Top Strategies to Finance Investment Property Types

The type of investment property you purchase determines the loan structure you can access, the deposit you need and the rental income a lender will recognise.

Borrowing to purchase a unit with a body corporate structure involves different lender criteria compared to a freestanding house, and specialised property types such as serviced apartments or properties on community title may be excluded altogether by some lenders. Understanding these distinctions before you start searching allows you to structure your deposit, confirm your borrowing capacity and avoid delays at application.

House and Land Packages: How Lenders Assess Dual Contracts

A house and land package involves two contracts, one for the land and one for the construction, and lenders treat this as a construction loan rather than a standard property purchase. The loan is drawn down in stages as the build progresses, with interest charged only on the amount drawn at each stage.

Consider a buyer acquiring a house and land package in Camberwell's neighbouring growth corridor. The land component is settled first, typically requiring 10 per cent deposit plus stamp duty and costs. The construction loan is then drawn progressively as the builder meets each stage, from slab to frame to completion. During construction, the buyer pays interest only on the portion of the loan released, not the full amount. Once the build is complete and the property is tenanted, the loan converts to either principal and interest or continues on an interest only basis depending on the investor's preference and lender terms.

Lenders require a fixed price building contract with a registered builder and regular inspections before each drawdown. The property cannot generate rental income until construction is complete and an occupancy certificate is issued, so serviceability is assessed on the investor's existing income without rental offset during the build period. Some lenders apply discounted rental income projections for newly constructed properties in areas where supply is increasing, which may reduce borrowing capacity compared to established property.

Units and Apartments: Body Corporate and LVR Restrictions

Units and apartments are assessed differently to houses because they involve shared ownership of common property and rely on a body corporate to maintain structural elements and shared infrastructure. Lenders apply stricter loan to value ratio limits to certain apartment types, particularly in high-density buildings or complexes with known defects.

Most lenders will lend up to 90 per cent LVR on a standard unit or apartment, subject to lenders mortgage insurance, provided the building contains fewer than six storeys and is not located in an area with oversupply concerns. Properties in buildings with more than six storeys, studio apartments smaller than 40 square metres, or units in complexes with outstanding building defect claims may be capped at 80 per cent LVR or excluded altogether. Some lenders also impose limits on the number of investment properties they will finance within a single apartment complex, particularly in buildings where more than 50 per cent of units are investor-owned.

Body corporate fees are treated as an ongoing holding cost and reduce net rental income for serviceability purposes. A unit in a complex with a pool, gym and concierge will carry higher fees than a small block with minimal shared facilities, and this difference affects how much a lender will allow you to borrow. Lenders also review body corporate records for special levies, sinking fund balances and any unresolved disputes before approving the loan. If the sinking fund is underfunded relative to the building's age and likely capital works requirements, some lenders will decline the application or reduce the LVR.

Townhouses and Villas: Title Type Affects Loan Approval

Townhouses and villas may be on either strata title, community title or Torrens title, and the distinction changes how lenders assess the property and whether they will lend against it. Properties on Torrens title with no shared common property are treated the same as freestanding houses. Properties on strata or community title are assessed under the same frameworks as units and apartments.

Community title properties, particularly those in gated estates or developments with shared private roads and communal facilities, are considered higher risk by some lenders because enforcement of the community management statement can be less certain than under registered strata legislation. A small number of lenders exclude community title properties entirely, while others will lend but apply a reduced LVR or require a larger deposit.

Before committing to a contract, confirm the title type with the selling agent or your conveyancer and check with your broker whether your intended lender has any restrictions. If the property is subject to restrictive covenants that limit rental use, short-term letting or future subdivision, these may also affect both lender appetite and resale value.

Dual Occupancy and Granny Flats: Rental Income and Valuation Issues

A property with a secondary dwelling such as a granny flat or dual occupancy can generate two rental incomes from a single title, but lenders vary in how they treat that additional income and whether they will lend against the secondary structure at all. Most lenders will recognise rental income from a secondary dwelling only if it is council-approved, separately metered and meets minimum size and amenity standards.

In a scenario where an investor purchases a property in Camberwell with an existing council-approved granny flat, the lender will typically accept 80 per cent of the combined rental income from both dwellings when calculating serviceability, provided a registered valuer includes both structures in the valuation and confirms separate legal rental use. If the granny flat was constructed without council approval or does not meet current building standards, most lenders will either exclude the rental income entirely or value the property on the basis of the primary dwelling only.

Some lenders apply a discounted LVR to properties with secondary dwellings due to resale and marketability concerns, particularly where the secondary dwelling occupies a large portion of the rear yard or limits future subdivision potential. If you are purchasing a property with the intention of adding a secondary dwelling after settlement, the construction cost and rental income projection will not be recognised until the work is complete, certified and tenanted.

Serviced Apartments and Holiday Lets: Lender Exclusions Apply

Serviced apartments, properties in hotel-style complexes with management agreements, and properties purchased primarily for short-term holiday rental are excluded by most mainstream lenders or restricted to very low LVR. The distinction turns on whether the property is genuinely available for long-term residential rental or is operated as part of a commercial accommodation business.

A serviced apartment in a building with a mandatory management agreement requiring the owner to participate in a rental pool is generally classified as a commercial investment rather than a residential investment loan. This means the loan is assessed under commercial lending criteria, with higher interest rates, lower LVR and full financial disclosure of the management agreement and rental pool performance required. Properties used exclusively for short-term rental platforms are treated similarly by most lenders, particularly where local council zoning restricts the property to tourist accommodation rather than residential use.

If you are considering this type of property, clarify the management agreement terms and rental pool obligations before signing a contract, and confirm with your broker that finance is available under the proposed structure. The rental income from a serviced apartment or short-term let is not recognised by lenders in the same way as long-term residential rent, and in most cases you will need to demonstrate serviceability without relying on that income.

How Property Type Affects Depreciation and Holding Costs

The type of property you purchase also determines the depreciation deductions available and the ongoing holding costs that reduce your net rental return. Newer properties and those with substantial plant and equipment such as air conditioning, appliances and window furnishings allow higher depreciation claims in the early years of ownership, which can offset rental income and reduce taxable losses.

An apartment or townhouse will generally carry higher body corporate fees than a freestanding house but may also include insurance, garden maintenance and external repairs within those fees, reducing the number of separate outgoings you need to manage. A house provides greater control over maintenance timing and costs but requires the investor to fund all repairs, insurance and external works directly. Understanding the split between deductible holding costs and capital improvements is important for tax planning and cash flow forecasting.

Camberwell's established housing stock includes a mix of period homes, renovated family houses and newer unit developments, each with different depreciation profiles and maintenance requirements. Older properties may offer lower purchase prices relative to land value but will typically have lower depreciation entitlements and higher ongoing repair costs. Newer builds allow access to full negative gearing under current tax rules and higher depreciation deductions, but may be priced at a premium to established stock in the same location.

Property type also affects rental demand and vacancy risk. Units close to public transport and retail centres in Camberwell, such as those near the Burke Road shopping precinct and the Camberwell railway station, typically attract strong demand from renters seeking access to the city and local amenities. Larger family homes may have a narrower tenant pool but can command higher rents and longer lease terms, reducing turnover and vacancy costs.

Structuring Your Deposit and LMI Based on Property Type

The deposit required and the cost of lenders mortgage insurance both vary according to property type, with units and apartments in certain buildings or locations attracting higher LMI premiums or reduced maximum LVR compared to houses. LMI is calculated on a sliding scale based on the loan amount and LVR, and the premium increases significantly above 80 per cent LVR.

For a house on Torrens title in Camberwell, most lenders will offer up to 90 per cent LVR with LMI, and in some cases 95 per cent for investors with strong serviceability and credit history. For a unit in a building over six storeys or in a complex with known issues, the maximum may be 80 per cent, requiring a 20 per cent deposit plus costs regardless of the borrower's financial position. This means the type of property you target directly determines the cash deposit you need and whether LMI is payable.

Some investors choose to purchase property types that allow higher LVR and lower deposit in order to retain capital for further purchases or renovations. Others prefer property types with lower LMI costs and stronger lender appetite, even if that means a higher upfront deposit, because it reduces ongoing costs and increases the number of lenders willing to compete for the loan. Your property type decision should be made with reference to both your available deposit and your intended borrowing power, rather than in isolation.

Call one of our team or book an appointment at a time that works for you to discuss how different property types will affect your loan structure, deposit requirements and rental income recognition. We work with lenders across Australia and can match your intended purchase to the loan structure that supports your investment strategy.

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