An investment loan is a mortgage used to purchase a property you intend to rent out rather than live in.
Lenders treat these loans differently to owner-occupier mortgages because the income source relies on a tenant paying rent, which introduces vacancy risk and changes how the loan is assessed. You'll typically need a larger deposit, face slightly higher interest rates, and work through a different set of lending criteria. But if you set it up properly from the start, the loan becomes a tool that works alongside your tax position and long-term wealth planning rather than against it.
How Much Deposit Do You Need for a Rental Property in Perth?
Most lenders require a minimum 10 per cent deposit for an investment property, though some will lend at 10 per cent only if you also hold an owner-occupied property with equity.
If you're borrowing above 80 per cent of the property value, you'll pay Lenders Mortgage Insurance. That premium is calculated on a sliding scale based on how much you're borrowing and the loan-to-value ratio, and it's a one-off cost added to your loan or paid upfront. For a Perth investor buying a unit in a suburb like Applecross or Mount Lawley at an 85 per cent LVR, the LMI premium might add several thousand dollars to the total loan amount. The premium isn't a claimable expense in the year you pay it, but it can be claimed as a deduction over five years or the life of the loan, whichever is shorter.
If you already own property, you might use equity from your home instead of cash savings. In that case, you're still borrowing at a higher LVR across your total lending, and LMI may still apply depending on how the security is structured.
Interest Only or Principal and Interest?
Interest-only repayments mean you're only paying the interest portion each month, not reducing the loan balance.
This keeps your monthly outgoings lower, which can be helpful if rental income doesn't fully cover all your costs and you're relying on negative gearing to manage the shortfall. The interest on an investment loan remains fully deductible against rental income regardless of whether you're on interest-only or principal-and-interest repayments, so the tax outcome doesn't change based on repayment type alone.
Consider an investor who purchases a townhouse in Scarborough with a 15 per cent deposit. They take out an interest-only loan for five years. Their monthly repayment sits at around half what it would be on a principal-and-interest schedule at the same rate. That lower repayment gives them room to hold the property through periods when the unit sits vacant between tenants or when body corporate fees increase. At the end of the five-year period, the loan reverts to principal and interest unless they apply to extend the interest-only term. Most lenders will allow one extension, but after that you'll need to demonstrate a clear reason, such as a planned sale or refinance, to go further.
Interest-only doesn't suit everyone. If your goal is to pay down debt over time or you're approaching retirement and want the loan cleared within a set timeframe, principal and interest from the start makes more sense.
Variable or Fixed Rate for Investment Property?
Variable rates move with the market, while fixed rates lock in a set rate for a chosen period, usually between one and five years.
On a variable rate investment loan, you'll generally have access to an offset account, the ability to make extra repayments without penalty, and the option to redraw those funds if your circumstances change. If rates fall, your repayment drops immediately. If they rise, it increases. For an investor holding a property long-term and managing cash flow across multiple commitments, that flexibility can matter more than rate certainty.
Fixed rates remove the risk of repayment increases during the fixed period, but they come with restrictions. Most fixed rate products don't allow offset accounts, and if you want to break the loan early due to a sale or refinance, you may face break costs calculated on the difference between your fixed rate and the current market rate for the remaining term.
Some investors split their loan between variable and fixed portions. That approach gives you partial access to offset and redraw while still locking in part of your repayment. It's not necessary for everyone, but it works well when you want some certainty without giving up all your flexibility.
How Lenders Assess Rental Income
Lenders don't take your expected rental income at face value when calculating how much you can borrow.
Most lenders will assess rental income at 80 per cent of the market rent to account for vacancy periods, maintenance costs, and the possibility that the property sits empty between tenants. If a property in Maylands is advertised at $550 per week, the lender will typically use $440 per week in their serviceability assessment. That reduction flows through to your borrowing capacity, particularly if you're relying on the rent to service the loan.
Lenders also apply a serviceability buffer when assessing your ability to repay the loan. Under current prudential settings, they must assess your capacity to service the loan at least 3 percentage points above the actual loan rate. If you're applying for a variable rate loan at 6.5 per cent, the lender will assess whether you can afford repayments at 9.5 per cent. That buffer is applied to all new lending, whether you're an owner-occupier or investor.
From February 2026, lenders also operate under a debt-to-income limit that restricts how much they can lend to borrowers with a total DTI of six times their income or more. The limit applies separately to investor and owner-occupier lending, and it's measured across the lender's portfolio rather than on a case-by-case basis. In our experience, most Perth investors with a stable income source and a deposit above 15 per cent aren't constrained by the DTI limit, but it does affect borrowers with high existing debt or those trying to build a portfolio quickly using multiple properties.
Tax Treatment and Negative Gearing Rules
If your rental property costs more to hold than it earns in rent, the loss can be offset against your other income, including your salary.
That's referred to as negative gearing, and it reduces your taxable income in the year the loss occurs. All the usual holding costs are deductible, including loan interest, council rates, insurance, property management fees, and repairs. Depreciation on the building and fixtures can also be claimed, though the rules around depreciation for second-hand properties were tightened several years ago.
For properties already owned or under contract at 12 May 2026, the existing negative gearing rules continue to apply for as long as you hold the property. For established properties purchased after that date, losses can only be offset against other residential property income from the 2027-28 income year onward. Losses that can't be used in a given year are carried forward and can be applied against future property income, including capital gains when you eventually sell. New builds are exempt from the change, meaning losses on newly constructed dwellings purchased after 12 May 2026 can still be offset against wage and salary income.
The capital gains tax discount is also changing from 1 July 2027. Gains that accrue after that date will be taxed using cost base indexation and a 30 per cent minimum tax rate on the real gain, rather than the current 50 per cent discount. For properties owned before 1 July 2027 and sold afterward, the gain is split, with the portion accruing before 1 July 2027 taxed under the old rules and the portion after that date taxed under the new rules. New builds purchased after 12 May 2026 get the option to choose between the old discount method and the new indexed method at the time of sale, whichever produces the lower tax outcome.
These changes don't affect the deductibility of loan interest or ongoing costs. They affect how losses are used and how gains are taxed when you sell. If you're purchasing an established property in a suburb like Subiaco or Fremantle as a long-term hold, the rule changes are worth discussing with your accountant before you settle, particularly if your strategy relies on offsetting early-year losses against salary income.
Offset Accounts and Structuring for Tax Purposes
An offset account linked to your investment loan reduces the interest you pay, but it doesn't reduce the interest you can claim as a deduction.
If you have $20,000 sitting in an offset account against a $500,000 investment loan, you're only charged interest on $480,000, but your deduction is calculated on the full loan amount because the loan balance hasn't changed. That's a common misunderstanding. The offset saves you interest without affecting your tax position, which makes it a useful place to park savings or rental income while keeping those funds accessible.
If you're using equity from your home to fund the deposit on an investment property, keep the lending split across two separate loans rather than rolling everything into one. The loan used to purchase the investment property remains fully deductible, while the loan secured against your home for personal use is not. Mixing the two makes it harder to claim the right amount each year and creates problems if you later want to sell one property or refinance the other.
What Happens If You Can't Find a Tenant?
Perth's rental vacancy rate has tightened considerably over the past few years, but vacancy risk still exists, particularly if you're holding a property in an area with oversupply or if the property requires work between tenants.
Most lenders will still require you to meet your repayment obligations in full even if the property is vacant. If you're holding the property on an interest-only loan and the rental income stops, you'll need to cover the repayment from other income sources or savings. That's where the 80 per cent rental income assumption in the serviceability assessment is meant to provide a buffer, but it doesn't eliminate the risk entirely.
If you're experiencing genuine financial difficulty and can't meet your repayments due to a change in circumstances, including extended vacancy, you can submit a hardship notice to your lender. The lender has 21 days to respond and may offer a temporary arrangement such as a repayment pause, a switch to interest-only, or a short-term reduction in repayments. Hardship provisions apply to residential investment loans held by individuals, though they don't apply to lending for business purposes or lending to companies.
The time to plan for vacancy is before you purchase. Hold a buffer in your offset or savings equivalent to three to six months of loan repayments, and make sure your household income can cover the shortfall without relying entirely on rent.
Choosing the Right Loan Product
Not all lenders price investment loans the same way, and the difference between lenders can be significant depending on your deposit size, income type, and whether you're purchasing in a regional area or a capital city suburb.
Some lenders offer discounts on their standard variable rate for investors who maintain an offset balance above a certain threshold or who bundle other products such as insurance. Others price more competitively on interest-only loans or offer longer interest-only periods without requiring a full reapplication. A broker with access to a wide panel of lenders can show you the difference between a major bank product and a smaller lender or non-bank, particularly if your income is structured through a trust, you're self-employed, or you're purchasing a property that falls outside the typical metro lending footprint.
If you're planning to build a portfolio over time, the loan you choose now affects how much equity you can access later and how much serviceability you have left for the next purchase. A loan health check every couple of years ensures the loan still fits your circumstances and that you're not paying more than you need to as your situation or the market changes.
If you're ready to talk through your options or you want to understand how much you can borrow for a rental property in Perth, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
How much deposit do I need to buy an investment property in Perth?
Most lenders require a minimum 10 per cent deposit for an investment property, though some will only lend at that level if you already own a home with equity. If you borrow above 80 per cent of the property value, you'll pay Lenders Mortgage Insurance, which is calculated on a sliding scale and added to your loan or paid upfront.
Can I still negatively gear a rental property purchased in 2026?
Properties owned or under contract at 12 May 2026 can still be negatively geared under the existing rules for as long as you hold them. Established properties purchased after that date can only offset losses against other residential property income from the 2027-28 income year onward, though new builds remain exempt and can be negatively geared against all income.
Should I choose interest-only or principal-and-interest repayments for an investment loan?
Interest-only repayments keep your monthly costs lower, which helps manage cash flow if rental income doesn't cover all your expenses. Principal-and-interest repayments reduce your loan balance over time and suit investors who want to pay down debt or clear the loan by a set date, such as retirement.
How do lenders assess rental income when I apply for an investment loan?
Most lenders assess rental income at 80 per cent of the market rent to account for vacancy, maintenance, and periods between tenants. They also apply a serviceability buffer of at least 3 percentage points above the loan rate to ensure you can afford repayments if rates rise.
Does an offset account reduce my tax deduction on an investment loan?
No. An offset account reduces the interest you pay but doesn't reduce the interest you can claim as a deduction, because the loan balance itself hasn't changed. You're still entitled to claim interest on the full loan amount even if part of it is offset.
