Avoid these 6 mistakes when buying an investment apartment

The June 2026 tax changes affect apartments differently

If you settle an investment apartment after 7:30pm AEST on 12 May 2026, rental losses can only offset other rental income or future property gains from 1 July 2027 onward. Salary income is quarantined. Apartments in established buildings are subject to this rule unless they qualify as eligible new builds under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which requires construction on previously vacant land or an increase in dwelling numbers. A knock-down rebuild that replaces one apartment with one apartment does not qualify. Off-the-plan purchases in new buildings do qualify, but only if the building has not been occupied for more than 12 months before you settle.

The capital gains treatment also shifts from 1 July 2027. Real gains accruing after that date use cost base indexation and a minimum 30 per cent tax rate, replacing the 50 per cent discount for established apartments. Off-the-plan buyers in eligible new builds can elect between indexation or the 50 per cent discount when they eventually sell. The difference in after-tax return over a ten-year hold can be material, particularly in low-inflation environments where indexation adds little but the minimum rate still applies.

Consider a Site Reliability Engineer purchasing an off-the-plan two-bedroom apartment for occupation in late 2027. Rental income covers most of the interest-only repayment. A small loss remains, but under the new rules that loss can only be carried forward or offset against future rental profit. The buyer accepts this because the election between indexation and the discount at sale time offers more control over the eventual tax outcome. The same buyer looking at a three-year-old apartment in the same building would face quarantined losses and no CGT election, materially changing the after-tax return.

APRA's debt-to-income cap tightens apartment purchases more than houses

From 1 February 2026, lenders limit new investor loans above six times your gross income to 20 per cent of their total investor book. The cap applies separately to investment lending, so your debt-to-income ratio is calculated using all investment debt plus the new loan amount divided by your annual income. Site Reliability Engineers earning between $140,000 and $180,000 can theoretically borrow up to $840,000 to $1,080,000 before hitting the six-times threshold, but apartments typically require higher loan-to-value ratios than houses because deposit sizes are constrained by purchase price.

An SRE on $160,000 looking at an apartment priced near the median will often borrow 85 to 90 per cent of the purchase price to preserve liquidity for other investments. That loan size may fall under the DTI cap, but the lender's allocation to above-cap loans fills quickly each quarter. If you apply in March and the lender has already written 18 per cent of its quarterly investor volume above six times DTI, your file sits in a queue or gets declined outright. Timing matters. Lenders reset their allocation each quarter, so applications lodged in early February, May, August or November have a structural advantage over those lodged late in the cycle.

We regularly see SREs assume the DTI cap is a blanket rule. It is not. It is a portfolio allocation that favours borrowers with lower ratios and penalises those who apply late in the cycle. If your apartment purchase pushes you above six times income, lodging in the first two weeks of a new quarter materially improves your approval odds. Some lenders also count rental income in the denominator, which lowers your ratio if the apartment generates strong yield. Others do not. Product selection and timing are both levers.

Body corporate records and sinking fund health affect serviceability

Lenders assess strata schemes before they assess you. A building with a sinking fund balance below the recommended level in the most recent body corporate audit will trigger additional scrutiny. If major works are flagged in the minutes without corresponding funded reserves, some lenders will either decline the application or reduce the loan amount to compensate for the risk of a future special levy. This is more common in apartments built between 2008 and 2015, where cladding remediation and waterproofing disputes have created unfunded liabilities.

You are not required to read every page of the strata records before making an offer, but you should request the last two annual general meeting minutes, the sinking fund statement, and any building reports completed in the past three years. Look for recurring mentions of the same defect, disputes with the original builder, or levy arrears above 5 per cent of total owners. These are not automatic deal-breakers, but they will limit your investment loan options and may require a larger deposit to satisfy the lender's risk appetite.

A two-bedroom apartment in a ten-year-old building showed a sinking fund balance of $120,000 against a recommended reserve of $420,000. The minutes referenced a waterproofing scope still under negotiation with the builder's insurer. The buyer's deposit was 15 per cent, and the lender reduced the approved loan amount by $40,000 to bring the effective LVR down to 80 per cent after adjusting for contingent liability. The buyer either needed to increase the deposit or find a different property. The strata records were available before the offer was made, but were not reviewed until the finance clause period.

Vacancy assumptions in your serviceability calculation are not standard

Lenders apply a vacancy rate to your expected rental income when calculating serviceability. The rate varies by lender and by postcode, typically ranging from 2.5 per cent to 5 per cent annually. A 5 per cent vacancy assumption on an apartment renting for $650 per week reduces your assessed income by $1,690 per year, or roughly $141 per month. Serviceability models then apply a further haircut, usually assessing only 80 per cent of net rental income after the vacancy deduction. The combination can reduce your borrowing capacity by $30,000 to $50,000 compared to a lender using a 2.5 per cent vacancy rate and an 80 per cent income recognition.

If you are comparing loan offers, ask what vacancy rate the lender has applied and whether rental income is shaded further after that deduction. Two lenders quoting similar interest rates can deliver loan amounts $60,000 apart purely due to how they treat rental income and vacancy. This is particularly relevant for SREs refinancing an investment loan while also seeking to increase the loan amount for renovations or portfolio expansion. The serviceability model determines how much equity you can access, and vacancy treatment is one of the largest variables in that model.

Not all apartments qualify for interest-only terms longer than five years

Interest-only periods on investment loans are typically approved for five years, after which the loan converts to principal-and-interest repayment unless you apply for an extension. Lenders will consider extensions if the loan-to-value ratio has improved and your income has remained stable, but apartments in certain postcodes or buildings with adverse strata records are often excluded from extensions regardless of your equity position. The policy is not disclosed in the product disclosure statement. It sits in the lender's credit policy and is applied at the time you request the extension.

If your investment strategy depends on maintaining interest-only repayments beyond year five to maximise tax-deductible debt and free up cash flow for further purchases, confirm at the time of initial approval whether the lender has a stated policy on extensions for the specific building or postcode. Some lenders will provide a written indication, others will not. If the lender will not commit, assume you will revert to principal-and-interest after five years and structure your deposit and cash flow accordingly. A reversion from interest-only to principal-and-interest on a $600,000 loan at current variable rates increases repayments by approximately $1,900 per month, which will affect your ability to service a second investment loan if you are planning portfolio growth in that timeframe.

Claimable deductions extend beyond interest if you know where to look

Interest is the largest deduction, but it is not the only one. Strata levies, council rates, water charges, property management fees, landlord insurance, and depreciation on the building and fixtures are all deductible to the extent the property is rented or available for rent. Apartments built after 1985 qualify for capital works deductions at 2.5 per cent per year for 40 years from construction. Removable fixtures such as ovens, air conditioning units, and blinds depreciate separately under the diminishing value method. A quantity surveyor's depreciation schedule typically costs $600 to $800 and will identify $5,000 to $12,000 in annual deductions for a newer apartment, depending on construction date and fit-out quality.

Loan establishment fees, lender legal costs, and valuation fees are also deductible, either in full in the year incurred or amortised over five years if the total exceeds $100. Borrowing costs above $100 must be spread over five years or the loan term, whichever is shorter. If you refinance your investment loan after three years, the unamortised portion of the original borrowing costs can be claimed in full in the year of discharge. Strata insurance is included in your levies and is not separately deductible, but landlord insurance covering loss of rent and tenant damage is fully deductible.

SREs often overlook the deduction for travel to inspect the property or meet with tradespeople, particularly if the apartment is located in a different state. If the primary purpose of the trip is property management, the travel cost is deductible. If you combine the trip with personal activities, you must apportion the cost. Record-keeping is essential. The ATO expects a logbook or diary for travel claims and contemporaneous records for all other expenses. Missing records will not prevent you from claiming, but they will trigger amendments if the ATO reviews your return.

Call one of our team or book an appointment at a time that works for you

Investment lending for apartments has more moving parts than it did two years ago. The right structure depends on your settlement date, the building's construction timeline, your debt-to-income ratio, and the lender's current allocation under the APRA cap. We work with Site Reliability Engineers who value clarity and want their finance arranged without repetition or unnecessary back-and-forth. Call one of our team or book an appointment at a time that works for you.

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