Beginner's Guide to Investment Loans for Units

What Makes Financing an Investment Unit Different

Lenders treat units differently to houses when assessing loan applications. You will typically need a larger deposit, face stricter serviceability calculations, and encounter lending caps on certain building types. Units attract higher scrutiny because lenders consider body corporate risk, resale limitations, and higher vacancy rates in strata buildings compared to detached homes.

Consider a Sunshine Coast buyer looking at a two-bedroom unit in Maroochydore near the new CBD development. With the property at the median unit price for the precinct, the buyer plans to use a 10 per cent deposit. The lender applies a higher assessment rate because the building has more than 50 units, which triggers internal concentration limits. The buyer also needs to account for body corporate fees of around $1,800 per quarter, which reduces borrowing capacity by approximately $50,000 compared to a house with similar purchase price and rental return.

Most lenders cap loan exposure to high-density buildings, and some will not lend on properties with commercial ground floors, serviced apartment arrangements, or where one entity owns more than a specified proportion of units in the scheme. Your broker will check these restrictions during the application stage to avoid wasted time and valuation fees.

How Much Deposit You Need for a Unit Purchase

Most lenders require a minimum 10 per cent genuine savings deposit for an investment unit, though some will accept 5 per cent if you pay Lenders Mortgage Insurance. LMI premiums for units are higher than for houses at the same loan-to-value ratio, particularly in buildings above four storeys or with more than 50 lots. Genuine savings must be held in your name for at least three months and cannot include gifted funds in most investment loan scenarios.

The higher the deposit, the more investment loan options become available. At 20 per cent deposit, you avoid LMI entirely and unlock discounted rates. At 30 per cent, some lenders will waive income verification if the rental income comfortably exceeds the loan repayment, though this feature is rarely suited to units due to lower rental yields compared to houses.

Debt-to-income caps introduced in February this year also affect how much you can borrow. Lenders can only allocate 20 per cent of new investor lending to borrowers with total debt exceeding six times their gross annual income. If you already hold a mortgage or car loan, adding an investment unit loan might push you above that threshold, which means you will either need a larger deposit to reduce the loan amount or seek a lender with remaining capacity under their DTI allocation.

Interest Only or Principal and Interest Repayments

Investor loans allow you to choose between principal and interest repayments or interest-only periods, typically up to five years. Interest-only repayments are lower each month, which improves cash flow if rental income does not fully cover loan costs. However, the loan balance does not reduce during the interest-only term, and lenders assess serviceability on the higher principal and interest repayment even if you initially select interest-only.

For units with lower rental yields, interest-only structures are common because they reduce the gap between rental income and loan repayments. A unit in Mooloolaba returning $550 per week might generate $28,600 annually before costs. If the loan repayment on an interest-only basis is $32,000 per year, the shortfall is $3,400. Switching to principal and interest repayments increases the annual cost to around $42,000, widening the shortfall to $13,400 before accounting for claimable expenses.

From July next year, new tax rules limit negative gearing for properties purchased after May this year unless the dwelling qualifies as an eligible new build. If your unit does not meet that definition, rental losses can only offset other rental income or be carried forward, not deducted against salary or wages. This changes the cash flow calculation, particularly for buyers relying on the tax refund to cover the funding gap each year.

Variable or Fixed Rate Structures for Investment Units

Variable rates allow you to make extra repayments, redraw funds, and access offset accounts, which offer flexibility if your circumstances or the property market change. Fixed rates lock in your repayment amount for a set period, typically one to five years, which provides certainty but limits your ability to adjust the loan without penalty.

Investor variable rates sit around 0.3 to 0.5 percentage points above owner-occupier rates with the same lender, and fixed investor rates carry a similar margin. The gap reflects the higher risk lenders assign to investment lending. Some lenders also apply a higher serviceability buffer to investment loans, meaning they assess your ability to repay at a rate three percentage points above the actual product rate.

Split loan structures, where part of the loan is fixed and part remains variable, are often used by investors who want rate certainty on a portion of the debt while retaining access to offset and redraw features on the variable portion. If you fix the entire loan and need to sell the property or refinance before the fixed term ends, break costs can be substantial, particularly if rates have fallen since you locked in.

Tax Treatment and Claimable Expenses from July Next Year

Under the current rules, you can deduct all loan interest, body corporate fees, council and water rates, property management fees, repairs, and depreciation from your rental income. If expenses exceed income, the loss reduces your taxable income from other sources such as salary.

From 1 July next year, properties purchased after 12 May this year that are not eligible new builds will have rental losses quarantined. You can still claim all the same expenses, but losses can only offset rental income from other properties or be carried forward to offset future rental income or capital gains when you sell. This does not affect properties you already own or those under contract before that date, which continue under the existing rules.

Eligible new builds include units constructed on previously vacant land or where the development increases the total number of dwellings on the site. A knock-down rebuild that replaces one dwelling with one new dwelling does not qualify. If you are considering a unit in a newly completed building, confirm with your conveyancer whether it meets the definition before relying on continued access to negative gearing.

Why Lenders Restrict Lending on Certain Unit Types

Lenders categorise units by building size, use, and ownership concentration. Serviced apartments, buildings with more than 50 per cent non-owner-occupied lots, and schemes where a single entity owns more than 20 per cent of the units are commonly restricted or declined outright. These restrictions exist because lenders view such buildings as higher risk for resale and tenant turnover.

In popular Sunshine Coast precincts such as Cotton Tree and Mooloolaba, older holiday-let buildings often breach these thresholds. If you are looking at a unit that has been used for short-term accommodation, check whether the body corporate rules permit long-term leasing and whether the lender will accept the building before making an offer. Some buildings are only financeable through specialist lenders at higher rates and lower LVRs.

Lenders also apply postcode-level caps on new lending in certain high-density areas. If a lender has already committed a large portion of their portfolio to units in a specific suburb, they may decline your application regardless of your financial position. This is one reason working with a broker who holds access to a wide panel is valuable when buying a unit rather than approaching a single bank directly.

Rental Income Assessment and Vacancy Rates

Lenders use rental income to help service the loan, but they apply a shading percentage, typically 20 per cent, to account for vacancy, management fees, and maintenance. If the property is expected to generate $550 per week, the lender will assess it at $440 per week. Some lenders use higher shading rates for units in holiday areas or buildings with high short-term letting activity.

You will need a rental appraisal from a licensed property manager before the lender finalises the loan. The appraisal should reflect long-term rental potential, not short-term holiday rates, unless the loan product and building permit short-term use and the lender accepts that income type. Most mainstream lenders do not accept Airbnb or Stayz income for serviceability.

If you plan to rely on rental income to meet serviceability, make sure the appraisal is realistic for the current Sunshine Coast rental market. Units close to the Maroochydore CBD, Sunshine Coast University Hospital, and the new Maroochydore train station precinct tend to hold stronger occupancy rates than older buildings further from employment and transport nodes.

Refinancing and Portfolio Growth After Your First Unit

Once you have owned the property for six to twelve months and have a rental history and updated valuation, you may be able to refinance to release equity or improve your rate. If the property has increased in value, refinancing can free up funds for a deposit on a second property without requiring additional cash savings.

Lenders reassess your entire financial position at each refinance or new application, including any changes to income, liabilities, and credit history. The debt-to-income caps apply on a portfolio basis, so each additional property loan reduces your remaining borrowing capacity. Some investors reach their DTI limit after two or three properties, depending on income and deposit size.

If you are building a portfolio rather than purchasing a single investment unit, structure your loans from the outset to support future growth. This often means selecting lenders with higher portfolio limits, using offset accounts instead of paying down principal, and keeping ownership structures consistent to avoid cross-collateralisation issues that restrict refinancing later.

What to Confirm Before You Apply

Before lodging a loan application, confirm the following with your broker: whether the building meets lender requirements for size, use, and ownership concentration; whether the body corporate has adequate sinking fund reserves and no major defects or legal disputes; whether the unit has any encumbrances such as rental guarantees, lease-back arrangements, or restrictions on long-term leasing; and whether your deposit, income, and existing debts allow you to meet serviceability and DTI requirements at current assessment rates.

You should also confirm the timing of settlement and any pre-settlement conditions such as building certification, title registration, or council compliance, particularly if buying off the plan or in a recently completed building. Delays in registration can push settlement beyond your loan approval expiry, which means reapplying and potentially facing different rates or lending criteria.

Call one of our team or book an appointment at a time that works for you to discuss your situation and confirm which lenders and loan structures suit your circumstances before you make an offer.

Frequently Asked Questions