Avoid These Investment Loan Mistakes When Buying an Apartment

Investment apartments remain a practical entry point for medical professionals building wealth outside superannuation.

Tax rules have changed substantially. From 1 July 2027, negative gearing will be quarantined for most residential properties purchased after May 2026, meaning rental losses cannot be offset against your clinical or consulting income. The capital gains tax discount has also been replaced with indexed cost base and a minimum 30 per cent tax on real gains for assets acquired after that date. Understanding what these changes mean for your specific situation before you commit to a purchase will shape both your borrowing structure and your property selection.

Choosing the Right Apartment When Tax Incentives Have Shifted

Properties held before 7:30pm AEST on 12 May 2026, including those under contract at that time, can still be negatively geared under the old rules until sold. If you are looking at an established apartment now, the ability to offset rental losses against your salary ends on 30 June 2027 for contracts entered after May 2026.

Newly constructed dwellings on previously vacant land, and properties that increase the total number of dwellings on a site, remain eligible for negative gearing even after 1 July 2027. Consider a GP purchasing an off-the-plan apartment in a new block in North Lakes. If practical completion occurs in late 2027, rental losses from that property can still be claimed against consulting and other income. The same GP buying a 10-year-old apartment in the same suburb would see those losses quarantined from July 2027 onward, available only to offset future rental income or capital gains on residential property.

The eligibility for negative gearing now drives the comparison between established and new builds in a way it did not 12 months ago. Before selecting a property, clarify with your accountant whether the apartment qualifies and how that affects your after-tax position over the holding period.

How Lenders Assess Rental Income on Investment Apartments

Lenders discount rental income when calculating your borrowing capacity. Most apply an 80 per cent shading to the market rent, meaning if an apartment in Chermside rents for $500 per week, the lender will credit $400 per week toward your serviceability. The serviceability buffer is set at 3 percentage points above the product rate. If you are applying for a variable rate loan at 6.2 per cent, your repayments will be stress-tested at 9.2 per cent.

Body corporate fees, council rates and landlord insurance are treated as ongoing expenses and reduce your net position. In our experience, medical professionals underestimate the impact of body corporate levies. A two-bedroom apartment in Bulimba with quarterly levies of $1,800 reduces your annual net rental income by $7,200 before any other holding costs are deducted. When the lender is already shading the gross rent by 20 per cent, a high body corporate contribution can reduce your borrowing capacity materially or require a larger deposit to keep the loan within serviceability limits.

If you hold other investment property, the rental income from those assets is also shaded and the loan repayments are included in your commitments. The cumulative effect across a portfolio means each additional property is harder to finance unless you are actively paying down debt or your income is increasing at pace.

Interest Only Repayments and Why They Still Matter After the Tax Changes

Interest only repayment structures remain common on investment loans. Paying only the interest for an initial period keeps the loan balance unchanged and maximises the portion of your repayment that is tax deductible, assuming the property still qualifies for negative gearing or you have other rental income to offset.

Properties acquired between 7:30pm AEST on 12 May 2026 and 30 June 2027 may be negatively geared under existing rules until 30 June 2027 only. After that transitional period ends, rental losses on non-eligible properties are quarantined. If you have no other residential rental income, those losses sit idle until you sell or the property turns cashflow positive. In that scenario, there is less tax benefit in keeping the loan balance high, and switching to principal and interest repayments may make sense once the quarantine begins.

Interest only periods are typically approved for up to five years, after which the loan converts to principal and interest. The repayment increase at conversion can be significant. On a $400,000 loan at a variable rate around 6.5 per cent, interest only repayments would be roughly $2,170 per month. When the loan converts to principal and interest over the remaining term, repayments rise to around $3,050 per month, assuming rates have not changed. Plan for that step-up in your cashflow forecasting, particularly if the apartment will still be negatively geared at that point.

Deposit Requirements and Lenders Mortgage Insurance on Investment Apartments

Most lenders cap investment lending at 90 per cent loan to value ratio, meaning you need at least a 10 per cent deposit plus settlement costs. Borrowing above 80 per cent LVR triggers Lenders Mortgage Insurance, which protects the lender if you default. LMI is a capitalised cost, usually added to the loan balance, and is not refundable or transferable.

For medical professionals with equity in an existing home, equity release can provide the deposit without selling other assets. Consider a specialist with a principal place of residence valued at $950,000 and an outstanding mortgage of $420,000. Usable equity at 80 per cent LVR is $760,000 minus the existing debt, leaving $340,000 available. That equity can fund the deposit, stamp duty and costs on an investment apartment without requiring cash savings. The refinance of the home loan to access that equity needs to be structured carefully so the interest on the portion used for investment remains deductible, while the interest on the owner-occupied portion does not.

If you do not have sufficient equity and need to borrow above 80 per cent, LMI on a $450,000 loan at 90 per cent LVR could add $12,000 to $16,000 to the total amount borrowed, depending on the lender and your occupation. Some lenders offer LMI waivers or reduced premiums for medical professionals, so it is worth comparing investment loan options across the panel rather than defaulting to your current home loan provider.

Fixed or Variable Rates on Investment Property Finance

Fixed rate loans offer repayment certainty but remove flexibility. You cannot make extra repayments beyond a small annual allowance without incurring break costs, and you cannot access offset or redraw on most fixed rate products. Variable rate loans allow unlimited extra repayments, full offset functionality, and the ability to redraw funds if the loan contract permits.

For investment purposes, offset is particularly valuable. Parking your savings in an offset account linked to the investment loan reduces the interest charged without reducing the loan balance, preserving the deductible debt. If you place $30,000 in an offset account against a $430,000 loan at 6.4 per cent, you pay interest only on $400,000 but the full $430,000 remains deductible.

Some medical professionals split the loan, fixing a portion for certainty and leaving a portion variable for flexibility. Before committing to any fixed term, confirm you will not need to sell or refinance the property during that period. Break costs on a fixed rate can run into tens of thousands of dollars if rates have fallen since you locked in.

Debt to Income Limits and How They Affect High Earning Professionals

From 1 February 2026, lenders may fund up to 20 per cent of new investor loans at a debt-to-income ratio of 6 times or greater. If your total borrowings exceed six times your gross annual income, your application will fall within that restricted pool. For a surgeon earning $350,000 per year, the threshold is $2.1 million in total debt across all loans.

That cap is a portfolio measure, not a single loan limit. If you already have $1.6 million in investment and owner-occupied debt and want to borrow another $600,000 for an apartment, your total debt will be $2.2 million, exceeding the six times threshold. The lender can still approve the loan, but it consumes part of their restricted allocation. In practice, this can mean longer turnaround times, additional scrutiny, or a requirement to reduce other debts before proceeding.

Finance for the purchase of newly erected dwellings is exempt from the DTI cap, as is finance for the construction of new dwellings. Buying a brand new apartment that has never been occupied avoids the cap entirely, which can make the difference between an approval and a decline for high-income borrowers with existing debt.

Claimable Expenses and How to Maximise Deductions Within the New Framework

Interest, body corporate fees, council rates, landlord insurance, property management fees, repairs and maintenance, and depreciation on fixtures and fittings are all claimable against rental income. Stamp duty and borrowing costs such as loan establishment fees and LMI can be deducted over five years or the life of the loan, depending on the amount.

From 1 July 2027, if your apartment is subject to loss quarantining, those deductions still apply but the net loss can only offset other residential rental income or be carried forward. If this is your only rental property and it runs at a loss, you will accumulate quarantined losses each year that can be claimed when you sell the property or when it becomes cashflow positive. The deductions are not lost, but the timing of the tax benefit shifts.

Depreciation schedules are valuable for newer apartments. A quantity surveyor's report will identify the depreciable value of the building and the plant and equipment, generating deductions that do not require any cash outlay. Apartments completed after the removal of plant and equipment depreciation for second-hand assets in May 2017 still allow building depreciation at 2.5 per cent per year on the construction cost. If you purchase a new apartment with a construction cost of $320,000, that is $8,000 per year in deductions for the first 40 years.

Structuring the Loan When You Plan to Build a Portfolio

How you structure your first investment loan affects your ability to borrow for the second and third properties. Offset accounts, as discussed, preserve deductible debt and give you access to cash without reducing the loan balance. Avoid using redraw on investment loans to pay down your owner-occupied mortgage, as this can create a mixed-purpose loan that is partly deductible and partly not, complicating your tax position.

If you plan to acquire multiple properties, maintain clean loan splits from the outset. One loan for the investment property, one loan for your home. Do not cross-collateralise unless you have a specific reason, such as avoiding LMI, and understand that releasing a property from cross-collateralised security later can require a full refinance of the portfolio.

Some lenders allow you to pre-approve additional borrowing capacity before you find the next property. This can shorten the turnaround when you are ready to exchange contracts. Speak with your broker about whether a pre-approval makes sense given your income stability and the timing of your next purchase.

Purchasing an investment apartment as a medical professional is no longer a decision driven purely by serviceability and location. The tax treatment of the property, the structure of the loan, and the way you document and claim expenses all shape the outcome over the holding period. Call one of our team or book an appointment at a time that works for you to discuss how these changes apply to your circumstances and which investment loan products suit your goals.

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