Building a property portfolio is a long game, and the loan structure you choose on your first property shapes every purchase after it.
This article covers the upside, the costs, and how each loan affects the next one. It walks through the trade-offs so you can decide whether and how to grow.
What Are the Pros of Building a Property Portfolio?
The main advantages are rental income that helps cover your loan, tax deductions on certain costs, and the chance to use equity in one property to buy another. Each comes with a trade-off, and borrowing to invest magnifies losses as well as gains.
Interest on money borrowed to buy or hold a rental property is generally deductible to the extent the property is rented or held to earn income. Holding costs such as council rates, insurance, property management fees and repairs are also generally deductible while the property is rented or genuinely available for rent. The catch is that only the interest part of a repayment is deductible. The part that pays down the loan is not. Your accountant can tell you how this applies to your situation.
The main risk is that your costs keep running if the property sits empty or rates rise. A portfolio only works if you can carry those periods comfortably.
How Lenders Assess Investor Borrowing Across Several Properties
Banks and other authorised deposit-taking institutions must test whether you could afford your loan at a rate at least 3.0 percentage points above the actual rate. They also count only part of your rental income.
APRA expects lenders to count no more than 80 per cent of expected rent, to allow for periods when the property is empty. Lenders also place less weight on a rental appraisal than on rent you are actually receiving.
Here is an illustrative example. Consider an investor adding a second property to a portfolio, with a loan at an example rate of 6.75% p.a. The lender would test the repayments at 9.75% p.a. That is a much higher bar than the repayment you will actually pay, and it explains why borrowing capacity can run out sooner than people expect. The investor works with a broker, who reviews the existing debts and rent and compares lenders with different credit policies. The outcome is a clear picture of how much they can borrow before they commit to a purchase. You can start with our borrowing capacity page.
Two more points matter here. The serviceability buffer and the debt-to-income limit apply to ADIs only, so non-bank lenders are not bound by them. Each lender still sets its own policy on things like rental evidence and deposits.
Interest-Only or Principal and Interest: Which Suits a Growing Portfolio?
Interest-only repayments lower your repayments for a set period, but they do not increase how much you can borrow. Lenders test your ability to repay principal and interest over the shorter remaining term.
For a 30-year loan with a 5-year interest-only period, the lender assesses repayments over the remaining 25 years. That produces a lower maximum loan than an equivalent principal and interest loan.
The trade-off is that your balance does not fall during the interest-only period. When it ends, repayments rise because you are paying off the same debt over fewer years. Interest-only can help cash flow while you save for another purchase, but you carry the full debt for longer. Use our mortgage repayment calculator to compare both options at the same rate.
Using Equity to Buy the Next Investment Property
You can use equity in an existing property as a deposit for the next one, but only with lender approval, and the way you use the money affects its tax treatment. Borrowing above 80 per cent of a property's value generally needs Lenders Mortgage Insurance (LMI).
LMI is paid by the borrower, and the insurer must approve the loan separately from the lender. The 80 per cent figure is where LMI generally starts. It is not a legal limit, and each lender sets its own caps on equity release.
The ATO looks at how borrowed funds are used. As an example, an investor draws extra money from an investment loan to buy a car. The interest on that extra amount is a private expense, so it is not deductible, even though the loan is secured by a rental property. The fix is to keep borrowings for different purposes separate, ideally in separate loan accounts, with advice from an accountant. The outcome is a clean record of which interest relates to the rental property. Setting up the structure from the start is easier than untangling it later, and our investment loans team can help with this.
Negative Gearing Rules Have Changed for New Purchases
The tax treatment of rental losses now depends on when you bought the property and whether it is an eligible new build. This affects how a portfolio is built, so speak to your accountant before you buy.
Losses on residential investment properties you held at 7:30pm AEST on 12 May 2026 continue to be deductible against other income, including your salary, until the property is sold. That includes properties under contract and awaiting settlement at that time. Losses on eligible new builds acquired after that date can also continue to be deducted against all income.
From the 2027-28 income year, losses on established residential properties bought after that time can only be deducted against other residential property income, including residential capital gains. Excess losses carry forward. Properties acquired between 12 May 2026 and 30 June 2027 can still be negatively geared under the current rules until 30 June 2027 only.
Capital gains tax is changing too. From 1 July 2027, the 50 per cent CGT discount is replaced by cost base indexation with a 30 per cent minimum tax rate on real gains accruing from that date. For property owned before then, the gain is split between the old and new rules.
The trade-off is that a property which relies on tax deductions to make the numbers work may no longer suit your plan. Test the cash flow without tax benefits first.
Reviewing Your Existing Loans Before Adding Another
A portfolio is easier to grow when your existing loans are in good shape. A loan review can show whether your current structure helps or limits your next purchase. Our loan health check is a good place to start, and refinancing may be worth considering if a loan no longer fits your plan. Refinancing has costs, so those need weighing against the benefits.
If you are thinking about your next step as a Perth investor, we would like to hear your plans. Call one of our team or book an appointment at a time that works for you, and we will talk through your goals, your current loans and what suits you over the long term.
Frequently Asked Questions
Does an interest-only loan increase how much I can borrow?
No. Lenders test whether you can afford principal and interest repayments over the remaining term after the interest-only period ends. This usually means a lower maximum loan than an equivalent principal and interest loan.
How much rental income do lenders count?
APRA expects lenders to count no more than 80 per cent of expected rent, to allow for empty periods. Each lender has its own policy on the rental evidence it accepts.
Is interest on money drawn from my investment loan always deductible?
No. Deductibility depends on how the borrowed funds are used. Money drawn for private purposes is not deductible, so speak to your accountant.
Has negative gearing changed for investment properties?
Yes. Properties held at 7:30pm AEST on 12 May 2026 and eligible new builds keep current treatment. From the 2027-28 income year, losses on other newly acquired established properties can only offset residential property income. Check your situation with your accountant.
