the right investment property type

Not all investment properties are treated the same by lenders.

A standard three-bedroom house in a suburb with stable vacancy rates might qualify for a loan with an 80 per cent loan-to-valuation ratio and a competitive rate, while a studio apartment in an oversupplied precinct could require a 30 per cent deposit and attract a pricing adjustment. The property type shapes the loan structure before you even submit an application.

Houses and Townhouses: Lower Risk, Broader Lender Appetite

Houses and townhouses on freehold or company title land typically attract the most favourable lending terms. Lenders assign lower risk weights to these properties under prudential standards, which translates to wider investment loan options and access to better investor interest rates.

Consider a buyer acquiring a three-bedroom townhouse in Northcote. With a 20 per cent deposit, the loan would be treated as a standard residential mortgage exposure, and the buyer could access variable or fixed rate products without servicing overlays. If the same buyer purchased a one-bedroom apartment in the same suburb with identical land value but smaller internal floor area, some lenders would apply a minimum loan amount or restrict the loan-to-value ratio to 70 per cent, particularly if the apartment size fell below 50 square metres.

Houses and townhouses also offer flexibility for future portfolio growth. Equity in a freehold property can be released to fund a second purchase without the same cross-collateralisation concerns that arise with strata-titled assets in buildings with known defects or high body corporate fees.

Units and Apartments: Size, Location and Building Condition All Matter

Apartments are not a single category from a lender's perspective. A two-bedroom apartment above 70 square metres in a low-density block may be treated identically to a townhouse, while a studio apartment below 40 square metres could trigger a declined application or require lenders mortgage insurance even at a 75 per cent loan-to-value ratio.

Lenders assess apartment lending risk based on internal floor area, the total number of units in the building, whether the building is affected by combustible cladding or structural defects, and the financial health of the owners corporation. If more than 50 per cent of units in a building are investor-owned, or if the developer still holds unsold stock, some lenders classify the building as non-standard and either decline the application or apply a higher interest rate.

In our experience, buyers underestimate how much the body corporate matters. A building with a sinking fund below the recommended level or outstanding special levies can make a property ineligible for finance, even when the buyer has a 25 per cent deposit and strong serviceability.

Vacant Land: Development Intent Changes Loan Structure

Vacant land held for investment purposes is generally financed under a different loan structure than land purchased with immediate construction intent. If the land is genuinely held for capital appreciation without a build plan, lenders treat it as a non-income-producing asset. Interest is still deductible against other rental income under current tax rules, but the loan cannot be structured as interest-only in most cases, and the maximum loan-to-value ratio is typically 70 to 80 per cent depending on zoning and location.

If the buyer intends to build on the land within 12 months, the finance would generally be structured as a construction loan, with progressive drawdowns tied to building milestones. For foreign investors purchasing vacant residential land, development conditions apply under the Foreign Acquisitions and Takeovers Act 1975, requiring construction to be completed within four years.

Dual Occupancy, Subdivisions and Properties with Development Potential

Properties with existing dual occupancy or subdivision potential are assessed based on current use, not future potential. A house on a large block zoned for subdivision is valued and financed as a single dwelling unless plans have been submitted and a development approval pathway is confirmed.

Where a property generates rental income from two separate dwellings on one title, lenders typically treat the rental income as a single line item and apply standard vacancy rate assumptions. Some lenders will accept 80 per cent of the combined rental income for serviceability purposes, while others apply a more conservative treatment if the dwellings share services or access.

If subdivision is planned within the first 12 months of ownership, the transaction may need to be structured as a commercial or development loan rather than a residential investment property loan, particularly where the buyer intends to sell one lot after completion. This changes the interest rate, the loan term and the lender pool available.

Specialty Property Types: Student Accommodation, Serviced Apartments and Rural Holdings

Student accommodation, serviced apartments and properties with commercial components such as a home office or retail tenancy are generally financed outside the standard residential investment loan framework. Lenders treat these as commercial or semi-commercial assets, which means higher deposit requirements, shorter loan terms and interest rates priced off commercial risk margins rather than residential mortgage rates.

Rural properties on larger acreage are assessed on a case-by-case basis. A residential dwelling on five acres within 10 kilometres of a regional centre might be financed as a standard residential investment, while a property on 40 acres with no town water or sealed road access would likely require a 30 to 40 per cent deposit and be priced as a specialist rural loan.

Serviced apartments that form part of a hotel or short-stay letting pool are excluded from most residential lending policies. Even where a lender offers finance, the rental income may not be recognised for serviceability purposes if the letting arrangement is not an assured tenancy under a residential lease.

Leasehold, Company Title and Stratum Title Properties

Leasehold properties, where the buyer purchases the dwelling but leases the land from a third party such as a retirement village operator or government authority, attract limited lender appetite. Most lenders will not provide finance on leasehold land unless the lease term exceeds 50 years and the lease is registered and freely assignable. Retirement village units are generally excluded altogether.

Company title properties, where ownership is evidenced by shares in a company rather than a registered title, are treated similarly. Fewer than 20 per cent of lenders will consider company title for investment purposes, and those that do typically cap the loan-to-value ratio at 60 to 70 per cent.

Stratum title, common in some older apartment blocks and townhouse developments, sits between strata and company title. Provided the stratum title is registered and includes an unencumbered right to occupy, most lenders will treat it as equivalent to strata title, though some apply a 5 to 10 per cent reduction in maximum loan-to-value ratio.

How Lenders Price Different Property Types

Lenders apply risk-based pricing to investment loans based on the classification of the security property under prudential standards. A standard loan secured by a house or apartment meeting size, location and condition benchmarks will attract a lower interest rate than a non-standard loan secured by a small apartment, a property in a regional location with limited comparable sales, or a property in a building affected by cladding or defects.

These pricing adjustments are typically between 0.10 and 0.50 percentage points, though in some cases a non-standard property will be declined outright rather than priced at a margin. The adjustment applies for the life of the loan unless the loan is refinanced to a different lender.

Buyers often focus on the interest rate without considering how the property type restricts the lender panel. A two-bedroom house in Hawthorn East might be acceptable to 30 lenders, while a 45-square-metre apartment in the same suburb might be acceptable to eight. That difference in lender appetite has a direct effect on the rate and features available, particularly if the buyer's serviceability or deposit is marginal.

Structuring the Loan to Match the Property and Your Strategy

The loan structure should reflect both the property type and the investor's intentions. Interest-only repayments are commonly used on investment loans to maximise cash flow and tax deductions, but not all property types qualify. Lenders generally restrict interest-only terms to five years on standard residential properties, and some exclude interest-only altogether on non-standard properties or where the loan-to-value ratio exceeds 80 per cent.

For investors building a portfolio, the structure also affects access to equity for future purchases. A property held on principal and interest repayments builds equity faster, but rental income may not cover the higher repayment. A property on interest-only terms preserves cash flow, but requires a deliberate plan to reduce the loan or refinance before the interest-only period expires.

Where a buyer is purchasing a property with known characteristics that limit lender appetite, such as a small apartment or a property in a regional area, it can be worth structuring the loan with an offset account or redraw facility to allow voluntary principal reductions without locking into a higher compulsory repayment.

When you are weighing up different property types or unsure how a specific property will be viewed by lenders, call one of our team or book an appointment at a time that works for you. We work with a panel of lenders across Victoria and Australia and can show you how each property type affects your borrowing capacity, deposit requirement and rate before you make an offer.

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