Investment Loans for Apartments: What to Consider

Lenders treat apartment purchases differently from houses when assessing investment loan applications.

The loan to value ratio you can access, the interest rate applied, and whether you'll pay Lenders Mortgage Insurance all shift depending on apartment size, building type, and location. In our experience, investors who understand these distinctions before they start searching save months of back-and-forth with lenders and avoid tying up deposits on properties they cannot finance.

How Apartment Size Affects Your Investment Loan Amount

Most lenders restrict lending on apartments below 50 square metres, and some won't lend on units smaller than 60 square metres regardless of location or price. This directly impacts your borrowing capacity and the range of lenders willing to support your purchase.

Consider a buyer who finds a 48-square-metre apartment in Brisbane's inner south listed at $420,000. The rental yield sits at 5.2%, and body corporate fees are manageable at $1,100 per quarter. On paper, the numbers work. When the buyer approaches their bank for an investment loan, they discover the lender's minimum apartment size is 50 square metres. Three other lenders have the same restriction. The buyer either needs to find a broker who knows which lenders will accept the property or walk away from the purchase. In this scenario, two lenders on our panel will finance apartments from 40 square metres, but both require a 20% deposit and apply a rate loading of 0.15% to 0.20% above their standard variable interest rate.

Interest Only Investment Loans and Apartment Valuations

Interest only loans remain a common structure for property investors seeking to maximise tax deductions and manage cash flow, but lenders value apartments more conservatively than houses. An interest only investment loan on an apartment may require a lower loan to value ratio than the same loan on a house in the same suburb.

Valuers assess apartments based on recent comparable sales within the same building or nearby complexes. If the building is new or has limited sales history, valuers often apply a discount to the purchase price. This creates a gap between what you pay and what the lender believes the property is worth. If you're purchasing an apartment for $550,000 with a 10% deposit and the valuation comes back at $520,000, your LVR jumps from 82% to 86% based on the lender's assessment. You'll either need to increase your investor deposit or accept Lenders Mortgage Insurance, which adds several thousand dollars to your upfront costs.

Why Body Corporate Matters to Lenders

Lenders scrutinise body corporate reports during the investment loan application process because high fees or low sinking fund balances signal financial risk. Body corporate fees above $2,000 per quarter often trigger additional questions, and buildings with pending special levies can delay or derail approval.

We regularly see this with older apartment blocks undergoing major works. A buyer applies for finance on a two-bedroom unit in an established complex near the CBD. The quarterly body corporate fee is $1,850, which sits within acceptable range. During the application, the lender's solicitor reviews the body corporate minutes and identifies a special levy of $18,000 per unit approved for building remediation works. The lender reduces the borrowing amount to account for this liability, leaving the buyer $18,000 short at settlement unless they can source additional funds. Had the buyer obtained the body corporate records before making an offer, they could have factored this cost into their property investment strategy from the outset.

Fixed Rate Versus Variable Rate on Investment Property Finance

Investors choosing between a fixed interest rate and variable rate for apartment purchases should consider their cash flow tolerance and portfolio growth plans. A fixed rate provides certainty over repayments for one to five years, which helps when calculating investment loan repayments for budgeting purposes. A variable rate offers flexibility to make extra repayments or refinance without break costs, which matters if you plan to leverage equity for your next purchase within a few years.

Apartment investors often benefit from splitting the loan between fixed and variable portions. If you're borrowing $480,000 at an 80% LVR, you might fix $240,000 for three years to lock in known repayments and keep $240,000 on a variable rate to maintain flexibility. This structure protects against rate rises while preserving your ability to access equity release when expanding your property portfolio. The split also allows you to offset rental income against the variable portion using an offset account, reducing interest charges without losing the fixed rate security.

Negative Gearing Benefits and Claimable Expenses on Apartments

Negative gearing occurs when your investment property costs more to hold than it generates in rental income, creating a tax deduction against your other income. Apartments typically deliver higher rental yields than houses in the same area, but they also carry ongoing costs that reduce your net position. Body corporate fees, council rates, water charges, property management fees, and interest payments all become claimable expenses when calculating your taxable income.

For an apartment purchased at $500,000 with a 15% deposit and an interest only loan, your annual interest cost at current variable rates might sit around $24,000. Add $7,400 in body corporate fees, $2,200 in council and water rates, $3,900 in property management fees, and $1,500 in landlord insurance. Your total annual costs reach $39,000. If the apartment rents for $650 per week, your gross rental income is $33,800. The $5,200 shortfall becomes a tax deduction. At a marginal tax rate of 37%, this deduction reduces your tax bill by roughly $1,924, bringing your actual out-of-pocket cost to $3,276 per year. This structure allows you to build wealth through capital growth while the tenant pays down the debt if you switch to principal and interest repayments later.

Vacancy Rate and Rental Income Projections

Lenders assess your ability to service the loan based on the rental income the property can generate, but they apply a haircut to your projected rent to account for vacancies and management costs. Most lenders calculate serviceability using 80% of the rental income, which assumes a 20% buffer for periods when the property sits vacant or requires maintenance between tenants.

If you're buying an investment property that will rent for $600 per week, the lender uses $480 per week when calculating whether you can afford the repayments. This reduced figure affects how much you can borrow, particularly if you're relying on the rental income to support multiple investment properties. Apartments in oversupplied areas or buildings with high vacancy rates face stricter assessment. Some lenders won't accept rental income at all if the building contains more than 50% investor-owned units, forcing you to service the loan entirely from your employment income.

Investment Loan Refinance and Portfolio Growth

Refinancing your existing investment property loans can unlock equity for additional purchases without selling assets. As your apartment increases in value, the gap between your loan amount and the property's current worth becomes available equity. If you purchased an apartment for $450,000 three years ago with a 15% deposit and the property is now valued at $510,000, you've gained $60,000 in equity plus the principal you've repaid.

Lenders typically allow you to borrow up to 80% of the property's current value without paying LMI again. At $510,000, an 80% LVR gives you a maximum loan of $408,000. If your current loan balance is $360,000, you can access $48,000 in usable equity. This amount can fund a deposit on your next purchase, though you'll still need to demonstrate you can service both loans. Refinancing your investment property also provides an opportunity to secure investor interest rates lower than your current rate or switch lenders to access better investment loan features such as offset accounts or higher redraw limits.

Call one of our team or book an appointment at a time that works for you to discuss how different lenders assess apartment purchases and which investment loan options suit your portfolio plans. We'll review the specific property you're considering and identify any lending restrictions before you make an offer.

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