Avoid These 5 Rental Property Loan Mistakes as ADF

Buying a rental property on ADF pay works well when the loan is built around your income, your postings and your cash flow. Most costly mistakes come from the loan structure, not the property.

This guide is for ADF members in Queensland weighing up an investment loan to buy a property for rental income. Below are five mistakes to avoid before you sign anything.

Mistake 1: Assuming Interest Only Lets You Borrow More

An interest-only investment loan does not increase how much you can borrow. Lenders assess it 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 as if you will repay principal and interest over the remaining 25 years. That means the loan you qualify for can be lower than on a standard principal and interest loan.

Interest only does lower your repayments in the early years, which can help cash flow during a busy posting. The trade-off is that your loan balance does not fall, and when the period ends, repayments rise because you repay the full balance over a shorter time. Our interest only loans for ADF members page explains how this works in more detail.

How Much Rental Income Will a Lender Count?

APRA's guidance is that prudent serviceability policies apply a minimum haircut of 20% on expected rent, so no more than 80% of expected rent is counted. This allows for periods when the property is empty. Each lender sets its own rental income policy.

This haircut is not for management fees, repairs or other holding costs. Those costs still come out of your budget. Lenders also tend to trust actual rent received more than a rental appraisal on a property you are yet to own. Check your numbers with the borrowing capacity calculator before you go house hunting.

Mistake 2: Ignoring the Serviceability Buffer

Banks must test your ability to repay at a rate at least 3.0 percentage points above the loan's actual rate. This applies to investment loans for new borrowers.

If you are comparing a loan rate of 6.75% p.a. (an illustrative rate only), the bank tests you at 9.75% p.a. Your other debts count too. A car loan or credit card limit reduces what you can borrow, even if you pay the card off each month. Clear or reduce debts before applying where you can.

Banks also have limits on how much of their new lending can go to borrowers with very high debt compared to income. It is a bank-wide measure, not a cap on you, but a lender may still be cautious if your debt is large compared to your pay.

Mistake 3: Getting the Tax Rules Wrong

Interest on money borrowed to buy a rental property is generally deductible, but only the interest part of your repayment. The principal part is not deductible. This applies whether you choose interest only or principal and interest.

Negative gearing rules have changed. Losses on residential properties you held at 7:30pm AEST on 12 May 2026 remain deductible against other income, including your salary. For established properties bought after that time, net rental losses will only be deductible against other residential property income from the 2027-28 income year. Eligible new builds can still use losses against all income. Properties bought between 12 May 2026 and 30 June 2027 can be negatively geared under the current rules until 30 June 2027 only.

Capital gains rules also change from 1 July 2027, when the 50% discount is replaced by cost base indexation and a 30% minimum tax rate on gains accruing from that date. Your accountant should model this before you buy, as tax outcomes depend on your personal situation and are never certain.

Mistake 4: Mixing Personal Spending With Investment Borrowing

Interest is only deductible when the borrowed money is used to earn income. If you pull equity from a property or redraw funds for a holiday or a car, interest on that part is not deductible.

Consider an ADF member in Queensland with a home loan and enough equity to fund a deposit on a rental. Their broker sets up a separate loan split for the deposit and costs, kept apart from any personal spending. The outcome is a clean record of what the borrowing was used for, which makes tax time simpler for the accountant and avoids a partly deductible loan. The trade-off is that a new split may carry its own fees and a different rate, so it needs to be compared properly. Our equity release loans page covers this option.

An offset account reduces the interest you are charged, which also reduces the interest you can claim. It does not change the loan amount, and it does not reduce the balance used to work out your LVR.

Mistake 5: Skipping the Plan for Vacancy and Posting Changes

A rental property will have gaps between tenants, and your loan repayments continue during those gaps. Plan for them before you buy.

As an example, a member posted interstate keeps a buffer in an offset account to cover several weeks of repayments when a tenant leaves. The buffer reduces interest while it sits there, and can be used to cover costs when rent stops. The risk is that the cash is tied up and you must resist spending it.

If repayments become hard to meet, tell your lender early. Borrowers under a regulated credit contract can give notice of hardship, verbally or in writing, and the lender must respond within set timeframes. If you are new to this, our guide to buying your first investment property walks through the early decisions.

Lenders set their own rules on deposits, LVR above 80% and Lenders Mortgage Insurance, so what you pay depends on your deposit size and lender. Defence Loans compares options from lenders across Australia so the loan fits your service life.

Call one of our team or book an appointment at a time that works for you. We will map out your investment loan options before you commit to a property.

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