The easiest way to fund your investment apartment

An investment loan for an apartment works differently to an owner-occupied home loan because lenders assess the property's rental income potential and apply stricter lending criteria.

If you're looking at apartments in Liverpool, Edmondson Park or Leppington, the first thing to understand is that lenders treat units differently to houses. They look at body corporate records, strata reports, vacancy rates in the building, and whether the block is on a lender's restricted list. Some lenders won't touch certain postcodes or won't lend on buildings over a certain height. Others limit exposure to specific developments. That filtering happens before you even talk about your income or deposit.

The second thing is that legislation passed in June this year will change how negative gearing and capital gains tax work from July 2027. If you buy an existing apartment after 12 May 2026, you won't be able to offset rental losses against your wage income once the new rules start. That doesn't kill the case for investing in established apartments, but it does shift the focus toward properties that can hold positive or neutral cash flow, or toward new builds that remain eligible for full negative gearing.

How much deposit do you need for an investment apartment

Most lenders require a 20 per cent deposit to avoid Lenders Mortgage Insurance on an investment property loan. Some will lend at 10 per cent down if you're prepared to pay LMI, but serviceability becomes harder and the rate discount shrinks.

Consider someone buying an apartment at the current median in Edmondson Park with a 20 per cent deposit. They'll also need to budget for stamp duty, which in New South Wales sits around 4 to 5 per cent of the purchase price for investment property, plus legal fees, strata report costs, and a buffer for any initial repairs or vacancy. That total upfront cost can reach 25 to 30 per cent of the property value. If the deposit comes from equity in an existing home, the lender will still assess serviceability as though you're carrying both loans, and they'll apply a 3 percentage point buffer above the actual interest rate under current APRA settings.

What interest rate and loan structure should you use

Variable rates on investment loans sit higher than owner-occupied rates, typically by 0.3 to 0.6 per cent depending on the lender and your loan to value ratio. Fixed rates are available, but most investors in South West Sydney we work with prefer variable or a partial fix because rental income can fluctuate and they want the option to make extra repayments without penalty.

Interest-only periods are common for investment loans. Lenders will usually approve interest-only for five years, sometimes ten, depending on your income and the loan amount. The appeal is cash flow: lower repayments mean the gap between rent and loan cost is smaller, which matters when you're holding the property for capital growth rather than paying it down quickly. Once the interest-only period ends, the loan reverts to principal and interest, and repayments jump. You can often refinance or extend interest-only at that point, but it depends on your circumstances at the time and the lender's appetite.

How the 2027 tax changes affect apartment investors

From 1 July 2027, rental losses on residential properties purchased after 12 May 2026 can only be offset against other residential rental income or carried forward to use against future rental income or capital gains. They can't be deducted against salary or business income. Properties you already own, or those under contract before 12 May 2026, are grandfathered and keep the existing negative gearing treatment.

The exception is new builds. If you buy an apartment in a building constructed on previously vacant land, or in a development that increases the total number of dwellings on the site, you can still negatively gear in the traditional way. A knock-down rebuild that replaces one dwelling with one dwelling doesn't qualify. A development that replaces two townhouses with six apartments does. That distinction is driving more investors toward off-the-plan purchases in areas like Carnes Hill and Leppington where new apartment stock is being added.

The capital gains tax discount also changes in 2027. Instead of the 50 per cent discount, you'll pay a minimum 30 per cent tax rate on indexed gains for properties purchased after 12 May 2026. New builds get an election between the old discount and the new indexed model, which gives some flexibility depending on your marginal rate and how long you hold the property. For apartments held long term in a rising market, indexation can be beneficial, but it depends on inflation and your tax position at sale.

What lenders look for in an apartment investment loan application

Lenders assess your income, existing debts, living expenses, and the rental income the property will generate. Rental income is typically shaded by 20 per cent to account for vacancy and maintenance. If the apartment is in a building with a high vacancy rate or a postcode the lender considers oversupplied, they may shade it more or decline the application altogether.

Strata reports matter. Lenders want to see a healthy sinking fund, no major defects, and no special levies on the horizon. They'll also check the body corporate's financial position and whether there's any litigation involving the owners corporation. A building with cladding issues or a large repair liability can stop a loan before it starts, even if the apartment itself is in good condition.

Your borrowing capacity is calculated using a serviceability buffer of 3 percentage points above the loan's interest rate. If the variable rate is 6.5 per cent, the lender tests whether you can service the loan at 9.5 per cent. That buffer is set by APRA and applies across all regulated lenders. Debt-to-income caps also apply: lenders can only write 20 per cent of their new investor loans at a DTI of 6 or more. If your total debt will sit above six times your gross income, you may find fewer lenders willing to approve the loan or face a higher rate.

Should you refinance an existing investment loan

If you bought an investment apartment a few years ago and haven't reviewed your loan since, refinancing can reduce your rate, release equity for another purchase, or shift you from principal and interest back to interest-only if your lender allows it. Rate discounts have widened in the past 18 months, and some lenders are offering cash incentives to switch.

In our experience, investors in South West Sydney who refinance typically do so to access equity for a second property or to move away from a lender that's tightened apartment lending in their area. If your property has increased in value and your loan to value ratio has dropped below 80 per cent, you can often negotiate a lower rate or remove LMI from a previous loan. The costs of refinancing, including discharge fees and application fees, usually sit around $1,500 to $3,000, which can be recovered within a year if the rate improvement is meaningful.

Claimable expenses and maximising tax deductions

Interest on your investment loan is fully deductible, as are body corporate fees, council rates, water charges, property management fees, landlord insurance, and depreciation on the building and fixtures. Apartments typically have stronger depreciation schedules than older houses because the building allowance and fit-out items like carpets, blinds, and appliances can be claimed over time.

Stamp duty and legal costs aren't immediately deductible but form part of your cost base for capital gains tax when you sell. Repairs are deductible in the year they're incurred, but improvements that add value, like renovating a bathroom, must be depreciated. The line between repair and improvement can be unclear, so keeping records and working with an accountant who understands property is important.

If your apartment makes a loss after all deductions, and it was purchased before 12 May 2026, you can offset that loss against your other income now and continue doing so after July 2027 under the grandfathering rules. If you bought after that date, the loss is quarantined but can be carried forward indefinitely to use against future rental income or capital gains. That makes cash flow planning more important because you can't rely on a tax refund to subsidise holding costs in the early years.

Rental income needs to be declared in full, including any letting fees paid by the tenant. Vacancy periods reduce your income for the year but don't create a deduction beyond the holding costs you continue to pay while the property is empty. Lenders assume a structural vacancy rate when assessing rental income, typically 4 to 6 weeks per year, but actual vacancies vary by suburb and building. Apartments near train stations in Liverpool or Edmondson Park tend to have shorter vacancy periods than those further from transport or amenities.

Funding an investment apartment in South West Sydney comes down to understanding how lenders assess the property and the borrower, structuring the loan to suit your cash flow and tax position, and keeping an eye on the regulatory and tax changes coming in 2027. The fundamentals haven't changed: rental income, capital growth, and leverage are still the drivers of building wealth through property. But the detail matters more now than it did two years ago, and the difference between a loan that works and one that doesn't often comes down to which lender you're speaking to and how the application is structured. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions