How to Finance an Investment Townhouse Purchase

Paediatric nurses looking to purchase an investment townhouse face specific financing considerations that differ from owner-occupied lending.

Most lenders treat townhouses as standard dwellings for lending purposes, though body corporate arrangements and strata management can affect both serviceability and property valuation. The loan structure you choose, whether interest-only or principal-and-interest, and whether you buy an established property or a new build, will determine your tax position from July 2027 onward under the recently passed Treasury Laws Amendment (Tax Reform No. 1) Act 2026.

How Much Deposit Do You Need for an Investment Townhouse

Investment property lending typically requires a 20 per cent deposit to avoid Lenders Mortgage Insurance, though some lenders will advance up to 90 per cent loan to value ratio for investors with LMI added to the loan amount.

If you already own property, you may be able to leverage equity rather than saving a cash deposit. Consider a paediatric nurse who owns an owner-occupied home valued at $650,000 with a mortgage of $380,000. They have $270,000 in equity, and can typically access up to 80 per cent of the property value minus the existing debt, giving them around $140,000 in usable equity. That amount could fund the deposit and purchase costs on an investment townhouse without requiring additional savings.

Debt-to-income caps introduced in February 2026 mean lenders can only approve a limited proportion of investor loans at six times gross income or higher, so your borrowing capacity may be lower now than it would have been previously, particularly if you carry other debts.

Interest-Only or Principal-and-Interest Repayments

Interest-only repayments reduce your monthly outgoings and can improve cash flow, particularly in the early years when rental income may not fully cover holding costs.

Most lenders offer interest-only periods of up to five years for investment loans, after which the loan reverts to principal-and-interest unless you apply to extend the interest-only term. The benefit is that all interest on the loan remains deductible, and you do not reduce the deductible debt over time. The downside is that you do not build equity through repayments, and your loan balance remains unchanged.

Principal-and-interest repayments reduce your loan balance over time and build equity, but the repayments are higher. Some paediatric nurses prefer this structure if they plan to hold the property long-term and want to reduce debt ahead of retirement.

Fixed Rate or Variable Rate for Investment Property

Most investment loan products are available with variable or fixed interest rates, or a combination of both.

Variable rates allow you to make extra repayments without penalty and typically come with offset account functionality, though offset accounts on investment loans reduce the interest you pay rather than increasing the deductible interest, so the tax benefit is smaller than it would be on an owner-occupied loan. Variable rates move with the lender's decisions and the Reserve Bank cash rate.

Fixed rates lock in your repayment amount for a set period, typically one to five years, and protect you from rate rises during that time. Most fixed rate products do not offer offset accounts and restrict extra repayments to a capped amount per year, often $10,000 to $30,000. If you break a fixed rate contract before the term ends, you may incur break costs.

Some investors split their loan between fixed and variable to retain flexibility while locking in part of the rate.

Negative Gearing and the July 2027 Changes

Negative gearing allows you to offset rental losses against your other income, including your salary as a paediatric nurse, reducing your taxable income.

From 1 July 2027, rental losses on residential properties purchased after 7:30pm AEST on 12 May 2026 will be quarantined and can only be offset against other residential rental income or carried forward. You will not be able to offset those losses against your wages. Properties acquired before that date and time, including those under contract awaiting settlement, are grandfathered and continue under the current rules.

The exemption for eligible new builds means that if you purchase a townhouse constructed on previously vacant land, or a property where the dwelling count has increased, you can still negatively gear that property under the existing rules. A knock-down rebuild that replaces one townhouse with one townhouse does not qualify. If the new build is occupied for more than 12 months before you buy it, the exemption does not apply to you as a subsequent purchaser.

What Costs Are Deductible on an Investment Townhouse

Interest on the loan, body corporate fees, council rates, landlord insurance, property management fees, repairs and maintenance, and depreciation on fixtures and fittings are all deductible against rental income.

Stamp duty and conveyancing costs are not deductible in the year you incur them, but they can be added to the cost base of the property and reduce your capital gain when you eventually sell. Loan establishment fees and ongoing loan fees are generally deductible in the year they are incurred, though large upfront fees may need to be spread over five years.

If you use a quantity surveyor to prepare a depreciation schedule, the cost of that report is also deductible. Townhouses built after 1985 offer depreciation on both the building itself and the fixtures, though changes to depreciation rules in recent years mean you can only claim depreciation on plant and equipment items if you purchase a new property or the items were purchased new by a previous owner after the legislation changed.

Serviceability and Rental Income Treatment

Lenders assess your ability to repay the loan by applying a serviceability buffer, currently 3 percentage points above the product rate, and by using a percentage of the expected rental income rather than the full amount.

Most lenders will include 80 per cent of the rental income in your serviceability calculation, though some use 70 per cent. If the townhouse is tenanted at the time of purchase and you can provide a copy of the lease, lenders will typically use the actual rent. If the property is vacant, they will use a rental appraisal from a licensed property manager or valuer.

Body corporate fees, council rates, landlord insurance, and property management fees are treated as ongoing costs and reduce your net rental income for serviceability purposes. If the property has high body corporate fees, this can reduce your borrowing capacity even if the rental return is strong.

Refinancing Investment Loans After Purchase

Once you have held the investment property for a period, you may be able to refinance the investment loan to access a lower rate or release equity for further purchases.

If the property has increased in value or you have paid down the loan, you can refinance to 80 per cent of the new valuation without paying LMI. Any funds released through refinancing retain their deductible status provided they are used for income-producing purposes, such as purchasing another investment property or investing in shares. Funds used for private purposes, such as renovating your own home or buying a car, are not deductible even if they are secured against the investment property.

Refinancing can also be used to extend an interest-only period if your original lender will not approve an extension, or to consolidate multiple investment loans under one facility to reduce administration.

Call one of our team or book an appointment at a time that works for you. We work with paediatric nurses and understand how shift work, penalty rates, and employment structures affect loan applications. We access investment loan options from banks and lenders across Australia and structure loans to suit both your current circumstances and your longer-term property investment strategy.

Frequently Asked Questions