Avoid These 5 Mistakes When Buying an Investment Property

Buying an established investment property goes more smoothly when the loan is planned before the contract is signed. Plenty of Adamstown locals like the idea of a place near Adamstown railway station that someone else can rent, and that is a sound starting point. The trouble usually comes from assumptions about borrowing, rent and tax that turn out to be wrong.

Below are five mistakes we see buyers make, and how to avoid each one. Our investment loans page covers the wider picture if you want more detail.

Does an Interest-Only Investment Loan Increase What You Can Borrow?

No. Choosing interest-only does not lift your borrowing power, and it can lower it. For interest-only loans, APRA expects lenders to assess whether you can afford principal and interest repayments over the remaining term after the interest-only period ends. A 30-year loan with 5 years of interest-only is assessed over the remaining 25 years.

As an example, take an illustrative $500,000 loan at 6.75% p.a. Interest-only repayments would be about $2,813 a month. Principal and interest over 30 years would be about $3,243 a month. If the interest-only period ran for 5 years, repayments would then jump to about $3,455 a month over the remaining 25 years. That is roughly $640 a month more than the early interest-only repayments (about $3,455 versus about $2,813), and the balance has not dropped at all.

The outcome for this buyer is a lower repayment early on, but a bigger step up later and no reduction in the debt. Interest-only suits some investors, yet the trade-off is real. Try your own numbers in our loan repayment calculator.

Negative Gearing Rules for Established Investment Properties Bought Now

If you buy an established residential property now, any rental loss will be treated differently from the 2027-28 income year. Established properties acquired after 7:30pm AEST on 12 May 2026 can only offset net rental losses against other residential property income, such as rent or residential capital gains. From the 2027-28 income year, you can no longer count on the loss reducing tax on your salary. For a property acquired after 12 May 2026, current rules still apply for losses up to 30 June 2027.

Excess losses can be carried forward to use against future residential property income. Properties held at that time, and eligible new builds, are treated differently. The change does not affect whether loan interest is deductible. It affects how a net rental loss can be used.

Before you build a plan around a tax refund, speak with your accountant about how this applies to you. No tax outcome is certain, and the numbers need to stack up on rent and cash flow alone.

How Much Rental Income Will a Lender Count?

Lenders generally count only part of the expected rent. APRA's view is that sensible policies include at least a 20% haircut, so no more than 80% of expected rent is counted. The haircut allows for gaps between tenants. It does not cover agent fees, repairs or other holding costs.

This matters if you are leaning on rent to prop up your application. Lenders also tend to put less weight on a rental appraisal than on actual rent already being received. Each lender sets its own rules on the evidence it accepts, so it pays to check before choosing one.

The practical move is to budget using the reduced rent figure and keep a cash buffer for vacancies and repairs. Our borrowing capacity tool is a handy first check.

Why Is Your Investment Loan Assessed at a Higher Rate Than You Pay?

Banks must test your ability to repay at a rate at least 3.0 percentage points above the rate on the loan. This applies to new borrowers at banks, credit unions and building societies, including on investment loans. So a loan priced at the illustrative 6.75% p.a. would be tested at 9.75% p.a.

Many buyers get caught by this because they only compare their expected repayment to their income. Your existing debts count too. Credit card limits are generally assessed using a notional repayment based on the limit, even if the card is unused. Closing cards you do not need before applying can lift what a lender will let you borrow, though you give up that spare credit.

Non-bank lenders are not bound by the same buffer, but they set their own policies. Stamp duty and other upfront costs also need to fit your budget, and our stamp duty calculator gives you a starting figure.

Can Mixing Personal Spending With Investment Borrowing Cost You Deductions?

Yes. Interest is deductible based on what the borrowed money is used for, not on the property that secures the loan. If you draw extra funds from an investment loan, or redraw money, for a holiday or a car, interest on that part is private and is not deductible.

The ATO treats each redraw or drawdown as a separate borrowing. Mixed-purpose balances then need to be split, which gets messy at tax time. The tax treatment of offset account withdrawals should be confirmed with your accountant or the ATO.

A tidy structure helps. Keeping investment borrowing in its own loan split, apart from personal spending, makes the records cleaner. The trade-off is that you may carry more than one loan, and each may have its own features and fees. Only the interest on a principal and interest repayment is deductible, never the principal portion.

If you already own a property and want to use equity, a loan health check is a good place to start, and our refinancing options may also fit.

As your local mortgage broker in Adamstown, we can compare options from the lenders on our panel and talk through the trade-offs for your situation. Call one of our team or book an appointment at a time that works for you.

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