The Easiest Way to Finance a Rental Property Purchase

If you work in the SA public sector and want to buy a rental property, the single most important decision is not which suburb to target or what tenant profile to chase. It's understanding how lenders assess rental income and structuring your loan so you can borrow what you need without overcommitting on repayments.

Most lenders will only count 70% to 80% of your expected rental income when they calculate your borrowing capacity. That means if you expect $450 a week in rent, the lender might only use $315 to $360 in their assessment. If you are relying on that rental income to service the loan, you need to know that figure before you sign a contract, not after.

How Much Deposit You Actually Need

You need at least a 10% deposit to buy an established rental property with most lenders. That deposit must come from genuine savings, not gifted funds or a short-term loan. Some lenders will accept a 10% deposit with Lenders Mortgage Insurance, while others require 20% to avoid LMI altogether. Public sector employees in South Australia may qualify for LMI waivers with certain lenders, which can reduce the upfront cost significantly.

On top of the deposit, you need to cover stamp duty and settlement costs. Stamp duty on an established property in South Australia is higher than stamp duty on a new build, and it is not included in the loan amount unless you apply for a top-up after settlement. If you are purchasing a property near the current median for your target suburb, expect stamp duty to add another 3% to 5% of the purchase price.

Interest Only or Principal and Interest

An interest only loan means you only pay the interest portion each month, not the principal. This keeps your repayments lower, which can help with cash flow if the rental income does not fully cover your costs. The interest only period typically runs for one to five years, after which the loan reverts to principal and interest unless you renegotiate.

Consider a buyer who works in the health sector and earns $95,000 a year. They want to buy a unit in a suburb close to the city that will rent for $420 a week. They take out an interest only loan with a repayment of around $2,200 a month. The rental income covers $1,680 of that, so they are paying $520 a month out of pocket. When the interest only period ends, the repayment jumps to around $2,800 a month, and their out-of-pocket cost rises to $1,120. If they have not planned for that increase, the shortfall becomes a problem. In our experience, buyers who choose interest only without a clear plan for the reversion date often scramble to refinance or sell.

Variable or Fixed Rate Structures

A variable rate loan moves with the market. When rates drop, your repayments drop. When rates rise, your repayments rise. A fixed rate loan locks in your rate for a set period, usually one to five years. Fixed rates give you certainty, but they also remove flexibility. If you want to make extra repayments or refinance during the fixed period, you may face break costs.

For rental properties, most buyers choose a variable rate or a split structure. A split structure means you fix part of the loan and leave the rest variable. This gives you some certainty while still allowing access to offset accounts and extra repayments on the variable portion. If you are buying your first rental property and you want the flexibility to access equity later for portfolio growth, a variable rate or split structure is usually the better fit.

How Lenders Assess Rental Income for Borrowing Capacity

Lenders do not use your expected rental income at face value. They apply a discount, typically called a shading or haircut, to account for vacancy periods and maintenance costs. Most lenders use 70% to 80% of the gross rent, which means a property renting for $500 a week might only be counted as $350 to $400 in your serviceability assessment.

Some lenders will also deduct body corporate fees, council rates, and property management fees before applying the shading. If you are buying a unit with high body corporate fees, that can reduce your borrowing capacity by tens of thousands. Before you apply, ask your broker to run a full serviceability assessment with the actual rental estimate and the actual outgoings. That way you know what you can borrow before you start looking at properties.

Negative Gearing and the Recent Changes

Negative gearing means your rental expenses exceed your rental income, and you claim that loss as a tax deduction against your salary. For public sector employees on stable incomes, negative gearing has been a common way to reduce taxable income while building equity.

From 1 July 2027, the rules change for properties purchased after 12 May 2026. If you buy an established property after that date, you will only be able to offset rental losses against other residential property income or capital gains, not against your wages. New builds are excluded from this change, which means buyers targeting new or off-the-plan properties will still be able to claim the full deduction.

If you already own a rental property purchased before 13 May 2026, your existing arrangements are not affected. The changes only apply to new purchases of established properties. This does not mean established properties are no longer viable, but it does mean your after-tax cash flow will be different. You need to model the actual cost after tax, not the old assumption that your marginal tax rate will absorb most of the shortfall.

What Happens When You Want to Expand Your Portfolio

Once you own one rental property, the next question is whether you can borrow again. Lenders will reassess your borrowing capacity based on your current commitments, including the loan on your investment property. Even if the rental income covers most of the repayment, lenders still include the full loan amount in their serviceability calculations.

If you want to expand your property portfolio, you need to demonstrate that you can service both loans without relying entirely on rental income. This is where offset accounts and equity release become useful. An offset account linked to your owner-occupied loan can reduce the interest you pay on that loan, freeing up cash flow for the second property. Equity release allows you to borrow against the value of your existing property without selling it, but only if you have built up enough equity and your income can support the additional debt.

Public sector employees often have an advantage in this process because their employment is seen as stable and long-term. Lenders are more willing to approve a second or third loan when the borrower has a secure income and a history of meeting repayments. That said, the assessment is still based on the numbers. If the rental income does not stack up or your existing debt is too high, you will not be approved regardless of your job security.

How to Apply for a Property Finance Package

The investment loan application process starts with a full financial assessment. You will need to provide payslips, tax returns, bank statements, and details of any existing debts. If you have already identified a property, you will also need to provide a rental appraisal and details of any outgoings like body corporate fees or strata levies.

Your broker will compare loan products across multiple lenders to find the one that offers the lowest rate, the highest borrowing capacity, and the features you need. Some lenders offer rate discounts for public sector employees, while others have higher serviceability buffers that reduce how much you can borrow. The difference between lenders can be $50,000 to $100,000 in borrowing capacity, depending on your income and the property type.

Once you have pre-approval, you have 90 days to find a property and exchange contracts. The formal approval process then takes another two to four weeks, depending on the lender and whether the valuation comes back at the purchase price. If the valuation is lower than the contract price, you may need to increase your deposit or renegotiate with the seller.

Call one of our team or book an appointment at a time that works for you. We work with South Australian public sector employees who want to build wealth through property, and we can help you structure the loan so it fits your income, your goals, and the current lending environment.

Frequently Asked Questions