An apartment can offer a more accessible entry point into property investing than a house, particularly in areas with strong rental demand.
The loan you choose affects your holding costs, your ability to claim deductions, and how much equity you can access down the track. Recent changes to negative gearing and capital gains tax from the May 2026 Federal Budget mean the timing and type of property you purchase now carries different implications than it did a year ago.
How Investment Loan Structures Differ for Apartments
Lenders assess apartments differently to houses, and this directly affects your borrowing capacity and loan features. Apartments with higher body corporate fees, lower land value ratios, or located in buildings with a high proportion of investor-owned units can attract more conservative lending policies.
Consider a scenario where someone is purchasing a two-bedroom apartment in Hobart's CBD with strong rental history. The lender reduces the maximum loan to value ratio from 90% to 80% because the building has more than 50% non-owner-occupier residents. That means a larger deposit is required upfront, but it also means the investor avoids paying Lenders Mortgage Insurance, which can add thousands to the loan amount.
Some lenders also place servicing overlays on apartments in certain postcodes or building types. If the building is over a certain number of storeys, or if it includes short-term rental restrictions in the body corporate rules, your borrowing capacity might be lower even if your income supports a higher figure. Knowing which lenders treat apartments more favourably lets you structure the application with the right institution from the start.
Interest Only or Principal and Interest
Interest only repayments keep your monthly costs lower and can improve cash flow, particularly if you're holding the property for capital growth rather than immediate equity build-up. Principal and interest loans reduce the debt over time and can appeal to investors focused on long-term wealth building or those approaching retirement.
For an apartment purchased as an investment, interest only terms are commonly set for five years. During that period, you're only covering the interest component, which keeps repayments lower and maximises your ability to claim the full interest as a deduction. Once the interest only period ends, the loan reverts to principal and interest unless you reapply to extend it.
If your investment property was purchased after 12 May 2026 and is an established apartment, the recent Budget changes mean rental losses can only be offset against other residential property income or capital gains from 1 July 2027. That shifts the value of interest only structures slightly, because the tax benefit of negative gearing against wage income no longer applies in the same way. For investors buying new builds, full negative gearing still applies, and you can choose between the indexed capital gains treatment or the 50% discount when you sell.
Variable or Fixed Rates for Investment Properties
Variable rates on investment loans give you flexibility to make extra repayments, access offset or redraw facilities, and refinance without break costs. Fixed rates lock in your repayment amount for a set term, which can help with budgeting and protect you if rates rise, but they limit your ability to adjust the loan or access features during the fixed period.
Most investor loans are structured on variable rates because the ability to access equity, make lump sum repayments, or refinance without penalties outweighs the certainty of a fixed repayment. If you're planning to build a portfolio over the next few years, a variable loan keeps your options open.
Some investors split their loan between fixed and variable portions to balance certainty with flexibility. That approach works well if you want predictable repayments on part of the debt while still maintaining access to an offset account or the ability to draw down equity for your next purchase. If you're considering a refinance or reviewing your current structure, the split can be adjusted at that point.
Offset Accounts and Rental Income Management
An offset account linked to your investment loan reduces the interest you're charged without reducing your claimable deductions. Rental income deposited into the offset lowers your interest costs while still allowing you to claim the full interest amount on your tax return, because the loan balance itself hasn't changed.
In practice, if your investment apartment generates rental income, that income sits in the offset account and reduces the interest charged on the loan daily. You're still paying interest only on the full loan amount in terms of your scheduled repayment, but the actual interest cost is lower. At tax time, your accountant uses the loan balance to calculate your deduction, not the reduced interest you actually paid.
Not all lenders offer offset accounts on investment loans, and some charge higher rates for loans with offset features. It's worth comparing whether the interest rate difference justifies the offset benefit, particularly if your rental income is steady and you're not holding large cash reserves in the account.
Loan to Value Ratio and Lenders Mortgage Insurance
The loan to value ratio determines how much you can borrow relative to the property's value. For investment properties, most lenders cap the LVR at 90%, though some reduce this to 80% for apartments in certain locations or building types.
If you borrow more than 80% of the property value, you'll typically pay Lenders Mortgage Insurance. LMI protects the lender if you default, and the premium is calculated based on the loan amount and LVR. For an apartment purchase, LMI can range from a few thousand dollars to over $20,000 depending on the deposit size and lender.
LMI can be added to the loan amount, which means you're not paying it upfront, but you will pay interest on it over the life of the loan. Some investors prefer to keep their deposit at 10% and pay LMI to preserve cash for other purchases or to access the market sooner. Others aim for a 20% deposit to avoid LMI entirely and reduce their ongoing interest costs.
Body Corporate Considerations in Loan Serviceability
Body corporate fees are factored into your serviceability assessment because they're a regular, non-negotiable cost. Lenders treat them similarly to council rates or strata levies, and higher fees reduce your borrowing capacity.
For an apartment in a building with a gym, pool, or concierge, body corporate fees might sit at $2,000 to $4,000 per quarter. That annual cost of $8,000 to $16,000 is deducted from your net rental income when the lender calculates serviceability. If your rental income is $500 per week, but body corporate fees and other holding costs exceed the rent, the property will show a net loss, which affects how much you can borrow.
Some lenders also review the body corporate's financial health as part of their assessment. If the sinking fund is low or there's a major works levy planned, the lender may reduce the LVR or decline the application altogether. Requesting a copy of the body corporate records before you make an offer can help you identify any issues early.
Rental Income and Vacancy Assumptions
Lenders don't use your full rental income when calculating serviceability. Most apply a discount, often around 20%, to account for periods of vacancy, maintenance, and management costs. If your apartment generates $26,000 per year in rent, the lender might only assess $20,800 as usable income.
That discounting affects your borrowing capacity, particularly if you're planning to use rental income to support the loan repayments. If you're leveraging equity from an existing property to fund the deposit, the rental income from the new apartment needs to cover most of its own holding costs for the loan to be approved comfortably.
In areas with low vacancy rates and strong rental demand, such as Hobart and Launceston, your actual vacancy periods might be minimal, but lenders still apply the standard discount. If you're purchasing in a location with higher turnover or seasonal demand, it's worth factoring in a conservative rental estimate when you're planning your budget.
Equity Release for Portfolio Growth
If you already own property, either as your home or as an existing investment, you can access the equity in that property to fund the deposit and purchase costs for your next apartment. This is one of the most common ways investors build a portfolio without needing to save another full deposit.
Equity is the difference between what your property is worth and what you owe on it. If your home is valued at $600,000 and you owe $300,000, you have $300,000 in equity. Lenders will typically let you borrow up to 80% of the property's value, which in this case would be $480,000. Subtract the $300,000 you already owe, and you have access to $180,000 in usable equity.
That $180,000 can be used to cover the deposit, stamp duty, and other costs on your investment apartment purchase. You're not selling your existing property or using your own savings. Instead, you're increasing the loan on your current property and using the funds for the new purchase. The rental income from the apartment then supports its own loan repayments, and both properties continue to grow in value over time.
Tax Deductions and Claimable Expenses
Most costs associated with owning and financing an investment apartment are tax deductible. Interest on your investment loan, body corporate fees, council rates, property management fees, insurance, repairs, and depreciation on the building and fixtures can all be claimed.
For properties purchased after 12 May 2026, the way you claim rental losses has changed. If the property is an established apartment and it's making a loss, that loss can only be offset against other residential property income or capital gains from 1 July 2027. You can carry the loss forward to future years, so it's not lost, but it won't reduce your taxable wage income in the same year.
If you purchased before Budget night or if you're buying a new build, the existing negative gearing rules still apply, and you can claim the full loss against all income sources. Working with an accountant who understands property tax lets you structure your deductions correctly and keep records that support your claims if the ATO reviews your return.
Call one of our team or book an appointment at a time that works for you. We'll help you compare lenders, structure your loan to suit your investment strategy, and make sure you're accessing the features and rates that support your goals.
Frequently Asked Questions
Can I use equity from my home to buy an investment apartment?
Yes, if you have sufficient equity in your existing property, you can access it to fund the deposit and purchase costs for an investment apartment. Lenders typically allow you to borrow up to 80% of your property's value, and the difference between that amount and your current loan balance can be used for your next purchase.
How do lenders assess rental income for an investment apartment?
Lenders apply a discount to your expected rental income, usually around 20%, to account for vacancy, maintenance, and management costs. This reduced figure is used when calculating your borrowing capacity and loan serviceability.
Do the recent Budget changes affect my investment apartment purchase?
If you're buying an established apartment after 12 May 2026, rental losses can only be offset against residential property income or capital gains from 1 July 2027, not against wage income. New builds still qualify for full negative gearing and a choice of capital gains tax treatment.
What's the difference between interest only and principal and interest for investment loans?
Interest only repayments cover just the interest component, keeping monthly costs lower and maximising tax deductions. Principal and interest repayments reduce the loan balance over time, building equity but resulting in higher repayments during the loan term.
Why do some lenders treat apartments differently to houses?
Lenders assess apartments based on factors like body corporate fees, the proportion of investor-owned units in the building, land value, and building age. These factors can result in lower maximum loan to value ratios or stricter serviceability requirements compared to houses.
