When to Buy a Rental Property and How to Fund It

The right time to buy a rental property is when your borrowing capacity, your cash buffer and your tax position all line up. A loan approval alone is not enough.

If you live in Mount Lawley and are thinking about buying an investment property, this guide covers the three things that shape your decision. They are how lenders count rent, how your repayment type changes your cash flow, and how recent tax changes affect a purchase now.

When Is the Right Time to Buy an Investment Property?

The right time is when you can afford the repayments if rates rise and if the property sits empty for a while. Lenders test the first part for you, but the second part is your call.

APRA requires banks and other authorised deposit-taking institutions to assess new borrowers at an interest rate at least 3.0 percentage points above the loan rate. At an illustrative rate of 6.75% p.a., that means a bank tests your repayments at 9.75%. Non-bank lenders are not bound by this buffer, but you should still plan for higher repayments.

Your existing debts also count. Lenders look at credit card limits, car loans and your home loan. Our borrowing capacity page explains how these fit together. A broker can compare how different lenders treat the same situation, which is useful because lender policies vary.

How Do Lenders Count Rental Income?

Lenders usually count only part of the rent you expect to receive. APRA's view is that prudent policies count no more than 80% of expected rent, which allows for periods when the property is empty.

As an example, if a property is expected to bring in $100 of rent, a lender may count only $80 of it. The other $20 is a cushion for vacancy. It does not cover management fees, repairs or other holding costs, so you need to budget for those yourself.

Lenders also tend to place less weight on a rental appraisal than on actual rent already being received. If you are buying a property that is not yet tenanted, your investment loan amount may be assessed more cautiously. The rules on which rental evidence a lender accepts differ between lenders, so ask before you apply.

Interest Only or Principal and Interest: What Changes in Your Cash Flow?

Interest-only repayments are lower at first because you pay no principal, but you still owe the full loan afterwards. When the interest-only period ends, repayments rise because the same loan must be repaid over a shorter time.

Consider an investor who borrows $500,000 at the illustrative rate of 6.75% p.a. over 30 years. This is a worked example only, and real rates depend on your lender and deposit size.

• Interest only: about $2,813 a month, and the loan balance stays at $500,000.
• Principal and interest over 30 years: about $3,243 a month, and the balance falls over time.
• Five years interest only, then principal and interest over the remaining 25 years: about $3,455 a month from year six.

The investor chooses interest only for five years to keep early cash flow stronger, saving roughly $430 a month compared with principal and interest. The trade-off shows up in year six. Repayments jump to about $3,455 a month at the same rate, which is more than the $3,243 they would have paid had they started with principal and interest. They also owe the full $500,000 at that point.

Interest only also does not lift your borrowing power. Lenders assess an interest-only loan using principal and interest repayments over the remaining term after the interest-only period, so the loan size you can get may be lower than on a principal and interest loan. Our mortgage repayment page has tools to test your own numbers.

Call one of our team or book an appointment to talk through your own numbers.

What Do the Negative Gearing Changes Mean for a Purchase Now?

The tax treatment of rental losses depends on when you buy and what you buy. You should speak to your accountant before committing, because the outcome depends on your personal situation.

Properties held at 7:30pm AEST on 12 May 2026, including those under contract at that time, keep full deductibility of rental losses against other income, such as salary. Eligible new builds acquired after that date can also keep this treatment.

For established residential properties bought after that time, the rules change from the 2027-28 income year. Net rental losses can then only be deducted against other residential property income, including capital gains on residential property. Excess losses can be carried forward. Properties bought between 12 May 2026 and 30 June 2027 can be negatively geared under the current rules until 30 June 2027 only.

These changes affect how a loss is used, not whether interest is deductible. Interest on money borrowed to buy a rental property is generally deductible while the property is rented or available for rent. Only the interest part of a principal and interest repayment is deductible, not the principal part.

Capital gains tax is also changing. From 1 July 2027, the 50% discount is replaced by cost base indexation and a 30% minimum tax rate on gains accruing from that date. This may affect your plan for how long you hold the property, so raise it with your accountant.

How Much Deposit Do You Need, and When Does LMI Apply?

Lenders Mortgage Insurance is generally required when your borrowing goes above 80% of the property's value. The 80% point is not a legal limit, and each lender sets its own deposit rules and maximum LVR.

The LMI premium is paid by you, and it adds to your upfront costs. That is the main trade-off of borrowing with a smaller deposit. It lets you buy sooner, but you pay more overall.

Some investors use equity in a home they already own to fund the deposit. This is called an equity release. Lenders set their own limits on how much equity you can access, so you may need a valuation. Keep in mind that borrowing against equity does not make the interest deductible by itself. The deduction depends on how the borrowed money is used, so money used for private purposes is not deductible. Your accountant can confirm how this applies to you.

If you already have an investment loan, it may be worth checking whether your current structure still suits you. Our investment loan refinancing page explains your options.

Talking It Through With a Local Broker

A broker can compare investment loan options across many lenders and explain how each treats rent, debts and deposits. You can read more about how a broker helps or see our investment loans in Perth page. If you prefer someone close to home, our Mount Lawley team can walk you through it.

Call one of our team or book an appointment at a time that works for you, and we will work through your numbers together.

Frequently Asked Questions