Investment Property Loans Explained: Tax, Deposits & Negative Gearing in 2026
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Investment property loans look similar to owner-occupier loans but the rules — and the tax mechanics — are very different. Here’s the practical version.
How They Differ from a Home Loan
- Higher rates: Investment loans typically carry a 0.2–0.4% premium over owner-occupier rates. Lenders see them as higher risk.
- Stricter serviceability: Banks “haircut” your projected rent (usually 75–80%) and stress-test your repayments against an interest rate roughly 3% higher than your contract rate.
- Interest-only is common: Many investors opt for interest-only periods (5 years max typically) for cash flow and tax reasons. Just remember principal still needs to be paid eventually.
The Deposit Question
Most lenders want 20% deposit on investment properties to avoid LMI. You can go lower with LMI, but the premium is steeper than on owner-occupier loans. Many investors use equity from their existing home as the deposit instead of cash — leveraging up, with all the risk that implies.
Negative Gearing in Plain English
If your rental income is less than your expenses (interest, property management, repairs, depreciation), the loss can offset other income — reducing your tax bill. That’s it. Negative gearing isn’t a tax break; it’s a tax outcome from running a property at a cash loss.
The trade-off: you’re losing money each year on the cash flow side, betting on capital growth to make it worthwhile. In a flat market that bet stops working.
The Numbers You Need to Watch
- Gross rental yield: Annual rent ÷ property price. Below 4% in capital cities is normal — most of the return needs to come from capital growth.
- Net yield: After expenses. The number that actually matters.
- Cash flow: What you’re paying out of pocket each month after rent.
Mistakes That Cost Investors Money
- Buying for the tax benefit alone (you’re losing more than you’re saving).
- Underestimating vacancies, repairs and rate rises in your budget.
- Ignoring depreciation reports — a quantity surveyor’s report typically pays for itself in year one.
- Not separating personal and investment finances (offsets, accounts, statements).
💡 Quick Tip: Run your cash flow assuming 2 weeks vacancy per year and interest rates 2% higher than today. If the numbers still work, you have a margin of safety.