Avoid These 4 Mistakes Buying a Rental Property

Lenders do not count all of the rent a property earns, and that changes how much you can borrow. If you are a nurse or midwife planning to buy a rental property for income, these four mistakes are the ones to avoid.

You may be buying your first rental, or adding to a home you already own. Either way, the borrowing rules for an investment loan are different from those for the home you live in. Knowing them before you make an offer keeps your options open.

How Much Rent Do Lenders Count on an Investment Loan?

Banks regulated by APRA are expected to count no more than 80 per cent of expected rent when they assess a loan. APRA's guidance is that a prudent lender applies a minimum 20 per cent haircut to allow for periods when the property sits empty. That haircut is not for management fees, repairs or other holding costs, so you still need to budget for those yourself.

Lenders also tend to rely less on a rental appraisal than on rent actually received from a tenant. Each lender sets its own rules on the evidence it accepts, so the same property can be assessed differently depending on who you apply with.

Mistake 1: Assuming Interest Only Lets You Borrow More

An interest-only investment loan does not increase your borrowing capacity. Under APRA's guidance, lenders assess interest-only loans on principal and interest repayments over the remaining term after the interest-only period ends.

As an example, a 30-year loan with a 5-year interest-only period is assessed over the remaining 25 years. That produces a lower maximum loan than a standard 30-year principal and interest loan. Interest only can lower your repayments during the interest-only period. The trade-off is that you are not reducing the loan balance, and repayments rise when principal and interest begins. You can read more on interest only loans for nurses.

To see the cash-flow difference, take a $600,000 loan at an illustrative 6.75% per annum. Interest only costs $40,500 a year, or about $3,375 a month. If the loan then moves to principal and interest over the remaining 25 years at the same illustrative rate, the repayment rises to roughly $4,145 a month. Use a repayment calculator to test your own numbers.

Mistake 2: Misreading the Serviceability Buffer

APRA requires banks and other ADIs to test whether you can afford the loan at a rate at least 3.0 percentage points above the actual loan rate. If the product rate were 6.75%, the test would be at 9.75% or higher. This buffer applies to new borrowers and to investment loans, so the amount you can borrow is lower than your actual repayments might suggest.

Your other debts count too. Lenders ask about credit card limits, existing loans and your current home loan. Cutting an unused card limit before you apply can lift what a lender will let you borrow. Our borrowing capacity page explains how your income is assessed, and a mortgage broker for nurses can compare lenders who treat shift allowances and overtime differently.

Mistake 3: Relying on Negative Gearing Without Checking the New Rules

Negative gearing now depends on when you buy and what you buy. Losses on residential investment properties held at 7:30pm AEST on 12 May 2026 can still be deducted against other income, including your salary, until the property is sold. Losses on eligible new builds bought after that date can also be deducted against all income.

For established residential properties bought after that time, the rules change from the 2027-28 income year. Net rental losses can then be deducted only against other residential property income, including residential capital gains. Excess losses can be carried forward. Properties bought between 12 May 2026 and 30 June 2027 can use the current rules until 30 June 2027 only.

The interest on your loan is still deductible when the property is rented or available for rent. Only the interest part of a principal and interest repayment counts, because the principal part repays the loan. A deduction reduces your tax but does not cover the cost of the loss, so you still need the cash flow to hold the property. Speak with your accountant about how these rules apply to you.

Mistake 4: Skipping the Capital Gains Tax Change

From 1 July 2027, the 50 per cent capital gains tax discount is replaced by cost base indexation and a 30 per cent minimum tax rate on real gains accruing from that date. Gains that built up before 1 July 2027 are taxed under the current rules, and the split between the two is worked out using either a market valuation or an ATO formula. Eligible new build residential properties are treated differently: investors can elect either the 50 per cent CGT discount or indexation with the 30 per cent minimum tax.

This matters if your plan relies on selling in future to fund your own goals. Your accountant can model the outcome for your income, and it is worth doing before you sign a contract.

Worked Example: Using Equity in Your Home for the Deposit

Using equity from your own home can fund an investor deposit, but how you use the money decides what is tax deductible. Consider a registered nurse who owns her home and wants to buy a rental. She uses equity to cover the deposit and costs, and she keeps that borrowing in a separate loan split from any personal spending.

Her broker structures the equity release as its own loan, so the purpose is clear. The interest on funds used for the rental purchase can then be deductible, because the ATO looks at how borrowed money is used. A later redraw for a holiday would not be deductible and would muddy the records.

The outcome is a clean paper trail for her accountant at tax time. The trade-off is that the new loan is secured against her home, and she carries more debt on both properties. Our equity release loans for nurses page covers how this works.

Where to Go Next if This Is Your First Rental

If you are starting out, the first investment property page walks through the process. If you have not yet bought a home, our first home buyer loans for nurses page may be the better starting point, and our home loans for nurses page covers owner-occupier lending.

Some lenders waive lenders mortgage insurance for registered nurses at higher LVRs, usually with an income minimum and AHPRA registration, but this varies by lender and does not apply to every bank. Ask about it early, because it affects the deposit you need.

Call one of our team or book an appointment at a time that works around your roster. We will compare lenders across Australia and help you work out a loan that suits your goals.

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