Avoid These 5 Mistakes When Buying Investment Property

Buying an established investment property means choosing between loan structures that affect your cash flow, your tax position, and your ability to grow a portfolio over time.

The recent changes to negative gearing and capital gains tax treatment mean that properties purchased after 12 May 2026 will be treated differently from 1 July 2027 onwards. If you buy an established residential property now, you will not be able to offset rental losses against your wage or salary income once the new rules take effect, and the 50% CGT discount will no longer apply. Those deductions are not lost entirely, but they can only be used against future rental income or capital gains from residential property. That shifts the focus from tax minimisation to cash flow and long-term growth.

This article walks through the decisions that matter when you are structuring finance for an established investment property, particularly if you are purchasing under the new rules.

Mistake 1: Not Calculating the Real Cost of Interest-Only Repayments

Interest-only repayments keep your monthly outgoings lower, which is useful when rental income does not cover all your costs. You pay only the interest charged each month, and the loan balance stays the same.

Consider a buyer who borrows $500,000 to purchase an established unit in Brisbane. At a variable rate of around 6.5%, an interest-only repayment would be approximately $2,708 per month. If the property rents for $550 per week, that is roughly $2,383 per month in rental income before expenses. The shortfall is around $325 per month, plus costs like body corporate fees, rates, insurance, and property management.

Under the old rules, that shortfall could be claimed as a deduction against wage income. From 1 July 2027, that deduction can only be used against other residential property income or future capital gains. If this is your first investment property, you have no other rental income to offset it against. The loss gets carried forward, which means you are funding the shortfall from your own income without an immediate tax benefit.

Interest-only periods typically last between one and five years. After that, the loan reverts to principal and interest repayments, which are significantly higher. Planning for that reversion is part of structuring the loan correctly from the start.

Mistake 2: Choosing a Lender Based Only on the Interest Rate

The advertised interest rate is not the only factor that affects the long-term cost of your loan. Lenders also differ in how they calculate rental income, what expenses they allow you to claim, and whether they will lend again when you want to purchase a second property.

Some lenders apply an 80% shading to rental income, meaning they only count $1,920 per month even if the property rents for $2,400. Others allow 100% of the rental income if you can provide a signed lease. If you are borrowing close to your limit, that difference can determine whether your application is approved.

Lenders also vary in how they treat Lenders Mortgage Insurance (LMI). If you are borrowing above 80% of the property value, you will pay LMI. Some lenders allow you to capitalise that cost into the loan amount, while others require it to be paid upfront. LMI on a $450,000 loan with a 10% deposit can be $15,000 or more, depending on the lender and your circumstances.

A broker can compare investment loan options across multiple lenders and identify which one aligns with your plans for portfolio growth, not just the property you are buying now.

Mistake 3: Not Structuring the Loan to Release Equity Later

If you plan to buy a second investment property in the future, the way you structure your first loan affects how much equity you can access.

Equity is the difference between what the property is worth and what you owe. If your property is valued at $600,000 and you owe $480,000, you have $120,000 in equity. Most lenders will let you borrow against up to 80% of the property value without paying LMI again. That means you could access up to $480,000 in total debt against that property, which in this case is exactly what you already owe. If the property increases in value or you pay down the loan, that equity becomes available.

Some buyers structure their loan with an offset account attached, which allows them to park savings and reduce the interest charged without actually paying down the loan balance. That keeps the debt level higher, which is useful for tax purposes if you later convert the property to your primary residence or refinance to access equity. Other buyers prefer to pay down the loan as quickly as possible, which reduces the amount they can borrow later but also lowers their risk.

There is no universal answer, but the decision should be made deliberately, not by default.

Mistake 4: Ignoring the Role of Loan to Value Ratio in Your Application

Your loan to value ratio (LVR) is the percentage of the property value that you are borrowing. A $450,000 loan on a $500,000 property is a 90% LVR. A $400,000 loan on the same property is 80%.

Lenders treat higher LVR loans as higher risk. If you are borrowing above 80%, you will pay LMI, and you may also face a higher interest rate or more restrictive loan features. Some lenders will not offer interest-only repayments at all if your LVR is above 90%.

If you are close to the 80% threshold, it can be worth increasing your deposit slightly to avoid LMI and access better loan terms. For example, a 15% deposit on a $500,000 property means borrowing $425,000, which triggers LMI. A 20% deposit means borrowing $400,000, which avoids it. The difference in upfront cost can be $10,000 to $15,000, and you also get access to more flexible loan products.

If you do not have a 20% deposit, LMI is not necessarily a reason to delay. It just needs to be factored into your calculations when you are working out whether the property will generate positive cash flow or require ongoing contributions.

Mistake 5: Not Accounting for Vacancy Periods and Ongoing Costs

Rental income is not guaranteed every week of the year. Tenants move out, properties sit vacant between leases, and maintenance costs come up without warning.

A realistic vacancy rate for an established property in a well-located Brisbane suburb might be two to four weeks per year. If the property rents for $550 per week, that is $1,100 to $2,200 in lost income annually. On top of that, you will have costs like council rates, water charges, insurance, property management fees (typically 7% to 8% of the rent), and occasional repairs.

If your loan repayments are $2,708 per month and your rental income is $2,383, you are already $325 short before accounting for any other costs. Adding in $400 per month for rates, insurance, and management fees brings the monthly shortfall to around $725. Over a year, that is $8,700 that you need to fund from your own income.

Under the new rules, that $8,700 cannot be used to reduce your taxable income from wages. It can be carried forward and used against future rental income or capital gains, but it does not provide an immediate tax benefit. That makes cash flow planning more important than it was under the old arrangements.

The goal is not to avoid costs, but to know what they are before you commit. If you are prepared to contribute $700 per month for the first few years while the property increases in value and rents rise, that can be a sound strategy. If you are relying on rental income to cover all costs from day one, established properties in the current market may not deliver that outcome.

Setting up your investment loan correctly means understanding how the structure affects your borrowing capacity, your cash flow, and your ability to grow your portfolio over time. If you are purchasing an established property after the recent budget changes, the focus shifts from short-term tax deductions to long-term capital growth and rental yield.

Call one of our team or book an appointment at a time that works for you. We can walk through the numbers specific to the property you are considering and structure the loan in a way that supports your plans for building wealth through property.

Frequently Asked Questions