When to Choose Different Investment Property Types

The property type you choose determines which lenders will compete for your application and on what terms.

A two-bedroom apartment in Cronulla, a townhouse in Surry Hills, and a house on acreage west of Sydney all represent different risk profiles to lenders. Those risk assessments translate directly into loan-to-value ratios, interest rate margins, and sometimes outright policy exclusions. Understanding how lenders assess each property type before you commit to a purchase gives you a clearer picture of what you can borrow and what your repayments will look like.

Apartments and Units

Apartments typically offer lower entry prices and stronger rental yields in established suburbs, but lender appetite varies with building size and construction type.

Most lenders apply a 70 per cent LVR limit to buildings above 10 storeys, and some will not lend at all on studio apartments under 40 square metres. Consider an investor purchasing a two-bedroom unit in Balmain at a mid-tier price point. If the building contains fewer than six storeys and the unit measures 55 square metres, most lenders will offer an 80 per cent LVR with Lenders Mortgage Insurance. If that same unit sits in a 15-storey tower, the same lender may cap the LVR at 70 per cent, meaning the investor needs an additional ten per cent in deposit plus the cost of stamp duty and other settlement charges.

Body corporate levies also affect serviceability. Lenders deduct levies from rental income when calculating the net income available to service the loan. A building with higher levies, common in newer developments with lifts, pools, and concierge services, reduces the loan amount a lender will approve even if the gross rent is strong. When comparing units, request a copy of the strata records and check both the levy amount and the sinking fund balance. A large sinking fund suggests fewer special levies ahead. A depleted fund or deferred maintenance flags future costs that will affect your cash flow and the property's appeal to future buyers.

Townhouses and Duplexes

Townhouses generally attract wider lender appetite than high-rise apartments because they combine owner-occupier appeal with lower body corporate costs.

A townhouse in Caringbah with a small private courtyard and a single shared driveway will typically qualify for an 80 per cent LVR without the serviceability drag of high levies. Rental income is often slightly lower per dollar of purchase price than a comparable apartment, but the vacancy rate tends to be lower because families occupy townhouses for longer periods. That stability matters when your loan serviceability is tested against a rental income figure that assumes some vacancy.

Duplexes sit in a similar category, though lenders distinguish between strata duplexes and Torrens title duplexes. A Torrens title duplex, where you own the land and building outright with no shared ownership, is treated the same as a freestanding house. A strata duplex, where the title is divided and a body corporate manages shared elements like driveways or insurance, is assessed as a unit. If you are comparing two properties of similar price and both are duplexes, confirm the title type before making an offer. The difference can shift your maximum LVR and your access to certain lender products.

Freestanding Houses

Freestanding houses on standard residential land attract the broadest lender appetite and the most flexible loan terms, particularly when the land size sits between 400 and 2,000 square metres.

Lenders view houses as lower risk because they appeal to both owner-occupiers and investors, and land retains value independently of the building. An investor purchasing a three-bedroom house in Maroubra can typically access an 80 per cent LVR without the building-specific restrictions that apply to apartments. Rental yields are often lower than units in the same suburb, but capital growth has historically been stronger over longer hold periods, and you retain the option to renovate or develop the site in future if zoning permits.

Properties on larger blocks, particularly those over 2,000 square metres or with development potential, attract closer lender scrutiny. Some lenders treat them as quasi-commercial and reduce the LVR to 70 per cent. Others require a valuation that separates the current use value from the hypothetical development value, and they will lend only against the lower figure. If you are considering a house because of its future development upside, speak to a broker before exchange to confirm which lenders will support that strategy and whether you need to structure the loan differently from a standard investment loan.

Properties Affected by the Negative Gearing Changes

From 1 July 2027, residential rental losses on properties acquired after 7:30pm AEST on 12 May 2026 can only be offset against residential rental income or carried forward, 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 a site. A knock-down rebuild that replaces one house with one new house does not qualify. If you purchase an established house or apartment now, you will not be able to offset any shortfall between rent and loan repayments against your salary from 1 July 2027 onward. That does not mean established properties are unviable, but it does mean your holding costs increase if you were relying on negative gearing to reduce your taxable income.

Consider an investor on a marginal tax rate of 37 per cent who expects a rental shortfall of $8,000 per year on an established unit in Neutral Bay. Under the previous rules, that investor would recover $2,960 of the shortfall at tax time. From 1 July 2027, the full $8,000 is an after-tax cost. Over a ten-year hold, that difference compounds to nearly $30,000 in additional holding costs. The property may still deliver strong capital growth, but the cash flow profile has changed materially. If you are comparing an established apartment and a new townhouse at similar purchase prices, model both scenarios with and without negative gearing to see which property type aligns with your income and tax position.

New Builds and Off-the-Plan Purchases

New residential dwellings that qualify under the amended rules retain access to negative gearing and offer an election between the 50 per cent CGT discount and cost base indexation with a 30 per cent minimum tax rate.

Lenders treat new builds and off-the-plan contracts differently from established property. Most lenders will offer an 80 per cent LVR on a completed new build, but off-the-plan purchases often require a second valuation at settlement. If the market has softened between contract and settlement, the lender will use the lower of the contract price or the settlement valuation. That creates a risk that you need to contribute additional equity at settlement to meet the agreed LVR. Some lenders also apply a 10 to 20 per cent loading to the interest rate for off-the-plan apartments in buildings above 15 storeys or in postcodes with high investor concentration.

The tax treatment is attractive, but the loan structure and settlement risk need to be managed. If you are considering an off-the-plan purchase, confirm the lender's revaluation policy at settlement and whether they offer a rate lock that extends to the expected completion date. A 12-month rate lock is common, but developments that run over schedule can leave you exposed to rate movements if completion extends beyond that period.

Rural and Semi-Rural Properties

Properties on land larger than five acres, or located more than 50 kilometres from a regional centre, are classified as rural by most lenders and attract different lending criteria.

Rural properties are assessed on both the dwelling and the land use. If the land generates income from grazing, crops, or agistment, lenders may treat the loan as rural or commercial rather than residential investment. That typically means a lower LVR, often 70 per cent, and higher interest rates. If the property is residential only and the land is used for lifestyle purposes, some lenders will still offer 80 per cent LVR, but borrowing capacity is reduced because rural properties carry higher perceived risk due to lower buyer demand and longer selling periods.

Rental yields on rural properties are often weak, and vacancy rates are higher than metro areas. If you are considering rural property as part of a broader portfolio, structure it so the property is self-funding or positively geared from the outset. Relying on capital growth alone is a higher-risk strategy in locations where buyer demand is thin and comparable sales data is limited.

Specialist Property Types

Serviced apartments, properties with commercial zoning, and dwellings in retirement villages or land lease communities are generally excluded from standard residential investment lending.

Serviced apartments, even those in major cities, are treated as commercial by most lenders because the rental income is derived from short-term letting arrangements. If you purchase a serviced apartment in Manly with a management agreement tied to a hotel operator, you will need a commercial loan with a lower LVR and a shorter loan term. The same applies to properties on mixed-use zoning where the ground floor is commercial and the upper floors are residential. Lenders assess the dominant use, and if more than 40 per cent of the value comes from commercial space, the loan moves to commercial criteria.

Retirement village units and land lease properties often come with restrictions on resale, age of occupants, or exit fees. Most mainstream lenders will not offer finance on these properties because the resale market is limited and the security value is difficult to assess. If you are considering a property in one of these categories, confirm lender appetite before proceeding. The purchase price may appear attractive, but if you cannot access finance at a viable LVR or rate, the opportunity cost may outweigh the entry price advantage.

Structuring Loans Across Multiple Property Types

Investors with more than one property need to consider how lenders assess the combined portfolio, not just each loan in isolation.

Lenders apply a single serviceability test across all your debts. If you already hold an apartment with high body corporate levies and you apply for a second loan to purchase a freestanding house, the lender deducts the levies from the rental income on the apartment when calculating your borrowing capacity for the house. That can reduce the amount you can borrow on the second property even though the house itself has no levies. The same applies to interest-only periods. If your first loan is interest-only and you apply for a second loan, most lenders will assess serviceability on the first loan as if it were principal and interest, even if the interest-only period has not expired.

If you are building a portfolio, consider refinancing existing loans to maximise the interest-only period and reduce the serviceability impact before applying for new finance. Consolidating loans with a single lender can sometimes improve your rate through portfolio discounts, but it also concentrates your risk. If that lender tightens policy or declines future applications, moving your portfolio to a new lender becomes more complex. Spreading loans across two or three lenders gives you flexibility, but each lender will assess your full debt position regardless of who holds the other loans.

Call one of our team or book an appointment at a time that works for you to discuss how different property types fit within your borrowing capacity and portfolio strategy.

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