Common Mistakes When Choosing Investment Property Types

The property type you choose affects how lenders calculate serviceability, what deposit you need, and how your rental income is assessed.

Department of Home Affairs employees looking to acquire investment property often focus on location and price without considering how the dwelling type changes the financing structure. A one-bedroom unit in an inner-city suburb and a four-bedroom house in a middle-ring growth corridor might sit at similar prices, but lenders assess them differently. The unit might require a larger deposit due to loan-to-value ratio restrictions, attract lower rental assessments due to oversupply, and carry body corporate fees that reduce your borrowing capacity. The house might offer better serviceability outcomes but require higher upfront cash for settlement and pest inspections.

How Lenders Assess Units and Apartments

Lenders apply lower maximum loan-to-value ratios to units in certain postcodes or buildings with specific characteristics. For properties in buildings over three storeys, or in areas where the local vacancy rate sits above 3.5 per cent, many lenders cap borrowing at 80 per cent of the property value even where Lenders Mortgage Insurance is available. That means you need at least a 20 per cent deposit plus settlement costs to proceed.

Rental income from one-bedroom apartments is typically shaded by 20 per cent when lenders calculate serviceability, meaning only 80 per cent of the advertised rent is counted toward your ability to service the loan. If a property rents for $500 per week, the lender uses $400 in their assessment. In high-density areas, that shading can increase to 25 per cent if the lender flags oversupply risk. Body corporate fees, which can run between $1,200 and $4,000 annually for standard complexes, are deducted from your income when calculating how much you can borrow. If you are considering an investment loan for an apartment, those three factors compound quickly.

How Houses and Townhouses Change Borrowing Capacity

Standalone houses and attached townhouses in low-density zones usually qualify for higher loan-to-value ratios and more favourable rental income treatment. Rental assessments are shaded by 15 to 20 per cent rather than the 20 to 25 per cent applied to high-density stock, and there are no body corporate fees to reduce your borrowing power. For a Department of Home Affairs employee on a mid-range salary with stable tenure, the difference in serviceability can be substantial.

Consider a buyer looking at two properties in adjacent suburbs, both priced near the local median. One is a two-bedroom unit in a six-storey building, the other a three-bedroom townhouse. The unit rents for $480 per week and carries $2,800 in annual body corporate fees. The townhouse rents for $520 per week with no strata costs. After rental shading and fees, the lender counts roughly $370 per week for the unit and $415 per week for the townhouse. That difference translates to around $30,000 to $40,000 in additional borrowing capacity for the townhouse, assuming all other factors remain constant.

New Builds Versus Established Dwellings Under Current Tax Rules

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 introduced changes to negative gearing and capital gains treatment, effective 1 July 2027. Established dwellings purchased after 7:30pm AEST on 12 May 2026 will have rental losses quarantined and unable to be offset against salary or other non-residential income. New builds constructed on previously vacant land, or dwellings that replace existing properties and increase the dwelling count, remain eligible for negative gearing under the existing rules.

For a Department of Home Affairs employee considering whether to purchase a newly completed house-and-land package or an established townhouse, that distinction matters. If the rental property generates a loss in the first few years due to interest costs and deductible expenses exceeding rent, the ability to offset that loss against your employment income affects your after-tax position and cash flow. Properties acquired before the cutoff date, or settled between the announcement and 30 June 2027, retain access to the existing rules until sold or until the transitional period ends.

New builds also attract depreciation deductions on the building structure and fixtures that established properties cannot claim at the same rate. That can provide additional claimable expenses to offset rental income, which may support cash flow even if negative gearing is quarantined. However, new builds in some high-density precincts carry settlement risk if the developer has staged releases or if presales are incomplete. Lenders apply stricter conditions to off-the-plan purchases, including revaluation at settlement and requirements to maintain your deposit in cash rather than equity until completion. If you are planning to use existing equity to fund the deposit, that can delay your timeline.

Dual Occupancy, Granny Flats, and Properties with Secondary Income

Properties that contain a secondary dwelling, such as a granny flat or dual occupancy, offer the potential for two rental income streams from a single title. Lenders will assess both income sources, but the smaller dwelling is typically shaded more heavily. If the main house rents for $600 per week and the granny flat rents for $300, the lender might count 80 per cent of the main dwelling rent and 70 per cent of the secondary dwelling rent, depending on the property's zoning, the quality of the secondary structure, and whether it has separate utilities.

Settlement costs for properties with secondary dwellings can be higher due to additional building inspections, plumbing checks, and council certification requirements. Stamp duty is calculated on the total purchase price, and the property must comply with local zoning and building regulations for both structures. If the granny flat was added without proper approval, lenders may refuse to include its rental income in serviceability or may decline the loan altogether. You should confirm compliance before exchange, particularly in jurisdictions where retrospective approval is difficult to obtain.

Regional Properties and Lending Restrictions

Investment properties in regional areas often attract lower valuations relative to contract price, and lenders apply postcode-specific lending caps. If you are looking at a property in a regional centre with a population below 50,000, some lenders will cap the loan-to-value ratio at 70 or 75 per cent regardless of your deposit size. That can mean higher upfront cash requirements or the need to use equity from your primary residence to cross-collateralise.

Rental income assessments in regional postcodes are shaded more heavily to account for higher vacancy rates and longer re-lease periods. In areas where vacancy sits above 4 per cent, lenders might apply 25 to 30 per cent shading, reducing the amount of rent counted toward serviceability. Settlement timelines can also extend due to fewer available valuers and conveyancers, particularly in rural or remote areas. If you are purchasing in a regional location, factor in an additional two to four weeks for settlement and ensure your finance clause allows sufficient time for valuation and final approval.

Commercial Hybrid and Mixed-Use Properties

Properties zoned for mixed use or with a commercial tenancy on the ground floor are assessed under commercial lending criteria, even if you intend to rent the residential portion only. Commercial loans typically require a 30 to 40 per cent deposit, carry higher interest rates than standard investment loans, and have shorter maximum terms, often capped at 15 to 20 years. If you are considering a property with a shopfront and residential unit above, confirm the zoning and lending category before proceeding.

Some lenders will split the loan into residential and commercial portions if the property can be separately titled or if the commercial component is incidental. However, that structure adds complexity to the application and may require separate valuations and legal advice. For most Department of Home Affairs employees looking to build wealth through property, a purely residential investment avoids those complications and keeps borrowing costs lower.

Choosing a Property Type That Aligns With Your Strategy

Your choice of property type should reflect your deposit size, your capacity to absorb vacancy or holding costs, and your intended timeline for holding the asset. If your priority is passive income with minimal management, a low-maintenance townhouse in an established suburb with consistent rental demand and low vacancy might suit. If you are focused on capital growth and have the cash flow to carry higher holding costs, a new house-and-land package in a growth corridor might offer depreciation benefits and access to negative gearing under the grandfathered rules.

If you are planning to expand your portfolio in the medium term, choosing a property type that maximises your borrowing capacity now can position you for a second acquisition sooner. Houses and townhouses typically perform better in serviceability assessments than high-density units, and avoiding body corporate fees improves your debt serviceability ratio. That can be the difference between qualifying for a second investment loan refinance in three years or waiting five.

Call one of our team or book an appointment at a time that works for you. We work with Department of Home Affairs employees across the country and can help you match property types to lender policies, calculate your deposit and settlement costs, and structure your borrowing to support your goals.

Frequently Asked Questions