Smart ways to approach buying an investment property

Buying an investment property when you work irregular hours

Shift work doesn't disqualify you from buying an investment property, but lenders assess your income differently when it includes penalties, overtime, or allowances. Most lenders require 12 months of consistent shift penalty evidence before they'll include it in your borrowing capacity calculation, and some cap how much they'll count.

Consider a crime scene investigator earning a base of $85,000 plus $18,000 in penalty rates and overtime. If the lender only includes 80% of those additional earnings, the assessment treats your income as closer to $99,400 rather than the full $103,000. That difference can reduce how much you can borrow by $40,000 or more depending on your other commitments. When you're assessing your borrowing capacity for an investment purchase, it pays to work with a broker who knows which lenders treat shift-based income more favourably, because not all policies are the same.

Some lenders require tax returns to verify penalty income, while others accept payslips and an employer letter. If you've recently changed roles or your shift pattern has varied, expect more scrutiny. Lenders want to see that the income is stable and likely to continue.

How much deposit you need and where it can come from

You'll typically need a 10% deposit plus costs to buy an investment property without paying Lenders Mortgage Insurance, though some lenders allow 5% if you're willing to cover the LMI premium. For a property at a median price, that means having at least $60,000 to $70,000 saved or available through equity in your home.

If you already own a property, you can release equity to fund the deposit rather than using cash savings. In that scenario, a lender values your existing home and allows you to borrow up to 80% of its value, minus what you still owe. The surplus becomes your deposit. As an example, if your home is worth $650,000 and you owe $380,000, you could access up to $140,000 in equity without needing LMI on either loan.

Genuine savings still matter if you're not using equity. Lenders want to see that at least 5% of the purchase price has been held in your account for three months, which rules out sudden gifts or sale proceeds from assets unless they're documented well in advance. Funds from a tax refund, sale of shares, or inheritance are usually acceptable if you can show a clear paper trail.

Interest only or principal and interest repayments

Most investors choose interest only repayments because they reduce the monthly outlay and maximise the amount you can claim as a deduction. If you're paying $2,400 a month on a principal and interest loan, switching to interest only might drop that to $1,650, which makes the property closer to cash flow neutral once you factor in rent.

Interest only periods typically run for one to five years, after which the loan reverts to principal and interest unless you apply to extend. You're not building equity through repayments during that time, but you're relying on capital growth and rental income to build wealth instead. If the property increases in value and rents rise over that period, the strategy works. If the market stalls or vacancy rates climb, you're still holding the same debt with less buffer.

Some investors prefer principal and interest from the outset because they want the discipline of reducing the loan balance, particularly if they're planning to retire before the loan term ends. There's no universal right answer, but interest only loans suit investors focused on cash flow and tax efficiency rather than debt reduction.

Variable or fixed rate on an investment loan

Variable rates give you flexibility to make extra repayments, redraw funds, or refinance without penalty. Fixed rates lock in your repayment for one to five years but usually come with break costs if you exit early and restrictions on how much extra you can pay down.

For investors, variable rates also mean you can access an offset account, which reduces the interest you're charged without technically making extra repayments. If you're holding $30,000 in an offset against a $500,000 loan, you only pay interest on $470,000. That saves you around $200 a month at current rates and keeps the funds accessible if you need them for another deposit or unplanned costs.

Fixed rates make sense if you want certainty or if you think rates are likely to rise, but the trade-off is less flexibility. Most lenders allow you to fix a portion and leave the rest variable, which gives you some predictability without locking yourself in completely.

Negative gearing and the recent changes

Negative gearing allows you to offset a rental loss against your other income, which reduces your taxable income and increases your refund. If your investment property costs $32,000 a year to hold and you collect $28,000 in rent, that $4,000 loss reduces your tax bill by $1,600 if you're in the 40% tax bracket.

From 1 July 2027, negative gearing rules change for established properties purchased after Budget night in May. Losses from those properties can only be offset against rental income or capital gains from residential property, not against your salary. Losses can still be carried forward and used later, but the immediate tax benefit disappears. The change doesn't apply to new builds, and properties bought before mid-May are unaffected.

If you're planning to buy your first investment property in the next 12 months, understanding which properties still qualify for full negative gearing matters. New builds retain the tax benefits, but they often come with slower capital growth in the first few years. Established properties in stronger growth areas lose some tax appeal under the new rules but may still deliver better long-term returns depending on location and tenant demand.

What lenders assess when you apply

Lenders assess your ability to service both your current home loan and the new investment loan, even if the rental income covers most of the investment property cost. They don't count 100% of the rent because they assume periods of vacancy and factor in a buffer. Most lenders only include 80% of the rental income in their servicing calculation, which means a property renting for $600 a week is treated as generating $480.

If you're buying in an area with high vacancy rates or relying on short-term rental income, expect lenders to apply an even larger discount or refuse to count the income at all. Body corporate fees, landlord insurance, council rates, and property management fees all reduce your serviceability because they're ongoing costs the lender includes in the assessment.

Your existing debts matter too. A $15,000 car loan or $8,000 credit card limit reduces how much you can borrow for an investment property, even if you don't carry a balance. Lenders assume you could max out that credit card tomorrow, so they assess the repayment as if you already have. Paying down or closing unused credit before applying will improve your borrowing capacity.

Refinancing an investment loan later

Once your property has increased in value or you've paid down the loan, refinancing your investment loan can unlock equity for another purchase or reduce your rate. Lenders reassess your income and expenses when you refinance, so if your circumstances have changed or you've taken on more debt since the original loan, you may not qualify for the same amount again.

Refinancing also lets you switch from interest only to principal and interest, or extend your interest only period if the lender agrees. Most lenders allow a maximum of 10 years interest only over the life of the loan, so if you've already used five years, you may only get another five-year extension before you're required to start paying down the principal.

Some investors refinance to consolidate multiple investment loans under one facility, which simplifies the administration and can sometimes improve the rate. If you're planning to expand your property portfolio, keeping your loans structured properly from the start makes refinancing smoother later.

Getting the application moving

You'll need payslips covering the last three months, tax returns if you're claiming deductions or your income includes penalties, and bank statements showing your savings or offset balance. If you're using equity, the lender will order a valuation on your existing property before they'll confirm how much you can borrow.

If the property you're buying is tenanted, provide a copy of the lease so the lender can verify the rental income. If it's vacant, the lender will estimate the rent based on a valuation or market comparison, but they'll be more conservative than if a tenant is already in place. Some lenders won't count rental income at all until a lease is signed, which can affect your borrowing capacity if the property is your second or third investment.

Allow four to six weeks from application to settlement if the loan is straightforward, longer if you're using equity or self-employed income. Getting loan pre-approval before you start looking gives you a confirmed borrowing limit and shows agents and vendors you're ready to move.

Call one of our team or book an appointment at a time that works for you. We'll walk through your income structure, work out how much you can borrow, and find lenders who'll count your shift penalties without unnecessary discounting.

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