Investment Property Loans
How to borrow for an investment property, fund the deposit with equity, and structure the loan, explained simply by an Adelaide mortgage broker.
An investment property loan is a mortgage for a property you rent out rather than live in. Lenders weigh the expected rent alongside your income, often shading the rent, and many investors fund the deposit using equity in their own home rather than cash.
Borrowing to invest in property follows similar mechanics to a normal home loan, with a few differences that matter: lenders shade rental income, treat investment lending as slightly higher risk, and care a lot about how your loans are structured. Used well, with a clear plan and the right advice, an investment loan can build long term wealth. Used carelessly it adds debt and risk, so the structure and the numbers should come first.
How investment property loans work
An investment loan funds a property you intend to rent out. Lenders assess it much like a home loan but weigh expected rental income alongside your own, and often price it a little higher to reflect the risk. The fundamentals are familiar, the details differ.
Funding the deposit with equity
Most investors never use cash for the deposit. Instead they release equity from their own home to fund the deposit and costs.
- Equity in your home can fund the deposit and costs.
- It can let you invest without saving fresh cash.
- You are borrowing more, so interest grows.
- A clean, separate structure protects your tax position.
How lenders read rental income
Lenders rarely count all the rent. They shade it, often using around 70 to 80 percent, to allow for vacancies and running costs, which can bring your borrowing power below what you expected.
Interest only versus principal and interest
Investors often weigh interest only, which keeps repayments lower and deductible debt higher, against principal and interest, which pays the loan down. Each suits different strategies, and the tax angle means it is worth discussing with your accountant.
Structuring to protect your future
How your loans are set up matters as much as the rate. Cross collateralising everything with one bank can limit you later, while standalone loans keep control. The right structure protects your tax deductions and your ability to grow.
Is property investment right for you?
Borrowing to invest can build wealth, but it adds debt and risk, and values do not only rise. The honest first step is to map your equity, borrowing capacity and goals, then get advice tailored to your plan.
- Investment loans weigh expected rent alongside your income.
- Lenders shade rental income, often to around 70 to 80 percent.
- Many investors fund the deposit with home equity.
- Loan structure affects your tax and future borrowing.
- Get accounting advice on tax and gearing before you commit.
Plan your next investment property
Answer a few quick questions and we can map your equity and borrowing options across a panel of more than 70 lenders. No cost, no obligation.
Check Your Options
A few quick questions, no obligation.
What is your goal?
Tell us a bit more about the plan
How do you earn your income?
How is your credit score?
This helps us match you to the right lender from the start.
Last step. Where should we send your options?
Your information is private and we will never share it.
By submitting, you agree to be contacted by one of our team of licensed mortgage brokers. No obligation. No spam.
You're all set.
We've received your details. One of our friendly brokers will reach out within 1 business day to help guide you through your options.
Investment Property Loans: common questions
What is an investment property loan?
An investment property loan is a mortgage used to buy a property you intend to rent out rather than live in. Lenders assess it a little differently to an owner occupier loan, often weighing expected rental income alongside your own income.
Are interest rates higher for investment loans?
Often, slightly. Lenders generally view investment lending as a little higher risk than owner occupied lending, so investment rates can sit somewhat above owner occupier rates. The exact gap varies by lender and loan type.
How much deposit do I need for an investment property?
Commonly around 20 percent plus purchase costs such as stamp duty, which avoids lenders mortgage insurance. Some lenders accept a smaller deposit with insurance, and many investors use equity in their own home instead of cash.
Can I use the equity in my home to buy an investment property?
Yes, and many investors do. You can release equity from your own home to fund the deposit and costs of an investment property, rather than using cash, subject to your borrowing capacity and the lender.
How do lenders assess rental income on an investment loan?
Lenders usually do not count all of the expected rent. They apply a shading factor, often using around 70 to 80 percent of the rent, to allow for vacancies and costs such as management and maintenance.
What is an interest only investment loan?
An interest only investment loan lets you pay only the interest for a set period, often up to five years, rather than reducing the principal. It keeps repayments lower during that period and is sometimes used for cash flow or tax reasons.
What are the tax benefits of an investment property loan?
The interest on an investment loan, along with costs such as property management, maintenance and depreciation, can generally be claimed as a tax deduction against your income. Your accountant confirms what applies to you.
What is negative gearing?
Negative gearing is when the costs of running an investment property, including loan interest, are greater than the rent it earns, producing a loss. That loss can generally be offset against your other taxable income.
Should I choose principal and interest or interest only for an investment loan?
It depends on your strategy. Interest only keeps repayments lower and maintains higher deductible debt, which some investors prefer. Principal and interest pays the loan down and builds equity faster. Each has trade offs.
What is cross collateralisation and should I avoid it?
Cross collateralisation is when a lender uses more than one of your properties as security for your loans. It can give the lender broad control over your assets and make it harder to sell or refinance one property on its own.
Can I have an offset account on an investment loan?
Yes. Most lenders offer offset accounts on variable rate investment loans. Money in the offset reduces the balance interest is charged on, while staying accessible, which can lower your interest without locking funds away.
What is the maximum LVR for an investment loan?
Many lenders allow investment lending up to around 90 to 95 percent including lenders mortgage insurance, but the sharpest rates usually need a loan to value ratio of 80 percent or less.
Can I buy an investment property through a company or trust?
Yes. You can borrow through a trust or a company structure to hold an investment property. Lenders will assess the structure and usually require personal guarantees from the directors or beneficiaries.
What is the serviceability buffer on an investment loan?
Lenders test your ability to repay using an assessment rate higher than the actual rate, commonly around three percent above it. This buffer checks you could still manage repayments if rates rose.
Can I turn my home into an investment and buy a new home?
Often yes. You can keep your current home, convert its loan to an investment loan, and use your equity to buy a new home to live in. The structure and timing have tax implications worth planning.
Do I need a 20 percent deposit to invest?
Around 20 percent avoids lenders mortgage insurance and accesses better pricing, but smaller deposits are possible with insurance, and many investors use home equity instead of cash.
Is the rent counted in full toward my borrowing power?
No. Lenders usually shade rental income, often using around 70 to 80 percent, to allow for vacancies and costs, so it counts for less than the full amount.
Are investment loan rates higher?
Often slightly, since lenders treat investment lending as a little higher risk. The exact gap varies by lender and loan type, so it is worth comparing.
Can I claim the loan interest on tax?
Investment loan interest is generally tax deductible, but it depends on the purpose of the borrowing and your circumstances. Your accountant should confirm your position.
Related guides
General information only. This page provides general information about home loans and is not financial or credit advice, a quote, or a guarantee, and your personal circumstances have not been considered. Lending policies, interest rates, fees and eligibility vary by lender and change over time. Always confirm your own situation with a licensed mortgage broker or lender before acting. Ross McFarlane (Credit Representative 526725) is an authorised Credit Representative of Australian Associated Advisers Pty Ltd t/a Keylend, Australian Credit Licence 392169.