The Pros and Cons of Investment Loans for Apartments

Buying an investment apartment means choosing between immediate tax relief through negative gearing and long-term portfolio flexibility.

For Gosnells residents looking to enter the property market without the land maintenance demands of a house, apartments offer an accessible entry point. The challenge is understanding how loan structure, rental yield and body corporate obligations intersect before you commit to a purchase. Whether you're considering an older unit in Gosnells Central or a newer development closer to the train line, the loan you choose will shape your cash flow and tax position for years.

Can You Borrow Enough to Make the Numbers Work?

Most lenders assess your capacity to service an investment apartment loan at a rate at least 3 percentage points above the actual loan rate. If a lender quotes you a variable rate, you'll need to demonstrate that your income can cover repayments calculated at that rate plus the buffer. Lenders also discount rental income, typically by 20 per cent, to account for vacancy periods and maintenance costs. For an apartment in Gosnells, where rental demand is reasonably steady due to proximity to Albany Highway and the train station, that discount still applies. If the property is advertised with rental income around $400 per week, the lender will calculate serviceability using roughly $320 per week.

Consider a buyer who earns $85,000 annually and wants to purchase an apartment with a 10 per cent deposit. The lender's serviceability calculation includes existing debts, living expenses and the buffered loan repayment. If this buyer also carries a car loan or personal debt, the amount they can borrow for the apartment drops significantly. We regularly see buyers assume they can borrow based on the advertised rate, only to find their borrowing capacity is constrained by the buffer and rental income discounting.

Interest Only or Principal and Interest: Which Suits Your Situation?

Interest-only repayments on an investment apartment loan reduce your monthly outgoings and increase your tax-deductible interest, which can be attractive if you're negatively gearing the property. Principal and interest repayments build equity from day one but reduce the size of your deduction and increase your cash commitment. The decision depends on whether you need cash flow relief now or prefer to reduce debt over time.

For an apartment purchased in Gosnells at the current median for units, an interest-only loan might cost several hundred dollars less per month than principal and interest. That difference matters if you're holding the property through periods of vacancy or unexpected body corporate levies. However, interest-only periods are typically limited to five years, and lenders will reassess your loan at the end of that period. If you haven't built equity and property values haven't moved much, refinancing or extending the interest-only term can be more difficult. Investment loans structured with a longer principal and interest term from the start remove that refinancing risk but require higher serviceability at approval.

Variable or Fixed: What Happens When Rates Change?

Variable rates on investment apartment loans give you flexibility to make extra repayments, redraw funds and refinance without break costs. Fixed rates lock in your repayment for a set period, usually one to five years, but limit your ability to adjust the loan or pay it down early without penalty. For apartments, where body corporate fees and maintenance costs can be unpredictable, variable rate loans offer more room to adapt.

In our experience, investors who fix their rate often do so to create certainty around cash flow, particularly if they're negatively gearing and want to forecast their tax position accurately. The downside is that if you need to sell the apartment or refinance before the fixed term ends, break costs can be significant. Those costs are calculated based on the lender's funding arrangements and the difference between your fixed rate and current wholesale rates. For an apartment in Gosnells, where sale timelines can stretch if the market softens, being locked into a fixed rate adds a layer of risk. A split loan, combining a portion on a fixed rate and the remainder on variable, is one way to balance certainty with flexibility, but it also means managing two loan accounts and understanding how each component behaves under different conditions.

Body Corporate Fees and How Lenders Treat Them

Lenders assess your capacity to service an investment apartment loan based on all holding costs, including body corporate fees. For older apartment complexes in Gosnells, quarterly levies might sit around $800 to $1,200, while newer developments with amenities can push that figure higher. Those fees are deductible against rental income for tax purposes, but they reduce your net yield and, in the lender's eyes, increase the cost of holding the property.

If the apartment you're purchasing has high body corporate fees relative to its rental income, some lenders will treat the investment as higher risk and either reduce the amount you can borrow or require a larger deposit. This is particularly relevant for apartments in complexes with shared facilities like pools, gyms or lifts, where special levies for major repairs can be imposed with little notice. Before you apply for finance, ask for a copy of the body corporate records, including the sinking fund balance and any planned maintenance. Lenders won't necessarily review those documents in detail at pre-approval, but they can surface during full assessment if the fees look disproportionate to the property value.

Loan to Value Ratio and Lenders Mortgage Insurance

If your deposit is less than 20 per cent of the apartment's value, you'll pay Lenders Mortgage Insurance. LMI protects the lender if you default, but it's a cost you pay upfront or capitalise into the loan. The premium is calculated on a sliding scale based on your loan amount and deposit size. For an apartment, where values can be more volatile than houses, some lenders apply stricter LVR limits or decline to lend above 90 per cent altogether.

Gosnells has a mix of older low-rise units and newer medium-density developments, and lenders assess them differently. A 1980s walk-up with no lift might be capped at 80 per cent LVR by some lenders, even if you're willing to pay LMI, because of concerns about future saleability. Newer apartments with strata management and facilities are generally more acceptable security, but you'll still need to demonstrate rental income and serviceability. If you're borrowing at 90 per cent LVR, the LMI premium alone can add several thousand dollars to your upfront costs, and you'll need to factor that into your borrowing capacity before you make an offer.

Tax Treatment: Negative Gearing and the Rules from 2027

Interest on your investment apartment loan is deductible against rental income, along with other holding costs like rates, insurance, property management fees and body corporate levies. If your deductions exceed your rental income, you're negatively gearing the property, and you can offset that loss against your other income, including salary. For apartments purchased before 12 May 2026, or eligible new builds purchased after that date, negative gearing continues to work the same way it always has.

For established apartments purchased after 12 May 2026, the rules change from the 2027-28 income year. Losses on those properties can only be offset against other residential property income, not against your salary or wages. You can still carry forward unused losses to future years and use them when you sell the property or earn income from other residential investments, but the immediate tax relief disappears. If you're considering an established unit in Gosnells now, that change is already in effect for new purchases, and it shifts the financial case for negative gearing significantly. New builds remain exempt, which is worth considering if developments in the area meet the eligibility criteria.

Refinancing an Investment Apartment Loan

Once your apartment is settled and tenanted, refinancing becomes an option if rates drop, your equity increases or you want to release funds for another purchase. Lenders reassess your income, expenses and the apartment's current value before approving a refinance. For apartments, valuation can be more subjective than houses, particularly in areas like Gosnells where comparable sales vary widely depending on the age, size and location of the unit.

If your apartment hasn't increased in value since you purchased it, refinancing to release equity or avoid LMI on a top-up loan may not be possible. Lenders also apply the same rental income discount and serviceability buffer to refinance applications as they do to new loans, so if your circumstances have changed or your other debts have increased, you might not qualify for the same loan amount you were originally approved for. We regularly see investors assume refinancing will be straightforward, only to find that serviceability or valuation constraints limit their options. If you're planning to use equity from the apartment to fund further purchases, build that scenario into your initial investment loan structure rather than assuming it will be available later.

If you're weighing up whether an investment apartment fits your situation, or you want to understand how loan structure and tax treatment apply to your specific circumstances, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions