Common Mistakes When Buying an Established Investment Property

If you buy an established flat in Eastwood after 1 July 2027, you will not be able to deduct your rental losses against salary or business income. That changed on 26 June when the negative gearing rules passed parliament.

The decision about what to buy and when now has a direct bearing on the structure of your loan, the interest payments you can claim, and the way you hold the property. Investors who have been building a portfolio for years are now making very different calls about whether to add another established dwelling or wait for a new build that preserves full deduction rights.

Negative Gearing Quarantine Applies to Properties Acquired from May

Rental losses on residential dwellings acquired on or after 7:30pm AEST on 12 May 2026 can only be offset against other residential rental income or carried forward. You cannot offset those losses against wages, consulting income, or non-residential investment returns. Properties you already own at that date, or where you signed an unconditional contract before that time, remain fully deductible under the existing rules until you sell.

Eligible new residential dwellings are exempt, meaning a newly constructed property bought after the cut-off can still be negatively geared in the traditional sense. The definition turns on construction of dwellings on previously vacant land or where the project increases the number of dwellings on the site. A knock-down rebuild with the same dwelling count does not qualify, and a new build that has been occupied for more than 12 months before you purchase it loses the exemption.

This is creating two distinct investor tracks. One involves buying established stock near schools, transport and amenities and carrying forward losses year to year until the property delivers a capital gain or rental surplus. The other involves accepting locations further out or developments without the same amenity access in exchange for immediate deduction against other income.

Capital Gains Tax Rules Also Changed from July 2027

From 1 July 2027, capital gains accrued after that date on affected assets will be taxed under a new framework. The 50 per cent discount disappears and is replaced by cost base indexation using the Consumer Price Index and a minimum 30 per cent tax rate on the real gain. Gains that accrued before 1 July 2027 on existing holdings will continue to be calculated under current rules.

This means if you buy an established investment property in Eastwood in early 2027, gains from that point forward will be indexed and taxed at 30 per cent or your marginal rate, whichever is higher. Eligible new builds retain an election between the 50 per cent discount and the indexation method.

The transition creates a short window. Properties acquired between mid-May 2026 and 30 June 2027 can be negatively geared under the old rules until 30 June 2027 only, but they will still be subject to the new capital gains treatment for any gains accruing after that date. That makes timing critical for anyone planning a late-2026 settlement.

How APRA Debt-to-Income Caps Affect Investment Loan Applications

APRA introduced a debt-to-income cap on 1 February 2026. Lenders may fund up to 20 per cent of new investor loans at a DTI of 6 times gross income or greater. The cap is applied separately to investor and owner-occupier portfolios.

If you earn $120,000 and already hold $600,000 in owner-occupied debt, a lender may still approve a further $120,000 in investment lending at a DTI of 7 provided the investor portfolio does not exceed the 20 per cent threshold. In practice, lenders manage the cap at the application level by restricting approvals once their quarterly or rolling measure approaches the limit.

Construction finance for new dwellings, purchases of newly erected dwellings as defined in the relevant accounting standard, and bridging finance for owner-occupiers are exempt. That means if you are buying an established unit in Eastwood and relying on existing rental income to service the loan, you are competing for a slice of capacity that tightens each quarter.

The serviceability buffer remains at 3 percentage points above the product rate. If you are quoted a variable rate of 6.2 per cent, the lender will assess repayments as though the rate were 9.2 per cent. Interest-only periods help meet that test because the assessed payment excludes principal.

Interest-Only versus Principal and Interest Loans for Established Stock

Interest paid on borrowings used to acquire or hold an investment property is deductible to the extent the property is rented or available for rent. Principal repayments are not deductible.

An interest-only loan maximises your deductible expense in the early years but does not reduce the loan balance. A principal and interest loan builds equity faster and reduces total interest paid over the life of the loan, but the principal component is not claimable.

Under the new rules, if your losses are quarantined and cannot be offset against other income, the benefit of a larger interest deduction is deferred. You carry the loss forward and apply it when you have rental income from another property or when you sell. That changes the relative appeal of interest-only terms for investors buying established dwellings after the cut-off.

Consider a scenario where you buy a two-bedroom unit near Eastwood Station and the rental return does not cover the loan repayment and outgoings. On an interest-only loan at 6.2 per cent variable, a $600,000 loan costs $3,100 per month. On principal and interest over 30 years, the repayment is around $3,680 per month, with roughly $580 going to principal in the first month. That $580 is not deductible, but if the loss is quarantined anyway, the difference in after-tax cost narrows.

The calculation now turns on whether you expect to acquire more rental properties in the near term that will absorb the carried-forward losses, or whether you are holding this as a single asset for long-term capital growth. If the latter, paying down principal from the start may make more sense than it did before May 2026.

Fixed or Variable Rate for an Investment Property Purchased Now

A variable rate moves with the market and allows unlimited extra repayments and full offset account access where offered. A fixed rate locks in your interest cost and your deductible expense for a set term but typically restricts additional repayments and offset functionality.

For investment loans, many lenders offer a rate discount on variable products compared to fixed. That discount reflects the lender's funding cost and the increased flexibility for the borrower. Fixed rates are priced off the swap curve and tend to move ahead of cash rate expectations rather than in lockstep with them.

If you fix the rate, you know exactly what your deductible interest will be for the fixed period, which can help with tax planning when losses are quarantined and need to be tracked separately. If rates fall during the fixed term, you will pay more than the market and face a break cost if you exit early. If rates rise, you benefit from the locked rate but your deduction is capped at that lower interest figure.

Variable rate loans allow you to respond to changing circumstances, including refinancing to access equity or switching to principal and interest if your strategy shifts. For properties purchased before the negative gearing cut-off, the deduction benefit of additional interest during a rate rise remains fully available against other income. For properties purchased after, that benefit is deferred unless you have other rental income in the same year.

Loan to Value Ratio and Lenders Mortgage Insurance

Lenders Mortgage Insurance is charged when your loan to value ratio exceeds 80 per cent. LVR is calculated as the loan amount divided by the property valuation. A $540,000 loan on a $600,000 valuation gives an LVR of 90 per cent.

LMI is a one-off premium paid at settlement, usually capitalised into the loan. It protects the lender if you default and the sale proceeds do not cover the debt. For investors, LMI is a cost incurred in earning assessable income and is deductible over five years or the loan term, whichever is shorter.

The premium increases steeply above 90 per cent LVR and varies by lender. Some lenders will approve investor loans up to 95 per cent LVR, but most cap investor lending at 90 per cent, and a smaller group cap it at 80 per cent depending on postcode, property type and your existing exposure.

Eastwood is well within metro lender appetite, but if you are looking at a studio or a property with high body corporate levies, some lenders will apply an internal LVR cap below their published maximum. The deposit you need also includes stamp duty and other settlement costs, which are paid separately and cannot be added to the loan in New South Wales without breaching the LVR policy.

For someone buying a $650,000 established unit in Eastwood with a 10 per cent deposit, you would need $65,000 in cash or equity, plus stamp duty of roughly $25,000 for an investment property, plus conveyancing, building and pest reports, and loan establishment costs. LMI on a $585,000 loan at 90 per cent LVR would be in the order of $15,000 to $20,000 depending on the lender, either paid upfront or added to the loan balance.

Using Equity from Your Home to Fund the Deposit

If you own a home in Eastwood or nearby and have equity in that property, you can use it as additional security for the investment loan rather than providing a cash deposit. The lender takes a mortgage over both properties and assesses the combined LVR.

For example, your home is valued at $1,200,000 with a $400,000 loan, giving you $800,000 in equity. You want to buy a $650,000 investment property. The lender can approve a total lending of $985,000 across both securities, which is 80 per cent of the combined value of $1,850,000, and avoid LMI entirely. The investment loan and any top-up on your home loan are documented separately so interest can be tracked and claimed correctly.

Interest on money borrowed to acquire an income-producing asset is deductible. Interest on money borrowed for private purposes, including to pay down non-deductible debt or fund personal expenses, is not deductible even if the loan is secured by an investment property. Mixing the two in a single loan account makes it difficult to substantiate your claim. Most brokers recommend a standalone split for the investment property and a separate offset account linked only to your owner-occupied debt.

If you are considering this structure, speak with an accountant before settlement. The ATO has published guidance on apportionment and record-keeping, and getting it wrong can mean losing part of your deduction or facing an amendment years later.

Rental Income and Vacancy Rates in Eastwood

Eastwood sits within the Ryde local government area and has a high proportion of medium and high-density residential stock. The suburb is well connected by rail, has a large retail and commercial precinct along Rowe Street, and draws strong interest from renters working in Macquarie Park, Chatswood and the city.

Rental yields on units in Eastwood are typically higher than detached houses because purchase prices are lower relative to weekly rent. A two-bedroom unit might rent for $600 to $700 per week depending on age, aspect and proximity to the station. Vacancy periods are usually short when the property is priced correctly and presented well.

Lenders assess rental income at 80 per cent of the market rent to account for vacancy, management fees and maintenance. If the property would rent for $650 per week, the lender will include $520 per week, or roughly $27,000 per year, in your serviceability calculation. That income helps offset the loan repayment when determining how much you can borrow, but it does not eliminate the need for sufficient personal income to meet the serviceability buffer.

Some lenders will accept a rental assessment from a licensed property manager. Others require a full market appraisal. If you are buying off the plan or before practical completion, the lender will not include rental income until the property is tenanted and you can provide a signed lease.

What Happens When You Want to Refinance an Investment Loan

You can refinance an investment loan to access a lower rate, release equity for another purchase, or restructure the loan to interest-only or principal and interest. The new lender will assess serviceability using current income, existing debts and the rental income from all investment properties at 80 per cent.

If you refinance a loan that was taken out before the negative gearing cut-off, the property retains its grandfathered status. Refinancing does not change the acquisition date. Interest on the refinanced loan remains fully deductible provided the purpose of the borrowing has not changed.

If you increase the loan amount when refinancing, the additional borrowing must be used for an income-producing purpose to be deductible. Releasing equity to buy a car or pay for a holiday means that portion of the interest is private and not claimable. Releasing equity to fund the deposit on a second investment property means the interest on that additional amount is deductible against the rental income from the second property.

Refinancing also gives you the opportunity to consolidate multiple investment loans with different lenders, restructure offset accounts, or move from a fixed rate that is about to expire to a variable product with better features. The application process is similar to a new loan and takes three to five weeks on average, including valuation and settlement.

Claimable Expenses Beyond Loan Interest

Interest is usually the largest deduction, but you can also claim loan establishment fees, loan service fees, property management fees, council and water rates, strata levies, landlord insurance, repairs and maintenance, and depreciation on plant and equipment and certain building components.

Repairs restore the property to its previous condition. Improvements add value or functionality and must be depreciated over time rather than claimed in full in the year incurred. The line between the two is not always obvious, and quantity surveyors produce depreciation schedules that set out the claimable amounts each year.

For properties acquired after 9 May 2017, you cannot claim depreciation on plant and equipment that was already in the property when you bought it unless the property is new. You can still claim depreciation on items you purchase and install yourself, and you can still claim capital works deductions on the building structure if it was built after 15 September 1987.

All these deductions are subject to the same quarantine if the property was acquired after 7:30pm AEST on 12 May 2026 and is not an eligible new build. You add up your rental income, subtract all expenses including interest and depreciation, and if the result is negative, you carry the loss forward. It does not reduce your taxable income from other sources in that year.

If you hold multiple investment properties, losses from new purchases can be offset against income from grandfathered properties acquired before the cut-off, provided both are residential. That makes portfolio sequencing important. Investors with existing positively geared stock may find that acquiring another established property after the cut-off still delivers a net deduction in the early years because the combined portfolio is cash flow negative, even though the new property alone would produce a quarantined loss.

Speak with a broker who works with property investors regularly. Call one of our team or book an appointment at a time that works for you, and we will put together loan options that fit your structure, your timing and the way the new rules apply to your situation.

Frequently Asked Questions