Simple hacks to choose the right investment property type

The property type you choose for your first or next investment can change your borrowing capacity, rental return, and tax position more than most investors realise before they apply.

Apartments, townhouses, and houses all behave differently on paper when a lender assesses your application. They also attract different rental yields, attract different tenant pools, and come with different ongoing costs. Getting the match right between your deposit, your income level, and the property type you target will determine whether your application sails through or stalls at serviceability.

Apartments and units: higher yield, tighter borrowing

Apartments deliver stronger rental yield per dollar invested, which can help serviceability if you have modest income but solid savings. A two-bedroom unit close to a university or hospital precinct often generates 5 to 6 per cent gross yield, compared with 3.5 to 4.5 per cent for a house in the same suburb.

Consider a couple earning a combined $120,000 looking at an apartment near a major hospital. The higher rental income gets included in serviceability at 80 per cent of the assessed rent (most lenders shade it by 20 per cent to allow for vacancy and holding costs), which can lift your borrowing capacity by $30,000 to $50,000 compared with a house generating lower rent at the same purchase price. That difference can make or break an application when the 3 percentage point serviceability buffer tightens your ceiling.

But lenders also apply stricter loan-to-value limits on apartments, particularly in buildings above ten storeys or where more than 50 per cent of units are owned by a single entity. Some lenders cap investment lending at 80 per cent LVR for any apartment, which means you need at least a 20 per cent deposit plus costs to avoid Lenders Mortgage Insurance. Inner-city apartment buildings in Brisbane and the Gold Coast can also face higher body corporate fees, which reduce net yield and get factored into your expense side when the lender runs the numbers.

Houses and townhouses: lower yield, easier lending

Standalone houses and townhouses typically deliver lower rental yield but attract wider lender appetite and fewer valuation discounts. A three-bedroom house in an established suburb might return 4 per cent gross yield, but lenders treat the security more favourably because land appreciates and the asset has broader resale appeal.

In our experience, investors who start with a house often find they can refinance or access equity more smoothly two or three years later, because valuations hold and lenders compete for the business. Townhouses sit somewhere in the middle: they include land component, they suit family tenants, and they usually avoid the strata complexity that spooks some lenders, but the body corporate fee (even when modest) still gets deducted from rental income at assessment.

If your deposit sits at 15 to 20 per cent and your income comfortably covers the serviceability buffer, a house or townhouse gives you more lender choice and keeps your options open for portfolio growth down the track. You are also less exposed to changes in strata legislation or special levies that can blow out holding costs without warning.

New builds and off-the-plan purchases: tax benefit versus settlement risk

Eligible new residential dwellings purchased after 7:30pm AEST on 12 May 2026 retain access to full negative gearing from 1 July 2027 under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, while established properties purchased after that date will have rental losses quarantined against other residential income only. That legislative change has made new builds significantly more attractive from a tax perspective for investors who expect to negatively gear, particularly in the first few years when depreciation and interest costs usually exceed rent.

But off-the-plan purchases introduce settlement risk. If the property value drops between contract and completion, or if your income or employment changes during construction, the lender will reassess at settlement. A valuation shortfall means you need to find extra cash or accept a lower loan amount. Construction delays can also push settlement beyond your fixed-rate preapproval window, leaving you exposed to rate rises in the meantime.

We regularly see this with Brisbane apartment projects where completion drags out twelve months past the original estimate. Your preapproval lapses, you reapply at current rates and policy settings, and the borrowing capacity you had eighteen months ago is no longer available. If you are considering a new build, factor in a buffer for settlement timing and get confirmation in writing about how long your lender will hold your preapproval if the developer pushes the date.

How lenders assess rental income by property type

Every lender applies a different shading policy to rental income, but most use 80 per cent of the market rent or the rent stated in a signed lease, whichever is lower. Some lenders use 75 per cent. The shading accounts for vacancy, repairs, and management fees, even if you plan to manage the property yourself.

Property type affects the assessed rent in two ways. First, the lender will order a valuation that includes a rental assessment, and the valuer takes into account property type, location, condition, and comparable leases. An older apartment with no car space will be assessed lower than a renovated unit with secure parking, even in the same building. Second, some lenders apply an additional haircut to rental income for units in buildings they consider oversupplied or in postcodes with high vacancy rates.

If you are applying for an investment loan and the rental income is critical to your serviceability, ask your broker to confirm the lender's shading percentage and whether they apply postcode overlays before you go to formal application. That five percentage point difference between 75 and 80 per cent shading can cost you $20,000 in borrowing capacity on a property generating $450 per week.

Interest-only versus principal and interest for different property types

Interest-only repayments lower your monthly outlay and can improve cashflow in the early years, particularly when you are building a portfolio or when rental yield does not cover the full principal-and-interest repayment. Most lenders offer interest-only periods of one to five years on investment loans, after which the loan reverts to principal and interest unless you apply to extend.

An interest-only structure makes sense when you are holding a property for capital growth and you want to maximise your tax deductions (because the full loan balance remains deductible), or when you plan to sell or refinance before the interest-only period ends. It is commonly used with new apartments where investors are banking on depreciation and negative gearing in the short term, then either selling into a rising market or refinancing to release equity.

But interest-only loans attract a slightly higher interest rate (usually 0.10 to 0.25 per cent per annum above the equivalent principal-and-interest rate) and they increase the total interest cost over the life of the loan if you do not pay down the principal separately. Lenders also apply higher risk weights to interest-only investor loans under APRA Prudential Standard APS 112, which means they are more likely to apply tighter LVR limits or higher rates when the loan amount is large relative to your income.

For houses and townhouses held long-term, principal-and-interest loans often make more sense because you are building equity with every payment and the rental income typically covers a higher percentage of the repayment. For high-yield apartments or new builds where you plan to leverage depreciation and then sell within five to seven years, interest-only can be the right fit if the numbers support it.

Borrowing capacity and the debt-to-income cap

From 1 February 2026, lenders can approve no more than 20 per cent of new investor loans at a debt-to-income ratio of 6 times or greater. That cap applies at each lender and it has already changed how applications are prioritised.

If your total borrowings (including your owner-occupied mortgage, investment loans, and other debt) reach six times your gross household income, you may find your application declined or heavily discounted even when you meet every other criteria. Property type does not change the DTI calculation directly, but it affects the equation through rental income and purchase price.

A couple earning $150,000 combined can borrow up to $900,000 before hitting the DTI threshold, assuming no other debt. If they already have a $500,000 home loan, they have $400,000 of headroom for investment lending before the cap bites. Choosing a property type that generates strong assessed rental income (such as an apartment in a high-demand precinct) can lift the amount the lender will advance within that $400,000 envelope, while choosing a property type with lower yield but higher land value (such as a house) might push you toward a smaller loan and larger deposit to stay under the cap.

Your broker can model your DTI position across multiple lenders before you start looking at properties, so you know whether you are better off targeting a higher-yield unit to maximise the loan amount or a lower-price house to stay within your borrowing ceiling without triggering the cap.

Which property type suits your strategy

Your income, deposit size, and investment horizon determine which property type will get you the lending outcome you need. If you are a high-income couple with a 10 to 15 per cent deposit and you want to negatively gear from day one while chasing depreciation, an eligible new apartment makes sense and you will likely need to budget for Lenders Mortgage Insurance. If you have a 20 per cent deposit, modest income, and you want to build equity steadily without relying on a big tax refund each year, a townhouse or house in an established suburb with solid tenant demand will give you more lender options and lower holding costs.

Property type is not a lifestyle question when you are investing. It is a finance question. The property that feels right when you walk through it might be the one that fails serviceability or leaves you with no equity buffer if values soften. Match the property type to your borrowing capacity, your tax position, and the lending policy that applies right now, and you will have a structure that works through the first five years and beyond.

Call one of our team or book an appointment at a time that works for you, and we will run your income and deposit through the current lending matrix so you know exactly which property types get you approved and which ones tie up your cash without delivering the return you need.

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