Proven tips to fund rental property for income

Investment Loans Let You Purchase Rental Property With Borrowed Capital

An investment loan lets you borrow money to purchase residential property that you rent to tenants. The loan is secured against the property, and rental income contributes to your repayments while you build equity over time. Structuring this correctly affects your tax position, cash flow and borrowing capacity for future purchases.

Clinical pharmacists often start considering rental property after establishing some equity in their own home or reaching a point in their career where salary income is stable. The decision usually centres on whether to leverage existing equity, how to structure repayments, and what deposit size will keep the loan affordable without wiping out your buffer.

Interest-Only Repayments Keep Monthly Outgoings Lower

Interest-only repayments mean you pay only the interest charged each month, not the principal. The loan balance stays the same throughout the interest-only period, which can run for up to five years initially and may be renewed depending on your lender and circumstances.

This structure works when you want to preserve cash flow or when the property is negatively geared and you plan to claim the full interest expense as a deduction. Consider a clinical pharmacist working in a public hospital who purchases a two-bedroom unit and rents it to tenants. The rental income covers part of the monthly interest, and the shortfall is deductible against salary income under current tax rules for properties held before 13 May 2026. Keeping repayments lower frees up capacity to service other debt or to save toward a second property.

Switching to principal and interest repayments later reduces your loan balance and builds equity, which becomes useful when you want to access funds for further property purchases or other purposes.

Deposit Size and Loan to Value Ratio Determine Your Interest Rate and Whether You Pay LMI

Lenders calculate your loan to value ratio by dividing the loan amount by the property's value. A deposit of 20 per cent or more brings your LVR to 80 per cent or below, which typically avoids Lenders Mortgage Insurance and secures you a lower interest rate.

If you borrow with a 10 per cent deposit, your LVR sits at 90 per cent and LMI applies. The premium is calculated on a sliding scale and added to your loan or paid upfront. Some lenders offer rate discounts for pharmacists at higher LVRs, and certain LMI waivers may apply depending on your lender and occupation.

Using equity from your home to increase your deposit can help you stay below the 80 per cent threshold. An equity release loan lets you access funds without selling, though it increases the debt secured against your home and affects your overall serviceability.

Variable Rate Loans Offer Flexibility, Fixed Rates Lock In Your Cost

A variable rate moves with market conditions and lender pricing decisions. Your repayments can go up or down, and you generally have access to offset accounts, unlimited extra repayments and the ability to redraw funds if your loan allows it.

Fixed rates lock in your interest cost for a set period, usually between one and five years. Your repayments stay the same regardless of rate movements, but you lose flexibility during the fixed term. Breaking a fixed rate early can trigger break costs, and most fixed rate products limit extra repayments and don't include offset accounts.

Many investors split their loan, fixing part for certainty and leaving part variable for flexibility. This approach lets you manage rate risk without giving up all your options. Your broker can model different split scenarios based on your income, the rental yield and how long you plan to hold the property.

Rental Income Supports Serviceability But Lenders Apply a Haircut

Lenders include a portion of expected rental income when they assess your ability to service an investment loan. Most apply a discount, typically around 20 per cent, to account for vacancy periods, maintenance costs and other holding expenses.

If the property generates $500 per week in rent, the lender may assess your serviceability using $400 per week. The shortfall between rent and total holding costs is added to your other monthly commitments, and your income needs to cover that gap plus a buffer. As at October 2026, lenders must assess your capacity to service the loan at an interest rate at least 3 percentage points above the actual loan rate.

Your other debts, including your home loan, car loan and credit card limits, reduce the amount you can borrow. Paying down high-interest debt or reducing card limits before you apply can improve your borrowing capacity.

Tax Deductions Reduce Your Net Cost

Interest on an investment loan is deductible when the property is rented or genuinely available for rent. Other holding costs, including council rates, insurance, property management fees, repairs and depreciation, are also deductible under current tax rules.

If your rental income is less than your total expenses, the property is negatively geared. For properties held at 12 May 2026 or purchased as eligible new builds, losses can be offset against your salary income, reducing your taxable income. For established properties purchased after that date, losses are deductible only against other residential property income from the 2027-28 income year onward, though excess losses can be carried forward.

Capital gains on properties sold before 1 July 2027 are subject to the existing 50 per cent discount if you've held the property for more than 12 months. From 1 July 2027, gains accruing after that date are taxed under a new system that indexes the cost base to inflation and applies a 30 per cent minimum rate on real gains. Properties owned before that date and sold afterward will have their gain split between the old and new rules based on the period held in each regime.

Refinancing Can Lower Your Rate or Release Equity for Further Purchases

Refinancing your investment loan can secure a lower interest rate, particularly if your original loan is a few years old and you've built additional equity. Moving to a lender offering a higher rate discount for pharmacists or switching from interest-only to principal and interest repayments can also align your loan with your current strategy.

If the property has increased in value, refinancing lets you access equity to fund a deposit on another property. This approach, sometimes called expanding your property portfolio, allows you to grow your holdings without needing to save a full deposit from salary income alone. The additional borrowing increases your total debt and monthly repayments, so the rental income from the new property needs to support serviceability alongside your existing commitments.

Call one of our team or book an appointment at a time that works for you. We'll review your current loan structure, assess your borrowing capacity, and help you access investment loan options from lenders across Australia who understand your profession and income profile.

Frequently Asked Questions