The Pros and Cons of Investment Property Types

Different Property Types Change What You Can Borrow

Lenders treat investment property types differently, and that difference shows up in your borrowing capacity and loan terms. A detached house in Toronto typically attracts lower interest rates and higher loan-to-value ratios than a unit in the same suburb, even when both properties cost the same amount.

Rental income plays a bigger role in investor borrowing than most people expect. Lenders apply a haircut to projected rent, usually between 20 and 30 per cent, to account for vacancy periods and maintenance costs. A house with strong rental demand and low vacancy rates strengthens your borrowing capacity more than a unit with similar rent but higher turnover. In our experience, property type influences how lenders assess that rental income, with houses often receiving better treatment because vacancy rates tend to sit lower across most Lake Macquarie suburbs.

Consider a Toronto investor comparing a three-bedroom house on a standard block against a two-bedroom unit in a complex near the lake. Both generate around $550 per week in rent. The house, with a lower body corporate cost and stronger buyer appeal for families, supports a larger loan amount even before you factor in the land component. The unit, with quarterly strata fees around $1,200 and a higher assessed vacancy risk, reduces how much rent the lender will use in serviceability calculations. The outcome is a difference of $40,000 to $60,000 in borrowing power on otherwise identical incomes.

Houses Offer Land Value but Higher Entry Costs

Detached houses deliver long-term capital growth through land appreciation, but they require a larger deposit and often sit outside the budget of investors starting out. Toronto's median house price reflects this, with lakefront and elevated blocks commanding a premium that pushes many first-time investors toward units or townhouses instead.

Land holds its value during downturns and tends to outpace building value over time. A house on a 600-square-metre block gives you that land component, while a unit gives you a share in common property and a smaller individual title. Lenders recognise this, which is why houses typically qualify for loan-to-value ratios up to 90 per cent with Lenders Mortgage Insurance, while some lenders cap units at 85 per cent or apply stricter servicing buffers.

The trade-off is upfront cost. If you need to borrow close to your limit, the deposit gap between a house and a unit in Toronto can be $30,000 to $50,000. That difference might delay your entry into the market by 12 to 18 months, or it might push you toward a suburb further from the lake where houses are more affordable. Investment loans for houses also tend to attract slightly better interest rate discounts, particularly if you're borrowing above $500,000, because lenders view detached property as lower risk.

Units Suit Investors Focused on Cash Flow and Lower Maintenance

Units deliver lower purchase prices, smaller maintenance obligations, and rental yields that often exceed houses in the same area. For an investor prioritising passive income over long-term capital growth, a well-located unit in Toronto can generate positive or neutral cash flow from day one.

A two-bedroom unit close to Toronto's foreshore or near the Westfield Kotara catchment area rents consistently to young professionals and downsizers. Rental yields on units in Toronto typically sit between 4.5 and 5.5 per cent, compared to 4 to 4.5 per cent for houses, because the purchase price is lower while weekly rent remains competitive. Body corporate fees reduce net income, but they also cover external maintenance, insurance, and common area upkeep, which means fewer surprise costs during ownership.

Strata-titled properties come with additional lender scrutiny. Some lenders will decline finance on units in complexes with deferred maintenance, low sinking fund balances, or a high proportion of investor-owned lots. Others will lend but apply a higher interest rate or lower loan-to-value ratio. If you're looking at a unit, your broker will need to review the strata report and confirm the building meets lender requirements before you move to contract. Buildings with more than 50 per cent non-owner-occupied lots, or those with pending special levies, often trigger serviceability reductions or outright declines.

Townhouses Blend Land Value with Moderate Holding Costs

Townhouses sit between houses and units in both price and lender treatment. You get a titled parcel of land, which supports stronger long-term growth than a unit, but you share one or more walls and often contribute to a smaller body corporate for common driveways or shared facilities.

In Toronto, townhouses appeal to families who want space but cannot stretch to a detached house. That demand translates into solid rental income and lower vacancy periods compared to units. A three-bedroom townhouse near Toronto Public School or within walking distance of the lake generates reliable rent from families who value proximity to schools and parks but do not need a large backyard.

Lenders treat townhouses more like houses than units when assessing investment loan options. Loan-to-value ratios usually match those for detached property, and interest rate discounts follow the same pricing as houses. The strata component is smaller and less complex than a high-rise unit, so fewer lenders apply the additional scrutiny that comes with larger apartment buildings. Holding costs fall between the two as well. Body corporate fees for a townhouse might be $800 to $1,500 per year, compared to $3,000 to $5,000 for a unit, while maintenance responsibilities remain limited to your own lot and any shared driveway.

New Builds Still Allow Full Negative Gearing Until Mid-2027

Property investors buying new residential dwellings between now and 30 June 2027 can still offset rental losses against other income under existing negative gearing rules, even if the property was purchased after 12 May 2026. From 1 July 2027, only eligible new builds constructed on previously vacant land or developments that increase dwelling numbers will retain access to unrestricted negative gearing for future buyers.

This creates a narrow window for investors who want the tax benefits of negative gearing on a brand-new property. Toronto has limited new residential construction compared to suburbs closer to Newcastle, so most local investors looking at new builds will need to consider nearby areas or weigh the tax trade-off against buying an established property that meets their cash flow and growth targets. A newly built townhouse or duplex on subdivided land in Toronto, if available, would qualify as an eligible new build and retain negative gearing beyond 2027, but a knock-down rebuild that does not increase the dwelling count would not.

If negative gearing matters to your strategy, the type of property you choose and when you settle both influence how long you can claim rental losses against your wage income. Investors settling after 30 June 2027 on established property will need to quarantine rental losses and offset them only against future rental income or capital gains from residential property.

Rental Demand Varies by Property Type and Tenant Profile

Toronto attracts a mix of families, retirees, and lake-focused lifestyle buyers, and each group has different property preferences. Families lean toward houses and townhouses near schools and parks. Retirees and downsizers favour low-maintenance units close to the water or Westfield shopping. Younger renters, including those working in Newcastle, often choose units for affordability and proximity to transport.

Rental vacancy risk changes depending on which tenant profile your property targets. A three-bedroom house near Toronto Public School or Toronto High School fills quickly when families are relocating at the start of the school year, but it may sit vacant longer if it's listed mid-year or during a slower rental period. A one-bedroom unit near the lake appeals to retirees and singles, but the pool of tenants is smaller, and turnover can be higher.

Lenders assess vacancy risk when calculating how much rental income to include in your serviceability. A property type with proven, consistent demand in Toronto will support a higher loan amount than one that serves a narrow tenant market. If you're comparing property types, ask your broker how different lenders treat rental income for each option. Some lenders apply a standard 20 per cent haircut across all property types, while others adjust the shading based on location, property type, and tenant demand data. That difference can shift your borrowing capacity by tens of thousands of dollars.

Depreciation Schedules Favour New and Renovated Properties

Depreciation deductions reduce taxable rental income, and the size of those deductions depends on property age and recent capital improvements. New builds and recently renovated properties deliver the largest depreciation benefits, while older unrenovated houses and units offer limited or no deductions for plant and equipment.

A brand-new unit or townhouse in Toronto can generate $8,000 to $12,000 per year in depreciation deductions for the first few years, covering items like appliances, air conditioning, flooring, and structural elements. An established 1980s brick house with no recent renovations might deliver $1,500 to $3,000 per year, or less. Those deductions do not change your loan repayments, but they reduce the tax you pay on rental income and improve after-tax cash flow.

Depreciation schedules need to be prepared by a quantity surveyor, and the cost is a claimable expense. If you are deciding between property types and tax minimisation is part of your strategy, factor in the depreciation difference when comparing after-tax returns. A unit with lower capital growth but higher depreciation might deliver better cash flow in the early years than a house with stronger growth but minimal deductions.

Call one of our team or book an appointment at a time that works for you if you want to talk through which property type suits your borrowing position, income goals, and the tax settings that apply from mid-2027. We will walk through the lending criteria for different property types and help you structure finance that aligns with how you plan to build wealth.

Frequently Asked Questions