Researching the market before you apply for finance helps you choose a property that both a lender and your budget can support. A lender assesses the loan, the property and your income. Your research needs to cover the same three areas.
What Should Investment Market Research Cover Before You Apply?
Good investment market research looks at rental demand, vacancy, the likely rent and the holding costs of a specific property, not just its price. These figures show whether the property can carry its own loan.
Vacancy rates, rental yields and capital growth differ by suburb and change over time, so check recent figures from a property data provider for the area you are considering. Ask a local property manager what similar homes are renting for and how long they take to lease. Then add up the ongoing costs, such as council rates, insurance, management fees and repairs. If the property is in a unit complex, include body corporate fees as well.
These costs matter because they affect how much of the loan you carry from your own income. A property investor loan is assessed on the whole picture, so weak research can show up later as a smaller approval.
How Do Lenders Count Rental Income?
Banks and other authorised deposit-taking institutions usually count only part of the expected rent. APRA's guidance says prudent lenders should apply a minimum 20 per cent haircut, so no more than 80 per cent of expected rent is counted.
This haircut allows for periods without a tenant. It does not cover management fees or repairs, which still come out of your own cash flow. Lenders also tend to place less weight on a rental appraisal than on actual rent received from a property. How each lender treats appraisals for a new purchase differs, so confirm this before you choose a lender.
How Does the Serviceability Buffer Affect Investor Borrowing?
Australian banks must test whether you can afford the loan at an interest rate at least 3.0 percentage points above the loan's actual rate. APRA confirmed this buffer at its 28 May 2026 update.
So your borrowing capacity is not set by the repayment you will actually make. The test applies to banks, credit unions and building societies. Non-bank lenders are not bound by it. Each lender also sets its own policies, so results can vary. You can get an early idea with our borrowing capacity tools, then ask a broker to compare lenders.
APRA also limits how much new lending each bank can write at a debt-to-income ratio of six times or more, up to 20 per cent of its new lending. It is a limit on each bank's portfolio, not on you personally, but it can make a lender more cautious with highly geared applications.
Interest Only or Principal and Interest for an Investment Loan?
Interest only keeps your repayments lower during the interest-only period, but you are not reducing the loan balance, and borrowing capacity does not rise. Principal and interest repayments reduce the debt over time.
Lenders assess an interest-only loan on the principal and interest repayments over the remaining term after the interest-only period ends. As an example, a 30-year loan with a five-year interest-only period is assessed over the remaining 25 years. This usually means a lower maximum loan than a standard principal and interest loan.
To see the cash flow difference, consider an investor with a $600,000 loan at an illustrative rate of 6.75% p.a. Interest only, the annual interest is $40,500, or about $3,375 a month. On principal and interest over 30 years at the same rate, the repayment is about $3,891 a month. After a five-year interest-only period, the repayment over the remaining 25 years would be about $4,145 a month. The trade-off is clear: you save roughly $516 a month early on, but the later repayments are higher and you have not reduced the debt.
Only the interest portion of a repayment is deductible, whichever structure you choose. Speak to your accountant about how this applies to you.
How Do the 2027-28 Negative Gearing Changes Affect Your Research?
The date you buy matters. Residential properties held at 7:30pm AEST on 12 May 2026, and eligible new builds, keep the current negative gearing treatment. Net rental losses on established properties bought after that time are limited from the 2027-28 income year.
From that income year, losses on those established properties can only be deducted against other residential property income, including residential capital gains. Excess losses can be carried forward. Properties acquired between 7:30pm AEST on 12 May 2026 and 30 June 2027 can still be negatively geared under current rules until 30 June 2027 only.
In practical terms, a property that only works if the loss reduces your salary tax may not suit you after that point. Test each purchase on its rent and cash flow first. Because the interest itself stays deductible, the change affects how a loss can be used, not whether interest counts.
Capital gains tax is also changing. From 1 July 2027, the 50 per cent discount for gains accruing after that date is replaced by cost base indexation and a 30 per cent minimum tax rate on real gains. Your accountant can model how this affects your plan.
Example: Testing a Purchase Before Applying
Consider an investor who has found an established unit and expects to buy after 12 May 2026. Their research shows an expected weekly rent, and they apply the 20 per cent haircut to see what a lender would count. They then add council rates, insurance, management fees and body corporate costs, and find that the rent covers the interest at the illustrative 6.75% p.a. but leaves little for repairs.
The solution is to adjust before applying. They speak to a broker, compare a principal and interest structure with an interest-only one, and confirm that the property's cash flow holds up without relying on a tax deduction against their salary. The outcome is a shortlist of lenders and a purchase they can afford even if the unit sits vacant for a few weeks.
How Does Your Deposit and LVR Shape the Loan?
Borrowing above 80 per cent of a property's value generally requires lenders mortgage insurance, although 80 per cent is a common lender threshold and not a legal limit. Each lender sets its own maximum loan-to-value ratio.
LMI is paid by the borrower, and the cost increases with the loan amount and LVR. Borrowing a smaller share of the value avoids this cost but needs a larger deposit or usable equity. If you plan to use equity from an existing property, remember that interest is deductible only according to how the borrowed money is used. Money drawn for personal use is not deductible. Offset account balances do not reduce the loan amount for LVR purposes.
If you already hold an investment loan, a refinancing review can show whether your current structure still suits your plans.
Call one of our team or book an appointment at a time that works for you. Fundex Capital can compare investment loan options from lenders across Australia and help you test a property against your borrowing capacity before you commit.
Frequently Asked Questions
How much rent do lenders count on an investment property?
APRA's guidance says prudent lenders should count no more than 80 per cent of expected rent. Each lender sets its own policy on rental appraisals and evidence.
Does an interest-only loan increase how much I can borrow?
No. Lenders assess interest-only loans on principal and interest repayments over the remaining term after the interest-only period, which usually gives a lower maximum loan size.
Is the interest on an investment loan tax deductible?
Interest on money borrowed for a rented property is generally deductible, but the principal part of a repayment is not. Speak to your accountant about your situation.
When do the negative gearing changes start?
From the 2027-28 income year, losses on established residential properties acquired after 7:30pm AEST on 12 May 2026 are limited to residential property income. Properties held at that time and eligible new builds keep current treatment.
