We get that buying an investment property can be exciting – it’s a whole different process to buying somewhere to live and your mindset is completely different – but it still raises a few practical questions.
In Australia, lenders generally expect a larger deposit on an investment home loan than on an owner-occupied loan. Typically, you’ll need around 20% of the purchase price as a deposit (an 80% loan-to-value ratio) if you want to avoid paying lenders mortgage insurance (LMI), which we’d definitely recommend you aim to do.
Some lenders will accept smaller deposits if you pay for the insurance. For example, some offer loans with as little as 10% deposit – but you must pay LMI. LMI is essentially insurance for the bank if you default.
How Much Can I Borrow?
So one of the main things that affects your borrowing power is your deposit size. This, alongside your income and whatever equity you already have. In practice, a larger deposit generally means a larger loan amount. Just make sure your first step here is reviewing your finances and working out how much you can borrow and afford.
Getting Pre-Approval
After this, get a home loan pre-approval so you can effectively ‘lock in’ your budget. A pre-approval essentially gives you provisional credit approval and shows sellers that you actually have a budget and are serious.
Since mid-2024, lenders have been a bit stricter on serviceability. And as a borrower, you’ll likely find that you qualify for smaller loan amounts than in earlier years. So it generally pays to be conservative: always ask yourself “how much can I borrow for investment property” in realistic terms.
As a rule of thumb, the maximum loan amount is roughly the purchase price minus your deposit, but it’s subject to your ability to service the loan. Use online borrowing-power calculators (you can find one at Upscore) or a broker’s help so you know you’re not overstretching.
Loan Types and Repayments
Next, consider your loan structure. You can choose fixed or variable rates, and principal-and-interest (P&I) or interest-only repayment options.
Interest-only loans keep your monthly repayments lower at first, so this helps your short-term cash flow when the property is finally rented. That said, interest-only comes with a longer-term cost: you pay no principal for a time, so you end up paying more interest overall.
Comparing Loan Rates
In fact, over the life of an interest-only loan you’ll usually end up paying more interest than with a standard loan. APRA data shows interest-only loans were about 21.0% of new housing lending in mid-2024.
And keep in mind that interest-only loans often carry higher interest rates than P&I loans, which just means a higher ongoing cost. If you choose interest-only, definitely plan for a jump in repayments later when the interest-only period ends.
So, how do P&I loans compare? These have higher repayments from day one but pay off the balance a lot more gradually. That said, there’s not really one ‘best choice’ here – it depends on your goals: interest-only can maximise cash flow now, while P&I is better if you plan to pay off the loan faster.
As always, read all loan terms and conditions carefully to understand rates, fees and limits before signing.
Cash Flow vs. Growth
So, after you’ve got a better idea of what loan type suits your needs the most, you’ve got to start thinking about your broader investment strategy.
Are you after steady cash flow or long-term capital growth? It’s not exactly uncommon for investors to aim for both, but one of those often takes priority over the other.
If cash flow is key, look for areas that have strong rental demand and decent yields. If growth is the goal, you might want to accept lower initial rent in exchange for a suburb that’s on the rise.
Generally speaking Australian gross rental yields are moving all the time, so it’s to give you an exact figure of what to expect. That said, inner-city yields (e.g. Sydney, Melbourne) tend to be lower.
That might sound a bit counter-intuitive, but because the property’s market value in these cities are disproportionately high compared to the rental income it can generate, the yield is actually a bit lower if you’re focused on short-term gains.
Always calculate whether expected rental income will cover your loan repayments and costs. If rental income is lower than your expenses, you’ll have negative cash flow (and rely on the tax offset we described).
Negative Gearing Benefits
Remember tax rules: in Australia you can generally deduct most property expenses (especially loan interest) against your taxable income. This means if your rent doesn’t cover your costs, that loss (a negatively geared situation) can often be used to reduce your tax, which is not a bad situation to be in.
Negative gearing can therefore offset some of your shortfalls while you wait for capital growth. It’s actually pretty common for investors to accept short-term losses since they know they will get tax deductions and hopefully capital gains later.
Choosing the Property
Location and property type affect both deposit size and returns. For example, Sydney’s median house price is about $2.05M (mid-2025), so a 20% deposit would be over $400k.
Brisbane’s median is around the $960k mark, so the deposit needed is much smaller. Also consider rental yield: inner-city apartments often yield under 4%, while houses in popular suburbs or smaller capitals tend to yield around 5% or more.
So just decide whether you want to prioritise capital growth (often higher in major-city suburbs) or rental yield (sometimes higher in regional or emerging areas).
Tenant Perspective
Think like you’re the tenant who’s going to be living here: amenities matter. This means you need easy access to:
- Public transport
- Schools
- Shops
Brokers even suggest writing down what tenants want – “good schools nearby, parking spots and noise levels” are commonly cited factors. Take these into account as they’re almost always going to improve your rental income and reduce your risk of vacancies.
Upfront Costs
And don’t forget the other costs beyond the deposit:
- Stamp duty
- Legal and lender fees
- Building inspections
- Any initial repairs or renovations
These all have to be budgeted for. If your deposit is under 20%, add the LMI premium to your budget as well. For example, stamp duty on an $800k property can exceed $30,000, so these costs really matter. Altogether, these expenses can add tens of thousands to the total.
Final Steps and Credit Readiness
Before you make an offer, get organised. Secure formal pre-approval so you know exactly how much you can borrow. Lenders will then scrutinise your entire financial situation, which includes:
- Income
- Debts
- Expenses
- Credit score
That’s why you should address any credit issues and assemble all your paperwork in advance. Also, read every loan’s fine print. Know whether the loan is fixed or variable or how interest is calculated (including what fees or limits might apply.
Finally, consider getting professional help. A mortgage broker who specialises in property investing can explain which lenders have flexible rules (for example on LVR or interest-only) and help structure your loan to fit your strategy.
How Upscore Can Help
Looking to make the lending process as streamlined as possible? Upscore’s Finance Passport is free to try, so signing up early can give you insights into your credit standing before you apply.
