Avoid These 5 Mistakes When Buying an Investment Unit

Buying a unit as an investment property means understanding both how lenders assess your application and how recent changes to federal tax law will affect your returns.

Most investors in Brighton East focus on the property itself without realising that lenders look at units differently to houses, particularly when it comes to loan to value ratio limits and whether the building has been flagged for oversupply or defects. The difference between a straightforward approval and a declined application often comes down to deposit size, the building's body corporate records, and how you structure the loan from the outset.

Using a Deposit Below 20 Per Cent Without Checking LMI Costs

Any investment loan with a deposit below 20 per cent of the purchase price will trigger Lenders Mortgage Insurance. That premium is capitalised into the loan amount and adds several thousand dollars to what you owe, with no corresponding tax benefit because LMI is not a claimable expense.

Consider an investor purchasing a two-bedroom unit near Were Street in Brighton East who has saved a 10 per cent deposit. The LMI premium on that purchase could add between $8,000 and $15,000 to the loan amount, depending on the lender and the property's location. That cost is paid upfront or added to the loan balance, and it is not deductible against rental income. If the same investor waits six months and increases the deposit to 20 per cent, the premium disappears entirely, and the loan amount drops by the same margin.

Lenders assess investor loans more conservatively than owner-occupier finance. An 80 per cent loan to value ratio remains the threshold where most lenders apply their standard serviceability assessment without additional premiums or restrictions. Moving above 80 per cent not only triggers LMI but can also reduce your access to discounted interest rates and limit the range of lenders willing to approve the application.

Ignoring How Body Corporate Records Affect Loan Approval

Lenders request a body corporate certificate as part of the valuation and settlement process for any unit or apartment purchase. If that certificate shows unpaid levies, ongoing disputes, defect claims, or insufficient sinking fund balances, some lenders will decline the application outright, while others will reduce the maximum loan to value ratio they are willing to offer.

A unit near St Joan of Arc Primary School in Brighton East might have strong rental demand and a solid purchase price, but if the body corporate certificate reveals that the owners' corporation has deferred major works or is involved in litigation with the builder, the lender's valuer will flag the property as higher risk. In that scenario, an investor who planned to borrow at 80 per cent LVR may find the lender will only approve 70 per cent, requiring an additional $30,000 to $50,000 in deposit funds that were not budgeted.

We regularly see investors request a copy of the body corporate records before making an offer, particularly the sinking fund balance, recent meeting minutes, and any registered defects or insurance claims. That step takes less than a week and prevents the situation where an investor is conditionally approved, pays for a valuation, and then discovers the property will not settle because the lender withdraws at the last stage.

Assuming You Can Negatively Gear Any Unit Purchased After Mid-2026

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 changed how losses from residential rental property are treated for tax purposes. For any residential dwelling purchased on or after 7:30pm AEST on 12 May 2026, rental losses cannot be offset against salary or wage income from 1 July 2027 unless the property qualifies as an eligible new build.

An eligible new build is a dwelling constructed on previously vacant land or a development that increases the total number of dwellings on the site. A two-bedroom unit in an established building in Brighton East, regardless of how recently it was built, will not meet that definition unless it was part of a development that added dwellings to the site and has not been occupied for more than 12 months before sale. If you purchase an established unit after 12 May 2026, any shortfall between your rental income and your loan repayments, rates, and other holding costs can only be offset against future rental income or carried forward to reduce capital gains when you eventually sell.

Investors who signed contracts before 12 May 2026 are grandfathered under the old rules and can continue to negatively gear under existing arrangements. Those purchasing eligible new builds can still offset losses against other income. Everyone else needs to build their investment case around positive or neutral cash flow, not tax-driven losses, from July 2027 onward. That shift affects borrowing capacity because lenders assess your ability to service the loan without assuming you will receive a tax refund each year to cover the shortfall.

Choosing Interest-Only Repayments Without Understanding the Trade-Off

Interest-only repayments reduce your monthly outgoings and maximise your tax deductions in the short term because the entire repayment is deductible when the property is rented. No part of your repayment reduces the loan balance, which means your equity in the property only grows if the property increases in value.

Most lenders offer interest-only periods of up to five years on investment loans, after which the loan reverts to principal and interest repayments for the remaining term. That reversion increases your monthly repayment by 30 to 40 per cent depending on how much of the original loan term has elapsed. If you have structured your budget to rely on interest-only repayments indefinitely, the reversion can push the loan into a position where rental income no longer covers the repayment and you need to contribute several hundred dollars each month from your own income.

An investor purchasing a unit in Brighton East with a loan amount of $600,000 at a variable interest rate of around 6.5 per cent would pay roughly $3,250 per month on an interest-only basis. When that loan reverts to principal and interest after five years, the repayment increases to approximately $4,600 per month, assuming rates have not changed. That difference of $1,350 per month is $16,200 per year, and it must be funded from rental income or your own salary.

Interest-only repayments suit investors who plan to use equity release or portfolio growth strategies within the interest-only period, or those who expect rental income to increase significantly before reversion. For investors who simply want lower repayments without a clear plan for the reversion point, the structure creates a cash flow problem five years down the track.

Locking Into a Fixed Interest Rate Without Calculating Break Costs

A fixed interest rate provides certainty over your repayments for a set period, typically one to five years. If you need to sell the property, refinance the loan, or make a lump sum repayment during that fixed period, most lenders will charge break costs to compensate for the difference between the rate you locked in and the rate they can now lend at.

Break costs are calculated based on the remaining fixed term, the loan balance, and the movement in wholesale interest rates since you fixed. If rates have fallen since you locked in your fixed rate, the break cost can be substantial. An investor who fixed $500,000 at 6.2 per cent for three years and then needs to sell the property 18 months into that term could face break costs of $10,000 to $20,000 if wholesale rates have dropped by one percentage point in the interim.

Fixed rates make sense when you have a high degree of certainty about your holding period and your cash flow needs over that period. They are less suitable for investors who may need to access equity, refinance, or sell within the fixed term. A split loan structure, where part of the loan is fixed and part remains on a variable rate, reduces exposure to break costs while still providing some repayment certainty. If you are purchasing a unit in Brighton East as the first property in a broader investment strategy, keeping at least 50 per cent of the loan on a variable rate gives you the flexibility to draw on equity or adjust your structure as your circumstances change.

Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions