Common Mistakes When Buying Your First Investment Property

Investment property rules changed fundamentally on 12 May 2026, and the practical effect hits from 1 July 2027.

If you buy a property after that threshold date and it is not classified as an eligible new build, you will not be able to offset the rental loss against your nursing income. The loss can only be carried forward or offset against other residential rental income. That changes the cashflow equation for most nurses buying their first investment property, and it changes which properties make sense to buy.

Why Eligible New Builds Are Now the Only Path to Negative Gearing

Negative gearing is quarantined for established properties purchased after 12 May 2026. You can still claim interest and all other deductible expenses, but if those expenses exceed the rent, the loss cannot reduce your taxable salary. It sits in a separate ledger until you have rental income or capital gains from residential property to absorb it.

Eligible new builds retain access to traditional negative gearing. That means a dwelling built 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 house does not qualify. A new build that has been lived in for more than 12 months before you purchase it also loses the exemption.

Consider a registered nurse in her second year post-grad earning around $85,000 who buys a unit in an established block in August 2027. The rent is $480 per week and her annual expenses including interest, strata, council, water, insurance, and depreciation total $31,000. Her rental income is $24,960. Under the new rules, that $6,040 loss is quarantined. She still claims every dollar of it, but it does not reduce her PAYG tax. She will carry the loss forward until she sells the property or buys another rental that generates positive income.

If instead she buys a newly completed apartment in the same suburb at a similar price point where she is the first owner, the same $6,040 loss offsets her nursing income and reduces her tax by around $2,300 at current marginal rates. Over five years that difference approaches $12,000 in after-tax cashflow, assuming stable income and rent.

How the Loan to Value Ratio Affects Deposit Requirements and Lenders Mortgage Insurance

Most lenders will finance an investment property to a maximum of 90 per cent loan to value ratio, and some cap it at 80 per cent depending on the borrower's circumstances and the property type. Where you borrow above 80 per cent LVR, Lenders Mortgage Insurance applies.

LMI protects the lender if you default, and the premium is calculated on the loan amount above 80 per cent LVR. On an investment loan, LMI premiums are typically higher than for owner-occupier loans at the same LVR because the perceived risk is greater. A nurse borrowing $450,000 at 85 per cent LVR on an investment property might pay LMI of $8,000 to $12,000 depending on the lender and postcode.

Some lenders offer LMI waivers or discounts for healthcare professionals including registered nurses and midwives. That waiver can apply to investment lending in specific circumstances, but availability differs across lenders and the waiver may only extend to 85 or 87.5 per cent LVR rather than the full 90 per cent. If you are relying on a waiver to keep your deposit requirement down, confirm it applies to the investment loan product you are using and the property type you are buying before you make an offer.

If you already own your home and have built equity, you may be able to use that equity as security for the investment deposit rather than saving additional cash. The combined LVR across both properties still matters, and most lenders cap total exposure at 90 per cent when cross-collateralising. Equity release can accelerate your timeline but it increases the total debt and reduces the buffer if either property falls in value.

Interest Only Versus Principal and Interest Repayment Structures

An interest-only period allows you to hold the repayment down while maximising the deductible interest component. For established properties purchased after the negative gearing threshold, interest-only repayments still produce a quarantined loss if the rent does not cover the interest and other costs. For new builds where negative gearing still applies, the larger deductible interest expense reduces taxable income further.

Interest-only loans typically allow a maximum period of five years before reverting to principal and interest repayments. During that initial period, you are not reducing the loan balance. That can help with cashflow in the early years when you are still building income or managing other debt, but it defers the principal repayment rather than eliminating it.

Some nurses use interest-only loans on investment properties while making extra repayments on their owner-occupied home loan, which is non-deductible. That approach prioritises paying down the debt where interest is not claimable. It works when you have surplus cashflow and want to reduce total interest cost over time without losing access to deductible debt on the investment.

When choosing between interest-only and principal and interest structures, look at your total position rather than the investment loan in isolation. If the interest-only option costs 0.15 to 0.25 percentage points more in rate, calculate whether the repayment saving justifies the rate premium over the period you intend to hold the structure.

Variable Rate or Fixed Rate Investment Loan Products

Variable rate investment loans allow you to make extra repayments and access offset or redraw facilities without restriction. Fixed rate investment loans lock the rate for a set term but typically limit extra repayments to around $10,000 to $30,000 per year and do not offer offset.

On an investment loan, an offset account linked to a variable rate can be valuable even if you do not plan to make large lump sum repayments. You can park your emergency buffer or savings for the next deposit in the offset, reducing the interest charged on the investment loan while keeping the funds accessible. The interest saving is equivalent to earning interest at the loan rate, tax-free.

Fixed rates provide certainty on the largest component of your holding cost, which can be useful if you are holding the property on thin cashflow and cannot absorb rate rises. The trade-off is reduced flexibility and potential break costs if you need to sell or refinance during the fixed term.

Some investors split the loan between fixed and variable portions. That approach retains access to offset on part of the debt while fixing part of the rate risk. The split does not reduce cost, but it can reduce regret if rates move sharply in either direction after you settle.

Borrowing Capacity and the Debt-to-Income Cap Under APRA Prudential Settings

APRA's debt-to-income settings apply separately to investment and owner-occupier lending. From 1 February 2026, lenders may approve up to 20 per cent of new investment loans at a DTI of six times gross income or higher. Beyond that threshold, they must refuse the application or reduce the loan amount unless an exemption applies.

A midwife earning $90,000 gross hits the DTI cap at $540,000 in total debt. If she already has $300,000 owing on her home, her maximum new investment borrowing under the cap is $240,000 unless she falls within the lender's 20 per cent allocation. In practice, lenders manage their DTI composition across the quarter or rolling year, and you will not know in advance whether your application will be assessed within or outside that 20 per cent bucket.

Exemptions apply for finance to purchase newly erected dwellings as defined in the Australian Accounting Standards, and for finance for the construction of new dwellings. If you are buying an eligible new build or building a property, confirm with your broker whether the lender will apply the DTI exemption. Not all lenders interpret the exemption in the same way, and some apply it only to construction loans rather than purchase of completed new stock.

The DTI cap interacts with the serviceability buffer, which remains at 3 percentage points above the product rate. Both tests apply, and the binding constraint depends on your income, existing debt, and the rate on the new loan.

What You Can Claim and What You Cannot on Rental Property Expenses

Interest on the investment loan is deductible in the year it is charged, provided the loan was used to purchase or hold the rental property. If you refinance and increase the loan to fund renovations or to release equity for another investment, the additional interest is deductible only to the extent the extra borrowing was used for income-producing purposes. If you release equity to pay for a holiday or buy a car, that portion of the interest is not claimable.

Other claimable expenses include council rates, water charges, strata levies, building and landlord insurance, property management fees, repairs and maintenance, pest control, gardening for units with exclusive-use gardens, and depreciation on the building and fixtures. Land tax is deductible where it applies. Stamp duty and other purchase costs are not immediately deductible but form part of the cost base for capital gains tax.

Initial repairs are generally not deductible if they relate to defects that existed when you bought the property. Ongoing repairs and maintenance to keep the property in rentable condition are deductible in the year incurred. Capital improvements such as adding a second bathroom or replacing a kitchen increase the cost base but are not immediately deductible. Depreciation on the improvement can be claimed over time if a quantity surveyor's report supports it.

Rental income must include all amounts received from the tenant, including any reimbursement for water usage or other outgoings. Vacancy periods reduce your rental income but do not change the deductibility of your holding costs, provided the property remains available for rent.

Structuring the Loan Application to Avoid Delays and Knockbacks

Lenders assess investment loan applications differently to owner-occupier applications. They apply a rental income haircut, typically 20 per cent, to account for vacancy, management fees, and periods between tenants. If the property will rent for $500 per week, the lender will assess serviceability using $400 per week or $20,800 per year.

If you are purchasing the property before a tenant is in place, you will need to provide a rental appraisal from a licensed property manager. That appraisal must be recent, typically within 90 days, and it must cover the specific property you are buying. A suburb rental range is not sufficient. Some lenders will accept an appraisal range and will use the lower end for serviceability.

Your existing owner-occupied home loan will continue to be assessed as a cost when calculating surplus income, even if it is on interest-only or you have an offset reducing the interest charged. The lender will assess the loan at the principal and interest repayment amount and apply the serviceability buffer, regardless of the actual repayment you are making.

If you are using equity from your home as security, the lender will require a valuation on both properties. Those valuations occur after you have made an offer, and if either property comes in below the expected figure, the borrowing capacity will reduce. You cannot control the valuation outcome, but you can avoid the risk of a shortfall by keeping your combined LVR below 85 per cent where possible.

Capital Gains Tax Changes and the Impact on Investment Property Returns

From 1 July 2027, capital gains on investment properties purchased after the threshold are calculated under a new regime. The 50 per cent CGT discount is replaced with cost base indexation using the Consumer Price Index and a minimum 30 per cent tax rate on real gains. Gains accrued up to 30 June 2027 on properties already held remain under the current discount rules.

If you buy an established property in late 2027 and sell it in 2035, the portion of the gain attributable to the period after 1 July 2027 will be indexed for inflation and taxed at a minimum of 30 per cent, even if your marginal rate is lower. For nurses and midwives in the 30 per cent or 37 per cent tax bracket, the change may have little impact on tax paid. For those in the 32.5 per cent bracket or taking time out of the workforce, the 30 per cent minimum removes the benefit of a lower marginal rate.

Eligible new build residential properties retain the option to elect the 50 per cent discount or use indexation with the 30 per cent minimum. That election is made when you sell, and you would choose whichever method produces the lower tax. The flexibility makes new builds more attractive again, on top of the retained negative gearing access.

If you buy a property before 12 May 2026 and it settles after that date, it is grandfathered under the old negative gearing rules but not under the old CGT rules unless settlement occurred before 1 July 2027. If you exchanged contracts in April 2026 and settled in August 2027, you retain negative gearing but the new CGT rules apply to gains accrued after 1 July 2027. Transitional buyers sit in a mixed position depending on the exact timing.

How Nurses and Midwives Can Access Investment Loan Options Across Multiple Lenders

Not all lenders offer the same investment loan features or apply the same eligibility criteria to healthcare professionals. Some lenders provide rate discounts for nurses and midwives on owner-occupier loans but not on investment loans. Others extend the discount across both loan purposes. A small number of lenders waive LMI on investment loans for nurses up to 90 per cent LVR, but the waiver is rarely automatic and depends on income, employment type, and property location.

Where you are buying a new build to retain negative gearing, confirm that the lender's valuer and credit team will accept the property as an eligible new dwelling under the Treasury definition. Some lenders apply a conservative interpretation and may decline properties that technically qualify. Others accept a broader range including completed units in staged developments where you are the first owner.

If you hold other debt such as a car loan, personal loan, or HECS-HELP balance, the investment loan application will include those liabilities in the serviceability assessment. Paying down or closing short-term debt before applying can improve your borrowing capacity. HECS is assessed as a percentage of income once your salary exceeds the compulsory repayment threshold, even if you are salary packaging to defer the repayment.

Some lenders allow you to capitalise LMI into the loan amount rather than paying it upfront. That increases the total borrowing and the interest cost over time, but it preserves your cash deposit for settlement costs and holding expenses in the first few months. Whether capitalising LMI makes sense depends on your cash position and whether you can use the saved deposit funds to offset interest elsewhere.

Call one of our team or book an appointment at a time that works for you. We work exclusively with nurses and midwives, and we know which lenders will support your first investment purchase under the current tax and lending rules.

Frequently Asked Questions