The easiest way to fund an investment unit

Buying an investment unit starts with choosing the right loan structure

Investment loans for units work differently to owner-occupied finance, and the loan structure you choose affects how much you can borrow, what you pay each month, and how the purchase fits into your broader financial position. Most lenders classify any property you don't plan to live in as an investor loan, which means higher interest rates and stricter serviceability checks compared to an owner-occupied mortgage.

The two main choices are principal and interest or interest only. Principal and interest loans reduce the amount you owe over time, while interest only loans keep the debt level stable for a set period, usually one to five years. Interest only repayments are lower in the short term, which can help with cash flow if you're holding multiple properties or managing tight margins between rent and expenses. Principal and interest loans build equity faster and typically attract slightly lower rates from some lenders.

Consider someone from Mundijong purchasing a two-bedroom unit as their first investment property. They might choose a principal and interest loan on a variable rate to build equity early, particularly if they plan to use that equity later to fund a second purchase. Alternatively, a buyer who already owns their home and is adding a unit to their portfolio might prefer interest only with a fixed rate for three years, locking in certainty while they assess rental returns and manage other commitments.

How much deposit you need and where lenders draw the line

Most lenders require at least a 10 per cent deposit for an investment unit, but borrowing at 90 per cent loan to value ratio triggers Lenders Mortgage Insurance. LMI is a one-off premium that protects the lender if you default, and it can add several thousand dollars to your upfront costs. The premium increases sharply as your deposit shrinks, so a 10 per cent deposit is noticeably more expensive than 15 per cent, and 15 per cent is still more expensive than 20 per cent.

At 80 per cent LVR or lower, you avoid LMI entirely. That means a 20 per cent deposit plus enough cash to cover stamp duty, legal fees, building and pest inspections, and any strata report costs. For a unit, body corporate fees also need to be factored into your ongoing serviceability, as lenders include those in their assessment of whether you can afford the loan.

If you already own property, you may be able to use equity from your home rather than saving a full cash deposit. Refinancing your existing loan to release equity can provide the funds you need without selling an asset, though it does increase the debt on your home and requires a fresh serviceability assessment across both loans.

Variable or fixed rates for investment units

Variable interest rates move with the market, which means your repayments can increase or decrease depending on what the Reserve Bank and your lender decide. Fixed rates lock in a set repayment for a chosen term, typically between one and five years. Neither option is universally better, and the choice depends on what you're trying to achieve and how much flexibility you need.

Variable rates usually come with offset accounts and the ability to make extra repayments without penalty. If you plan to pay down the loan faster or want the option to redraw funds, a variable loan offers that flexibility. Fixed rates provide certainty, which can be valuable if you're managing a portfolio or want to lock in repayments while rental income stabilises.

Some borrowers split the loan, fixing part of the balance and leaving part on a variable rate. That approach gives you some protection against rate rises while keeping access to an offset account and extra repayment options on the variable portion. We regularly see this structure used by investors who want to manage risk without giving up all their flexibility.

What Mundijong buyers need to know about unit lending in outer metro areas

Mundijong sits around 50 kilometres south of Perth, and while the town itself is semi-rural, its proximity to Byford, Armadale and the Kwinana Freeway makes it accessible for renters working across the southern corridor. Units in nearby Byford and Armadale attract investors looking for affordable entry points into the rental market, and lenders generally view these areas as acceptable security provided the unit is in a well-maintained complex with stable body corporate records.

Lenders assess units more conservatively than houses, particularly in outer suburbs. They look closely at the size of the complex, the proportion of owner-occupiers versus investors, and whether there are any special levies or structural issues flagged in strata records. A unit in a small complex with high investor concentration or deferred maintenance can be harder to finance, even if the price is within your budget.

If you're looking at a unit in Byford or Armadale while living in Mundijong, make sure the strata report is reviewed before you commit. Some lenders will decline loans on units in complexes with less than five lots, or where special levies exceed a certain threshold. Those details matter, and they can derail an application late in the process if they're not addressed upfront.

Interest only loans and how they affect your borrowing capacity

Interest only loans are common for investment properties because they maximise tax deductions and keep repayments lower during the interest only period. You're not paying down the principal, so the full interest cost is deductible against your rental income, assuming the property is genuinely available for rent.

Lenders assess interest only loans using the same serviceability buffer as principal and interest loans, but they calculate your repayment capacity assuming the loan will revert to principal and interest at the end of the interest only period. That means you need to be able to service the loan as if you were paying both principal and interest from day one, even if you're only paying interest for the first five years.

The interest only period also doesn't last forever. Once it ends, your repayments increase significantly because you're now paying off the principal over the remaining loan term. If you've structured a 30-year loan with five years interest only, the principal gets repaid over the remaining 25 years, which makes each repayment higher than it would have been on a 30-year principal and interest loan from the start.

Rental income and how lenders treat it in serviceability

Lenders include rental income in their serviceability assessment, but they don't count 100 per cent of it. Most lenders apply a shading factor, typically 80 per cent, to account for vacancy periods, maintenance costs and the risk that the property might sit empty between tenants. Some lenders are more conservative and shade rental income at 75 per cent, particularly for units in areas with higher vacancy rates.

If the unit you're purchasing is tenanted, you can provide a copy of the lease to support the rental income figure. If it's vacant, lenders will accept a rental appraisal from a licensed property manager, though they may apply a slightly more conservative shading factor in that case. The rental appraisal needs to be recent, usually within 90 days, and it needs to be specific to the property, not just a general market range.

Your other income, including salary, is assessed alongside the rental income to determine how much you can borrow. Lenders also factor in your existing debts, living expenses, and any other investment properties you hold. Self-employed borrowers may need to provide additional documentation, such as tax returns and accountant-prepared financials, to verify income.

Tax deductions and structuring the loan to maximise claimable expenses

Interest on an investment loan is tax deductible, as are most other costs associated with holding and managing the property. That includes body corporate fees, council rates, insurance, property management fees, repairs, and depreciation on the building and fixtures. Loan establishment fees and ongoing account-keeping fees are also deductible.

To maximise your deductions, the loan needs to be structured correctly from the start. If you use equity from your home to fund the deposit, that portion of your home loan becomes deductible because it's being used for investment purposes. Keeping that debt separate in a split loan or standalone facility makes it easier to track and claim at tax time.

Negative gearing refers to the situation where your deductible expenses, including interest, exceed your rental income. Under current rules, losses from properties held before May 2026 or eligible new builds can be offset against your other income, including wages. For established units purchased after that date, losses can only be offset against other residential property income from the 2027-28 income year onward. You should speak with an accountant about how the timing of your purchase affects your tax position, as the rules are specific and the cut-off dates matter.

Settlement costs and what to budget beyond the deposit

Stamp duty is the largest additional cost when purchasing an investment unit. In Western Australia, stamp duty on investment property is calculated at the standard residential rate, and there are no concessions or exemptions for investors. Legal fees, building and pest inspections, strata reports, and loan establishment fees all add to the upfront cost.

Body corporate records should be reviewed before settlement, and you'll usually pay a fee to access those through your conveyancer. If the complex has any special levies planned or outstanding maintenance issues, those details will appear in the records and may affect your decision to proceed. Lenders will also want to see the strata report before they issue final approval, particularly if the levy is significant or the complex is older.

You'll also need to budget for ongoing costs that start from settlement, including body corporate fees, landlord insurance, property management fees if you're using an agent, and council rates. These costs are deductible, but they still need to be funded out of your cash flow until you receive your tax refund.

Using equity to fund your next purchase

Once your investment unit has been held for a period and the property market has moved, you may be able to access equity to fund another purchase without selling. Investment loans can be structured to allow for future equity release, either through a refinance or by setting up a line of credit secured against the property.

Equity is the difference between what the property is worth and what you owe on it. Lenders will typically let you borrow up to 80 per cent of the property's value without needing to pay LMI again, so if your unit increases in value or you've paid down the principal, that creates usable equity. Releasing equity doesn't require you to sell the property, but it does increase your overall debt and requires a new serviceability assessment.

If you're planning to build a portfolio, structuring your first investment loan with future flexibility in mind can save time and cost later. Choosing a lender that allows top-ups or linked facilities, and keeping your loan to value ratio conservative, gives you more options when you're ready to move on the next property.

Buying an investment unit is a decision that affects your borrowing capacity, tax position, and long-term financial flexibility. Getting the loan structure right from the start makes it easier to manage the property, claim your deductions, and use the equity when you're ready. Call one of our team or book an appointment at a time that works for you.

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