Top tips to purchase an established investment property

Buying an established property as your first post-separation investment

An established investment property can be a practical way to rebuild wealth after separation, particularly if you're working with equity from a settlement or starting over with savings you've managed to preserve.

The established market typically offers immediate rental income without construction delays, and you can see exactly what you're purchasing before you commit. That matters when cash flow is tight and you need rental income to cover repayments from day one.

But the lending environment for investment property changed substantially in early 2026. New debt-to-income limits now restrict how much lenders can approve if your total borrowing sits at six times your annual income or higher, and the interest deduction rules shift from mid-2027 for properties purchased after May 2026. If you're considering an investment purchase, understanding these changes before you make an offer will help you avoid financing issues later.

What lenders assess when you apply for an investment loan

Lenders assess your application using rental income at a reduced rate, typically 80 per cent of the advertised rent to account for vacancy and maintenance periods. Your other income is added in full, then your existing debts and living expenses are deducted to calculate how much you can service.

From February 2026, each lender can only approve 20 per cent of their new investor loans at a debt-to-income ratio of six times or higher. If your total borrowing divided by your gross annual income exceeds that threshold, you may find fewer lenders willing to approve your application, even if your income can service the repayments. The cap applies separately to new lending, so existing borrowers are not affected, but it changes the landscape if you're applying for a new investment loan post-separation.

Consider someone earning $95,000 a year who wants to borrow $450,000 for an established unit generating $550 per week in rent. The lender adds 80 per cent of the rental income ($22,880 annually) to the applicant's salary, giving a combined income of $117,880. The debt-to-income ratio based on salary alone is 4.7, which is below the six-times limit. The lender then tests serviceability at the loan rate plus a three percentage point buffer, so if the variable rate is 6.3 per cent, the test rate becomes 9.3 per cent. That determines whether the applicant can afford the repayments, not just whether the ratio falls within the cap.

How the negative gearing changes affect properties purchased now

Properties purchased on or after 7:30pm AEST on 12 May 2026 are subject to new negative gearing rules that take effect from 1 July 2027. If your property expenses exceed rental income after that date, the net loss can only be offset against other residential rental income or carried forward to offset future rental income or capital gains. You cannot offset the loss against salary or wages.

Properties held before that date and time are grandfathered under the existing rules until you sell, so the change only affects new purchases.

This changes the cash flow equation for investors who relied on the tax refund from negative gearing to help meet repayments. If you're separating and looking to build wealth after separation through property, you now need enough after-tax income to cover any shortfall between rent and expenses without the benefit of offsetting that loss against your salary.

An established two-bedroom apartment costing $480,000 with a 10 per cent deposit might generate $26,000 in annual rent but incur $32,000 in loan interest, council rates, insurance, strata fees and property management costs. Under the old rules, the $6,000 loss could reduce your taxable income, lowering your tax bill by around $2,500 if you're in the 37 per cent bracket. From 1 July 2027, that loss is quarantined, so you need to fund the $6,000 gap from your own cash flow. The loss is not lost permanently; it carries forward and reduces tax when the property becomes positively geared or when you sell and realise a capital gain.

Interest-only or principal-and-interest repayments

Most lenders offer interest-only terms of up to five years on investment loans, after which the loan reverts to principal and interest. The appeal is lower monthly repayments during the interest-only period, which can improve cash flow if you're rebuilding finances after separation.

The downside is that you're not reducing the debt, so when the loan switches to principal and interest, the repayment jumps. On a $400,000 loan at a variable rate of 6.4 per cent, the interest-only repayment is around $2,130 per month. When it converts to principal and interest with 25 years remaining, the repayment rises to approximately $2,750 per month, an increase of $620.

If you're planning to hold the property long term and want to reduce the loan balance, starting with principal and interest from the outset avoids that repayment shock later. If cash flow is the priority and you expect your income to improve or the property to appreciate, interest-only can give you breathing room now. The choice depends on your financial position and whether you have other debts you're working to clear. You can read more about how interest-only loans work in separation scenarios.

Loan-to-value ratio and lenders mortgage insurance

Most lenders require lenders mortgage insurance if your loan-to-value ratio exceeds 80 per cent. For investment loans, many lenders cap their maximum LVR at 90 per cent, and some at 80 per cent, so you may need a larger deposit than you would for an owner-occupied purchase.

LMI premiums are higher for investment loans than for owner-occupied loans at the same LVR. On a $450,000 loan with a 10 per cent deposit (90 per cent LVR), the LMI premium might range from $15,000 to $20,000 depending on the lender and insurer. That premium can be added to the loan amount, but doing so increases your LVR further, which may push you over the lender's maximum.

If you're using equity from a property settlement to fund the deposit, you may be able to avoid LMI entirely by keeping the LVR at 80 per cent or below. If you're starting with a smaller deposit, compare the premium cost against the benefit of entering the market sooner. Some lenders also offer LMI waivers for certain professions or under specific policy conditions, so it's worth checking eligibility before you apply.

Variable rate or fixed rate for an investment loan

Variable rates give you flexibility to make extra repayments or refinance without penalty, and offset accounts are typically available to park surplus cash and reduce the interest charged. Fixed rates lock in your repayment for a set term, usually one to five years, which can help with budgeting if your income is uncertain post-separation.

The difficulty with fixing is that you lose flexibility. Most fixed loans do not allow extra repayments beyond a small annual cap, and offset accounts are generally unavailable. If you want to refinance your investment loan or sell the property before the fixed term ends, break costs can apply, particularly if rates have fallen since you locked in.

In our experience, investors who are rebuilding after separation tend to favour variable rates or a split structure, where part of the loan is fixed for budgeting certainty and part remains variable for flexibility. That gives you some protection against rate rises while preserving the option to make extra repayments or access an offset account for surplus funds.

Rental income, vacancy rates and cash flow planning

Lenders assess rental income at 80 per cent of the market rent to account for periods when the property is vacant or undergoing repairs. If the agent's appraisal suggests $500 per week, the lender uses $400 per week in their serviceability calculation.

That buffer is there for a reason. Established properties require ongoing maintenance, tenants move out, and rental markets soften. If you're relying on full rental income to meet repayments, a vacancy of even four weeks can leave you short. Factor in at least one month of holding costs per year when you plan your cash flow, and keep a buffer in an offset account or separate savings if possible.

Property management fees typically range from 5 to 8 per cent of the rent plus letting fees when a new tenant is found. Strata fees, council rates, insurance, land tax in some states, and repairs are all ongoing costs that reduce your net rental return. Most established properties also incur irregular but significant expenses such as replacing appliances, repainting between tenants, or covering special levies for building repairs.

What you can claim and what's changed for tax deductions

For properties purchased before 7:30pm AEST on 12 May 2026, the existing tax treatment continues. Interest, property management fees, council rates, insurance, strata fees, repairs, depreciation on fixtures and fittings, and other holding costs are deductible against your total assessable income. If expenses exceed rental income, the loss reduces your taxable income from other sources.

For properties purchased on or after that date and time, the deductions remain the same, but from 1 July 2027 any net rental loss is quarantined. You can still claim all the same expenses, but the loss can only offset other residential rental income or be carried forward.

Depreciation on the building itself is not available for established residential properties purchased after 9 May 2017, but you can still claim depreciation on fixtures, fittings and removable assets such as carpets, blinds, air conditioners and appliances. A quantity surveyor's depreciation schedule typically costs around $600 to $800 and identifies everything you can claim over time.

Call one of our team or book an appointment at a time that works for you. We'll walk through your financial position, clarify what's changed in the lending and tax rules, and help you find an investment loan structure that fits your situation and your plans for rebuilding after separation.

Frequently Asked Questions