What Are Investment Loans for Apartments & How They Work

An investment loan finances the purchase of a property you intend to rent out rather than occupy.

When the property is an apartment, lenders assess not only your income and deposit but also the building itself, the body corporate records, and whether the unit meets their security requirements. Some lenders impose stricter loan to value ratio caps on apartments than houses, and certain building types attract additional conditions or are declined outright.

How Lenders Assess Apartments Differently

Lenders typically cap lending at 80 per cent of the property value for investment apartments without Lenders Mortgage Insurance and apply higher scrutiny to the building's construction, fire safety records and body corporate sinking fund balance. Buildings with large amounts of short-term rental activity, defect disputes, or fewer than six units can trigger lower valuations or outright exclusions from particular lender panels. A South Perth apartment near the river may meet every serviceability test, but if the building has an unresolved cladding issue or insufficient sinking funds, several lenders will decline the application before assessing your income.

Consider a scenario where an apartment in a well-located South Perth complex is priced at the area median but has a body corporate meeting notice flagging a special levy for balcony repairs. The buyer's income supports borrowing at 80 per cent loan to value ratio, but three of the five lenders approached either reduce the offer to 70 per cent or withdraw. The buyer proceeds with a lender who accepts the building at 80 per cent, clears the application in eight days, and settles without requiring additional equity.

What Deposit Do You Need for an Investment Apartment

Most lenders require a minimum 20 per cent deposit to avoid Lenders Mortgage Insurance when purchasing an investment apartment. That deposit can come from genuine savings, equity in another property, or a combination of both. If you borrow above 80 per cent loan to value ratio, LMI is added to the loan amount and the insurer applies its own building and location criteria, which in practice can be more restrictive than the lender's policy. Buyers relying on equity release from an existing home should confirm that the combined loan to value ratio across both properties does not exceed the lender's cap once LMI and capitalised costs are included.

Interest Only Repayments and Cash Flow Planning

Interest only repayments reduce the monthly outgoing during the initial period of the loan, which can improve cash flow when rental income does not cover all holding costs. The interest component remains deductible, and the loan balance does not decrease, preserving equity for future purchases or offset against other investments. Most lenders offer interest only terms of one to five years on investment loans, after which the loan reverts to principal and interest unless you apply to extend the arrangement.

Rental income is assessed at 80 per cent of the lease amount by most lenders to account for vacancy and maintenance. A South Perth apartment leased at $650 per week contributes $27,040 annually to serviceability, but the lender uses $21,632 in the calculation. When interest only repayments on a loan at current variable rates sit below that adjusted rental income, the property is positively geared for serviceability purposes, even though the actual cash position after rates, body corporate fees, and property management may still be negative.

Tax Treatment Changes from 1 July 2027

From 1 July 2027, residential rental losses on properties purchased on or after 12 May 2026 can only be offset against other residential rental income or carried forward, not against salary or wage income. Apartments purchased before that date, or those classified as eligible new builds that increase dwelling supply, remain outside the quarantine and may continue to offset losses against any assessable income. The distinction turns on the contract date and whether the dwelling was constructed on previously vacant land or replaced fewer dwellings with more.

An apartment purchased off the plan in South Perth in a building that added 42 units to a site previously occupied by a single house qualifies as an eligible new build. The buyer contracts in June and settles in November. Negative gearing applies without quarantine, and the property retains access to the 50 per cent capital gains tax discount on disposal, provided it has not been occupied for more than 12 months before the investor acquires it.

Fixed Rate or Variable Rate for Investment Property

Variable rate loans allow unlimited additional repayments and typically include an offset account, which can reduce the interest charged when surplus funds are parked in the account. Fixed rate loans lock the interest rate for a set period but usually restrict extra repayments and do not include offset. Some investors split the loan, fixing a portion for budget certainty and leaving the remainder variable for flexibility. Rate movements since early 2025 have narrowed the gap between fixed and variable products, and the choice depends more on cash flow preference than rate advantage.

If you hold multiple investment properties or plan to acquire another within 12 to 24 months, retaining variable rate debt with offset and redraw can provide faster access to equity and simplify refinancing when you add to the portfolio. Refinancing an existing investment loan to release equity for a second purchase is a common strategy, and lenders assess the application using the same serviceability buffer and debt to income settings that apply to new borrowing.

Serviceability Buffer and Debt to Income Caps

Lenders assess your capacity to service an investment loan by adding a three percentage point buffer to the product rate, then calculating repayments on a principal and interest basis over 25 or 30 years, even if you elect interest only. From February, lenders also apply a debt to income cap that limits total borrowing, including investment and owner occupied debt, to a multiple of your gross annual income. Up to 20 per cent of new investor loans at an individual lender may exceed six times income, but most applicants sit below that threshold.

In our experience, applicants with existing owner occupied debt and moderate income find the debt to income measure more binding than the interest rate buffer when seeking a second investment loan. Reducing the owner occupied balance, increasing rental income by adding a second property with strong yield, or structuring the loan across two applicants can bring the combined ratio within range.

Calculating Investment Loan Repayments and Holding Costs

Monthly holding costs for an investment apartment include loan repayments, body corporate fees, council and water rates, landlord insurance, property management fees, and an allowance for maintenance and vacancy. Buyers in South Perth should budget for body corporate levies that typically range from $1,000 to $2,000 per quarter depending on building age and shared amenities, and factor those into cash flow projections before committing to a purchase price. Rental income assessed by the lender uses an 80 per cent adjustment, but your actual return depends on occupancy, tenant quality, and whether you absorb minor repairs or pass allowable costs through.

Stamp duty on investment property in Western Australia is calculated on the full purchase price without any concession, and the cost is not deductible but forms part of the property's cost base for capital gains tax purposes when you sell. Settlement costs, including legal fees, building and pest inspections, and lender charges, typically add another few thousand dollars and should be met from cash or equity rather than increasing the loan amount beyond the property value.

What Happens When You Want to Expand the Portfolio

Once the first investment property is settled and tenanted, equity in that property can be used as security for a second purchase, provided your income supports the combined debt. Lenders assess the portfolio as a whole, applying the serviceability buffer to every loan and including all rental income at the 80 per cent adjustment. Buyers who structure the first loan with surplus borrowing capacity, maintain an offset account, and keep debt to income within the cap find it easier to add a second property within 18 to 24 months than those who borrow to the limit on the first purchase.

We regularly see buyers in South Perth purchase an apartment as the first investment, hold for two to three years while building equity and rental history, then leverage that equity to acquire a second property interstate or in a higher yield suburb without selling the original asset.

Call one of our team or book an appointment at a time that works for you. We'll review your income, deposit, and the specific apartment you're considering, compare investment loan options from lenders who accept that building type, and structure the application to support your next purchase when you're ready to expand.

Frequently Asked Questions