Unlock the secrets to your first investment property

Your first investment property purchase works differently to buying a home.

The lending criteria, deposit requirements, and loan structures all shift when you're buying for rental income rather than living in the property yourself. Understanding these differences before you apply makes the process more manageable and positions you to build wealth through property with clarity.

How Much Deposit Do You Need for Your First Investment Property?

Most lenders require a minimum 10% deposit for an investment property, though some will accept this if you also pay Lenders Mortgage Insurance. A 20% deposit lets you avoid LMI entirely and often unlocks better investor interest rates.

Consider someone buying in Narellan Vale where townhouses offer an entry point into the Camden property market. With a 20% deposit, they avoid LMI and keep their upfront costs to the deposit plus stamp duty and settlement fees. At 10%, the LMI premium could add several thousand dollars to what they need at settlement, but it means they can enter the market sooner if they've built genuine savings and can service the loan comfortably.

The decision often comes down to whether you'd rather wait longer to save a larger deposit or pay LMI to start building equity now. Both approaches work depending on your income, savings trajectory, and whether rental demand in your chosen area justifies moving sooner. For many first-time investors in Narellan, where vacancy rates stay low due to population growth and proximity to employment hubs, getting in sooner can matter.

Can You Use Equity From Your Home to Buy an Investment Property?

Yes, and it's one of the most common ways people fund their first investment purchase without needing to save a separate cash deposit.

If you own a home in Narellan or nearby suburbs like Harrington Park or Mount Annan and you've paid down your mortgage or seen the property increase in value, you may have usable equity. Lenders will typically let you borrow up to 80% of your home's current value. The difference between that amount and what you owe becomes equity you can release to use as a deposit on an investment property.

In a scenario like this, someone with a home valued at $800,000 and a remaining mortgage of $400,000 could access up to $240,000 in equity while keeping their total lending at or below 80% of the property's value. That covers the deposit and costs for an investment purchase without touching savings. The key is ensuring you can service both loans comfortably, as lenders assess rental income at a reduced rate, usually around 80%, to account for vacancy and maintenance.

If you're considering this approach, understanding your borrowing capacity across both properties is essential before you start looking.

Interest Only or Principal and Interest: Which Loan Structure Makes Sense?

Interest only loans are common for investment properties because they keep repayments lower and maximise tax deductions, which can be helpful in the early years when you're carrying both a home loan and a new investment loan.

With an interest only loan, your repayments cover just the interest charged each month. You're not reducing the loan balance, but you're also not locking cash into the property that you might need for other purposes. The loan typically reverts to principal and interest after a set period, usually five years, at which point your repayments increase.

Principal and interest repayments are higher from the start, but they reduce your loan balance over time. If your goal is to own the property outright or reduce debt before retirement, this structure makes more sense. It also means you're building equity from day one rather than waiting until the interest only period ends.

There's no universal answer. What works depends on your cash flow, your broader property investment strategy, and whether you're planning to hold the property long term or sell once it's gained value. We regularly see investors start with interest only and switch to principal and interest once their income increases or they've added a second property.

How Do Lenders Assess Rental Income?

Lenders don't take your expected rental income at face value when calculating how much you can borrow.

Most will assess rental income at 80% of the amount shown on the lease or a rental appraisal. That 20% reduction accounts for potential vacancies, maintenance costs, and periods where the property might sit empty between tenants. Some lenders are more conservative and use 75%, particularly if you're buying in an area they perceive as higher risk.

For a property in Narellan renting at $600 per week, the lender would assess your income at $480 per week, or roughly $2,080 per month. That figure is then used alongside your other income to determine whether you can service the investment loan and any existing debts. If the rental income doesn't cover the loan repayments, which is common in the early years, you'll need enough personal income to cover the shortfall.

This is where the structure of your loan and your overall financial position come into focus. If you're stretched on servicing, an interest only loan might make the difference between approval and decline. If you have surplus income, principal and interest might position you for stronger equity growth.

What Changed in the 2026 Federal Budget?

The 2026-27 Federal Budget introduced significant changes to capital gains tax and negative gearing that affect anyone buying an established residential investment property from 13 May 2026 onwards.

From 1 July 2027, the 50% capital gains tax discount will be replaced with indexation, meaning you'll only pay tax on the inflation-adjusted gain rather than the full amount. A minimum 30% tax on capital gains will also apply. If you buy a new build, you can choose between the old 50% discount or the new arrangements, whichever works in your favour.

Negative gearing rules also shift from that date. If you buy an established property after Budget night, rental losses will only be deductible against income from residential property or capital gains, not against your salary or other income. Those losses can still be carried forward, so they're not lost, but the immediate tax benefit changes. New builds and commercial property remain unaffected.

If you purchased before 12 May 2026, your arrangements are grandfathered. If you're buying now and considering an established property, it's worth discussing the timing and structure with a tax professional alongside your investment loan broker to understand how this affects your situation.

Fixed or Variable Rate for an Investment Loan?

Most investors choose a variable rate or split their loan between fixed and variable to balance certainty with flexibility.

A variable rate moves with the market, which means your repayments can increase or decrease depending on what lenders do with their rates. It also gives you access to features like offset accounts and the ability to make extra repayments without penalty. For investors who value control and want to reduce their loan faster, variable rate loans offer that flexibility.

A fixed rate locks your interest rate for a set period, usually between one and five years. Your repayments stay the same regardless of what happens in the broader market. The trade-off is less flexibility. Most fixed rate loans restrict extra repayments and don't allow offsets, and if you need to break the loan early, you may face significant costs.

Splitting your loan lets you have both. You might fix half for certainty around your cash flow and keep the other half variable so you can make extra repayments or access an offset. We regularly see this approach among first-time investors in Narellan who want some protection against rate rises but don't want to lose the ability to reduce debt when they have surplus income.

What Costs Should You Budget Beyond the Deposit?

Stamp duty is the largest upfront cost after your deposit, and it's not something you can add to the loan for an investment property in New South Wales.

For an investment purchase in the Camden area, stamp duty is calculated on the full purchase price without any concessions. You'll also need to budget for conveyancing, building and pest inspections, loan application fees, and any lender setup costs. If you're borrowing above 80% of the property's value, LMI will add to that figure, sometimes substantially.

Once you own the property, there are ongoing costs that affect your cash flow. Body corporate fees if you've bought a townhouse or unit, landlord insurance, property management fees if you're using an agent, council rates, water rates, and maintenance. Some of these are tax deductible, but they still need to be paid from your account before you claim them back.

Using a stamp duty calculator early in your planning gives you a realistic sense of what you need at settlement so there are no surprises when contracts are ready to exchange.

How Grove Financial Supports First-Time Investors in Narellan

Buying your first investment property involves more moving parts than purchasing a home to live in, and the lending landscape has become more particular in recent years.

We work with first-time investors across Narellan, Camden, and the Macarthur region to structure loans that suit both the property and the person. That means understanding your income, your goals, whether you're planning to buy more properties down the line, and how this purchase fits with everything else you're managing financially. We also connect you with the lenders most likely to support your scenario, particularly if you're using equity, buying in a newer suburb, or your income structure is less conventional.

The right structure makes a measurable difference to how your investment performs over time, both in terms of tax and cash flow. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions