Buying an apartment as an investment property requires a different approach to finance than your owner-occupied home loan.
Lenders assess apartment purchases with additional scrutiny, particularly around loan to value ratio requirements, rental income calculations, and the ongoing viability of the property as security. Understanding these differences before you apply helps you position your application correctly and avoid unnecessary delays or declined applications.
How Much Deposit Do You Need for an Investment Apartment?
Most lenders require a minimum 10% deposit for investment property purchases, though 20% is often the threshold where you avoid paying Lenders Mortgage Insurance. An apartment valued at the median price in a suburb like Coburg or Preston would need a deposit of at least $60,000 to $80,000 at the 20% mark, depending on the property type and location. Some lenders will lend up to 90% or even 95% for investment purchases, but at these higher loan to value ratios, the interest rate increases and LMI premiums add significantly to your upfront costs. Your borrowing capacity also reduces because lenders apply a lower rental income calculation, typically using 80% of the expected rent to account for vacancy periods and maintenance costs.
If you're buying your first investment property, starting with a 20% deposit gives you access to better investor interest rates and a wider range of investment loan products across different lenders.
Investment Loan Interest Rates and Repayment Structures
Investment loan interest rates sit higher than owner-occupied rates, usually by 0.20% to 0.50% depending on the lender and your loan to value ratio. You'll also need to decide between variable rate and fixed rate options, or split your loan amount across both. A variable interest rate gives you flexibility to make extra repayments and access offset accounts, which can reduce the interest you pay over time. A fixed interest rate locks in your repayment amount for a set period, which helps with budgeting but limits your ability to repay faster or refinance without incurring break costs.
Most investors choose interest only repayments for the first few years, which keeps monthly costs lower and maximises tax deductions. Under an interest only investment loan structure, you're only paying the interest charged on the loan amount, not reducing the principal. At current variable rates, an interest only repayment on a $400,000 investment loan might sit around $1,800 to $2,000 per month, depending on the lender and rate discount you secure. Principal and interest repayments would be higher, but they reduce your loan balance over time.
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Rental Income and Borrowing Capacity Calculations
Lenders don't use the full rental income when calculating how much you can borrow. They apply a rental income factor, usually 80%, to account for vacancy rates and maintenance periods. Consider an apartment in Brunswick that rents for $500 per week. The lender will assess your borrowing capacity using $400 per week, or roughly $20,800 per year, rather than the full $26,000. That $5,200 difference affects how much you can borrow, particularly if you're expanding your property portfolio and already have existing debts.
Some lenders allow you to use a rental appraisal to support your application even before a tenant is in place, while others require a signed lease. If you're purchasing an apartment in a building with high owner-occupier ratios, lenders view that more favourably than buildings dominated by investors, as it suggests stronger long-term demand and lower vacancy risk.
Body Corporate Fees and Lender Serviceability
Apartments come with body corporate fees, and lenders include these as an ongoing expense when assessing your serviceability. A two-bedroom apartment in Footscray or Coburg might have body corporate fees ranging from $3,000 to $6,000 per year, depending on the building's facilities and age. Higher fees reduce your borrowing capacity because they're treated as a fixed cost, similar to council rates or strata insurance.
Some lenders also have internal restrictions on apartments in buildings above a certain height, or buildings with commercial tenants on the ground floor. If you're purchasing in a high-rise building in Melbourne's CBD or inner suburbs, not all lenders will offer the same loan amount or interest rate. Working with a Melbourne mortgage broker who understands which lenders have appetite for your specific property type avoids wasted time on applications that won't get approved.
Tax Deductions and Negative Gearing Considerations
One of the main benefits of buying an investment property is the ability to claim deductions for loan interest, body corporate fees, property management costs, and depreciation. If your rental income is lower than your total expenses, you're negatively geared, and you can offset that loss against your other income to reduce your overall tax liability.
Recent changes to negative gearing and capital gains tax affect properties purchased after 12 May 2026. If you bought an established apartment after that date, losses from the property can only be offset against rental income or capital gains from residential property, not against your wage income. These restrictions apply from 1 July 2027. New builds, however, retain the full negative gearing benefits and give you a choice between the previous 50% capital gains tax discount or the new inflation-indexed arrangement, whichever is more favourable.
If you're purchasing an established apartment and planning to use negative gearing as part of your property investment strategy, speaking to a tax adviser about how the new rules affect your situation is worth doing before you commit to the purchase.
Investment Loan Features That Support Portfolio Growth
Not all investment loan products offer the same features. Offset accounts, redraw facilities, and the ability to make extra repayments without penalty all affect how you manage your loan over time. If you're planning to build wealth through property and eventually acquire additional properties, choosing a loan structure that allows you to refinance to release equity later gives you more options as your portfolio grows.
Some lenders offer portability, which means you can transfer your existing loan to a new property without reapplying or paying discharge fees. Others allow you to split your loan amount across multiple accounts, which can be useful if you want to fix part of your loan and keep the rest on a variable rate with an offset account attached. Choosing the right investment loan features upfront avoids the need to refinance within the first few years, which can trigger break costs if you're exiting a fixed rate period early.
Premier Path Finance works with investors across Melbourne and regional Victoria to structure investment property finance that aligns with your long-term goals. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
How much deposit do I need to buy an investment apartment?
Most lenders require a minimum 10% deposit for investment properties, though 20% is the threshold where you avoid Lenders Mortgage Insurance. At higher loan to value ratios, you'll face higher interest rates and LMI costs, and your borrowing capacity reduces because lenders apply a lower rental income calculation.
How do lenders calculate rental income for borrowing capacity?
Lenders typically use 80% of the expected rental income when assessing your borrowing capacity, to account for vacancy periods and maintenance costs. This means if an apartment rents for $500 per week, the lender will only assess $400 per week in your application.
What changed with negative gearing for investment properties?
From 1 July 2027, losses from established residential properties purchased after 12 May 2026 can only be offset against rental income or capital gains from residential property, not against wage income. New builds retain full negative gearing benefits and offer a choice between the 50% CGT discount or inflation-indexed arrangements.
Should I choose interest only or principal and interest repayments?
Most investors choose interest only repayments initially to keep monthly costs lower and maximise tax deductions. Interest only means you only pay the interest charged on the loan amount, not the principal, which keeps repayments lower but doesn't reduce your loan balance over time.
Do body corporate fees affect how much I can borrow?
Yes, lenders include body corporate fees as an ongoing expense when assessing your serviceability. Higher fees reduce your borrowing capacity because they're treated as a fixed cost, similar to council rates or insurance premiums.
