Simple hacks to choose the right investment property

Selecting a property that aligns with your borrowing structure

The property you choose determines how much lenders will advance and on what terms. Lenders assess the property's location, type, and rental potential before they assess your personal income, and a property in the wrong category can reduce your loan amount or push you into a higher interest rate tier.

Consider a buyer who purchases a one-bedroom apartment in a high-rise building in Brisbane's CBD. The property is priced at the suburb's current median, and the buyer assumes the rental income will cover most of the mortgage. During the loan application, the lender applies a 20% haircut to the property's value due to oversupply concerns and a high vacancy rate in that building. The borrower is forced to provide a larger deposit or accept a reduced loan amount. The same buyer purchasing a three-bedroom house in a suburb with stable demand would have received full valuation and a lower interest rate.

When reviewing investment loan options, lenders categorise properties by risk. Units in buildings with more than 50% non-owner-occupied tenants, properties in regional towns with declining populations, and apartments on busy roads all attract servicing penalties or valuation discounts. Your borrowing capacity can drop by tens of thousands of dollars based solely on the property's postcode and type, regardless of your income.

Rental income and serviceability calculations

Lenders use rental income to offset the cost of the investment loan when calculating your borrowing capacity. Most lenders apply a shading rate, typically 80%, meaning they only count 80% of the expected rent when assessing serviceability. They also add a buffer to the interest rate, usually 3%, to ensure you can afford repayments if rates rise.

A property that generates higher rent relative to its purchase price improves your serviceability and allows you to borrow more for future investments. Properties in suburbs with strong rental demand and low vacancy rates give you more flexibility when applying for your next loan. Conversely, a property with weak rental yield can reduce your ability to borrow again, even if the property itself increases in value.

In Queensland, regional centres such as Toowoomba and the Sunshine Coast hinterland often deliver stronger rental yields than inner-city Brisbane apartments, but lenders may apply postcode restrictions or require larger deposits depending on the town's economic base. Before selecting a property based solely on rental yield, confirm that your intended lender will accept the location and property type without applying a valuation discount or higher interest rate.

Loan to value ratio and deposit requirements

The loan to value ratio (LVR) is the percentage of the property's value you borrow. Most lenders offer their lowest interest rates and best loan features to borrowers with an LVR of 80% or below. If you borrow more than 80%, you will pay Lenders Mortgage Insurance (LMI), which can add thousands of dollars to your upfront costs.

When you select a property that lenders value conservatively, such as a studio apartment or a property in a regional area with limited comparable sales, the valuation may come in below the purchase price. If the valuation is lower, your deposit percentage increases and you may cross the 80% LVR threshold unexpectedly. Properties in established suburbs with consistent sales data and strong infrastructure are less likely to face valuation shortfalls.

Claimable expenses and holding costs

Once you own the property, your ability to claim expenses affects your cash flow and tax position. Interest on the investment loan, property management fees, repairs, and depreciation on fixtures and fittings are all claimable. However, the property's age, construction type, and condition determine how much depreciation you can claim each year.

A newer property with a higher proportion of plant and equipment, such as air conditioning, blinds, and appliances, will generate larger depreciation deductions in the early years. An older property may offer lower purchase prices but limited depreciation benefits. When comparing two properties at similar price points, the one with a higher depreciation schedule can deliver better after-tax cash flow, even if the gross rental income is the same.

Stamp duty is another upfront cost that varies by state and property price. In Queensland, stamp duty on an investment property is calculated on a sliding scale, and there are no concessions for investors. A property purchased just above a stamp duty threshold can cost several thousand dollars more in duty than a property purchased slightly below. When setting your budget, include stamp duty, legal fees, building and pest inspections, and loan establishment fees to ensure your deposit covers all acquisition costs.

Building a portfolio with equity release

Once your first investment property increases in value, you can leverage equity to fund the deposit for a second property. Lenders will reassess your borrowing capacity based on the updated value of your existing property and the rental income it generates. If your first property is in a suburb with strong capital growth and stable rental demand, you will have more usable equity and higher serviceability for your next purchase.

Properties in growth corridors near new infrastructure projects, such as the Brisbane to Gold Coast rail upgrades or the Sunshine Coast airport expansion, tend to experience faster value increases. However, lenders still assess the property type and location when determining how much equity you can access. A house on a standard residential block in a suburb with diverse employment and low vacancy rates will support portfolio growth more effectively than a unit in a single-industry town, even if both properties show similar short-term capital gains.

When planning your property investment strategy, select the first property with future borrowing in mind. A property that supports equity release and maintains strong rental income allows you to build a portfolio without requiring additional cash savings for each deposit.

Property type and lender appetite

Not all lenders treat all property types equally. Some lenders will not lend on properties with a floor area below 50 square metres, while others exclude apartments in buildings with more than four storeys. Serviced apartments, properties with company title, and units with short lease terms are often excluded entirely or require specialist lenders with higher interest rates.

Before making an offer, confirm that your intended lender will accept the property. If the property is in a postcoded area flagged as oversupplied or if the building has defects or cladding issues, you may face difficulty securing finance at a competitive rate. Properties that meet mainstream lending criteria give you access to a wider range of lenders and better interest rate discounts.

In our experience, buyers who purchase properties that align with standard lending criteria have more flexibility to refinance later if a better rate becomes available. A property that only one or two lenders will accept limits your ability to negotiate or switch lenders when your fixed rate expires or when you want to access equity.

Interest only versus principal and interest

Most investors choose an interest only loan structure for the first few years to maximise tax deductions and preserve cash flow. With an interest only investment loan, your repayments are lower because you are not reducing the loan balance. This structure works when you are building a portfolio or when the rental income does not fully cover a principal and interest repayment.

However, lenders typically offer interest only periods for a maximum of five years, after which the loan reverts to principal and interest. If the property's rental income is marginal, the switch to principal and interest repayments can strain your cash flow and reduce your borrowing capacity for future investments. When selecting a property, ensure the rental income can support principal and interest repayments once the interest only period ends, or plan to refinance to extend the interest only term with a different lender.

Location-specific considerations in Queensland

Queensland's property market varies significantly by region. Brisbane's inner suburbs, particularly those within 10 kilometres of the CBD, have lower vacancy rates and stronger rental demand due to proximity to employment hubs and universities. Suburbs such as Woolloongabba, Fortitude Valley, and West End attract renters, but unit oversupply in some precincts has led to softer capital growth and higher vacancy rates in specific buildings.

The Gold Coast and Sunshine Coast have seen increased demand from interstate migration, which has pushed up both purchase prices and rents. However, lenders remain cautious about high-rise developments in tourist precincts, and properties in resort complexes or buildings with short-stay accommodation may face lending restrictions. Regional centres such as Cairns and Townsville offer lower entry prices but are more susceptible to economic shifts tied to tourism and mining activity. Lenders often apply stricter servicing criteria or postcode caps in these areas.

When selecting a property in Queensland, consider the suburb's employment base, infrastructure, and rental demand. Properties in suburbs with diverse employment, good schools, and transport links tend to maintain occupancy and support consistent rental income, which strengthens your ability to hold the property long term and borrow again when the next opportunity arises.

Call one of our team or book an appointment at a time that works for you to discuss how your property selection affects your borrowing capacity and which investment loan features align with your goals.

Frequently Asked Questions