Everything you need to know about Investment Unit Loans

Buying an investment unit creates passive income with lower maintenance complexity than a house.

Units attract data engineers who value efficiency: lower entry price, body corporate managing common areas, and strong rental demand in transport-connected precincts. The lending structure differs from owner-occupied finance in repayment type, rate pricing, and how lenders assess rental income against vacancy risk.

How Lenders Assess Rental Income for Units

Lenders apply a rental income reduction of 20 to 30 per cent to account for vacancy periods, maintenance, and body corporate levies. If a unit generates $600 per week in rent, the lender uses $420 to $480 per week in serviceability calculations. This buffer protects the lender if you lose a tenant or face unexpected strata costs.

Body corporate fees directly reduce net rental yield, and lenders review the strata report for special levies or dispute history. A building flagged for cladding remediation or lift replacement can delay approval or reduce borrowing capacity even when rental income appears strong.

Variable Rate vs Fixed Rate for Investment Units

Variable rate investment loans sit roughly 0.30 to 0.60 percentage points above equivalent owner-occupied rates. Lenders price investor loans higher because default risk and portfolio concentration are weighted differently under APRA capital rules.

Interest only repayment periods run for one to five years, then revert to principal and interest. Holding repayments to interest only maximises monthly cash flow and preserves capital for portfolio growth or offset accounts. Fixed investor rates lock in certainty but carry break costs if you refinance or sell before the fixed term ends.

Consider a data engineer purchasing a unit at the current median in a Brisbane transport corridor. Financing 80 per cent of the purchase on a variable interest only structure keeps monthly repayments lower than principal and interest, leaving surplus income to build liquidity in an offset account linked to an owner-occupied loan or held for the next deposit.

Loan to Value Ratio and Lenders Mortgage Insurance

Borrowing above 80 per cent LVR triggers Lenders Mortgage Insurance, which protects the lender if you default. LMI is capitalised into the loan amount or paid upfront. Premium cost rises steeply above 90 per cent LVR, and many lenders cap investor lending at 90 per cent regardless of deposit size.

Some lenders offer LMI waivers for tech industry workers on owner-occupied loans but exclude investment purchases from the waiver. If you have equity in an existing property, releasing that equity to fund a 20 per cent deposit avoids LMI entirely and keeps the investor loan at 80 per cent LVR.

Negative Gearing and the July 2027 Changes

Under current rules, net rental losses from an investment property offset salary income, reducing taxable income. From 1 July 2027, this changes for residential properties acquired on or after 7:30pm AEST on 12 May 2026. Losses on those properties can only offset other residential rental income or be carried forward. They cannot reduce salary or wages.

Properties purchased before that date retain access to negative gearing under existing rules until sold. If you are finalising a purchase now, confirm your contract date with your conveyancer. Settlement timing matters less than when the contract was signed.

Eligible new build units continue to allow negative gearing under the old rules even after July 2027, but the property must be constructed on previously vacant land or increase the number of dwellings on the site. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify.

Interest Only Repayment Strategy

Interest only repayments defer principal reduction, which means the loan balance stays constant and monthly outgoings stay lower. This structure suits investors prioritising cash flow over debt reduction, particularly when building a portfolio or maintaining liquidity for other opportunities.

After the interest only period ends, the loan reverts to principal and interest and the repayment amount increases. You can refinance to a new interest only period with the same lender or a different one, subject to serviceability and LVR at that time. Investment loan refinancing is common when the initial interest only term expires or when a better rate becomes available.

In our experience, data engineers with variable income from bonuses or equity compensation prefer principal and interest structures when cash flow is volatile, because the repayment amount is predictable and the loan balance reduces over time without requiring active management.

Deposit Sources and Genuine Savings

Lenders accept savings, term deposits, offset account balances, and proceeds from share or equity compensation as deposit sources. RSUs and bonuses count as genuine savings when vested and accessible, but lenders require evidence the funds have been held in your account for at least three months.

If you are using equity from an existing property, the lender values both properties and calculates total exposure across the portfolio. Valuations ordered by the lender can come in below recent sales, particularly in unit markets where comparable sales are tightly clustered or where the building has high investor concentration.

Serviceability Under the Debt to Income Cap

APRA's debt to income cap limits the share of new investor loans a lender can write at six times gross income or more. If your total borrowing including the new investment loan exceeds six times your income, the lender may decline the application or require a larger deposit to bring the ratio below the threshold.

The DTI cap applies separately to investor and owner-occupier portfolios within each lender, so switching lenders can sometimes provide access to capacity when your current lender has exhausted its allocation. Lenders also apply a serviceability buffer of three percentage points above the actual loan rate, meaning they assess whether you can service the loan if rates rise.

Claimable Expenses and Tax Deductions

Interest on the investment loan, body corporate fees, council rates, water charges, property management fees, insurance, repairs, and depreciation on fixtures are all claimable expenses. Stamp duty and conveyancing costs are not immediately deductible but are added to the cost base and reduce capital gains tax when you sell.

Keep records of all expenses and lodge them with your accountant at tax time. Negative gearing benefits depend on your marginal tax rate: a data engineer on a higher marginal rate receives a larger tax refund from the same rental loss than someone on a lower rate.

Units vs Houses for Portfolio Growth

Units offer lower entry cost and higher rental yield, while houses offer stronger capital growth and land value appreciation. Many investors start with a unit to enter the market, then use equity growth to purchase a house as the second property. Body corporate fees and strata levies are ongoing costs that do not apply to houses, but houses require the owner to fund all maintenance and repairs directly.

If your priority is passive income with minimal active management, a unit in a well-maintained complex with strong rental demand delivers that outcome. If your priority is long-term wealth accumulation through capital growth, a house on land in a growth corridor typically outperforms a unit over a 10 to 15 year horizon.

Application Process and Settlement Timeline

The investment loan application requires payslips, tax returns, notice of assessment, and rental appraisal from a licensed property manager. Lenders also request a strata report, building insurance certificate, and body corporate meeting minutes. Approval timing ranges from three to ten business days depending on lender workload and complexity of your income.

Settlement typically occurs 30 to 90 days after exchange of contracts, giving the lender time to order a valuation, review the strata report, and issue formal approval. If you are refinancing an existing investment property, settlement can occur faster because no property transfer is required.

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

Frequently Asked Questions