Top 10 Ways to Fund Your First Investment Property

Investment Loan Basics for ADF Members

An investment loan is structured differently to an owner-occupier home loan because lenders assess it based on rental income potential, not just your salary. The property needs to generate enough rent to cover a portion of the repayments, and you need to show you can service the shortfall from your Defence pay.

Most lenders will assess rental income at 80 per cent of the actual rent to account for vacancy and maintenance costs. If a property in Kapooka or the surrounding Wagga Wagga region rents for $400 per week, the lender will use $320 per week in their serviceability calculation. You still need to cover the gap between that assessed income and the full loan repayment, plus your existing living costs.

Deposit requirements sit higher for investment purchases. Where Defence members can access no LMI loans with a 5 per cent deposit for an owner-occupier purchase, most lenders require at least 10 per cent for an investment property, and some want 20 per cent to avoid Lenders Mortgage Insurance altogether. That minimum 10 per cent must come from genuine savings or equity in an existing property, not a gift or bonus unless it has been held in your account for at least three months.

How the New Tax Rules Change Your Numbers

From 1 July 2027, the way negative gearing works will depend on when and what you buy. If you purchase an established property after 7:30pm on 12 May 2026, any rental loss can only be offset against other rental income or carried forward to use against future rental income or capital gains. You cannot offset that loss against your Defence salary.

Consider a member who purchases an established townhouse in Wagga Wagga in late 2026. The loan repayments, rates, insurance, and maintenance total $35,000 per year. Rental income is $22,000. Under the old rules, that $13,000 loss could reduce taxable income, delivering a tax refund of around $4,000 to $5,000 depending on marginal rate. Under the new rules applying from mid-2027, that $13,000 loss is quarantined and stored. It can only be used when the property is sold or if the member buys another rental property that turns a profit.

New builds are exempt from this quarantine. If the property is constructed on previously vacant land, or if it replaces an existing dwelling and increases the total number of dwellings on the site, you can still offset losses against salary. A knock-down rebuild that does not add dwellings does not qualify. For ADF members posted to Kapooka who are looking at land and build opportunities in growth areas around Wagga Wagga, this exemption is worth understanding in detail.

Deposit Strategies When You Already Own a Home

If you already own a property, you can use equity in that property to fund the deposit on an investment purchase without selling or saving cash. Equity is the difference between what the property is worth and what you owe on it. Most lenders will let you borrow up to 80 per cent of the value of your existing home without paying Lenders Mortgage Insurance.

In our experience, this is how many ADF members fund their first investment property. You purchased a home in Kapooka or another posting location a few years ago. It has increased in value, and you have paid down some of the loan. A lender will revalue that property, calculate 80 per cent of the new value, subtract your current loan balance, and the remainder is your available equity.

That equity can be released through a top-up of your existing loan or a separate equity loan, then used as the deposit and costs for the investment property. The investment property itself is used as security for its own loan. You end up with two loans: one against your home, one against the investment property. This structure is common, and it lets you move quickly without waiting to save a cash deposit. You can read more about this process in our guide to equity release loans.

Interest Only Repayments and Cash Flow

Most investors choose interest only repayments for the first few years. You pay only the interest portion of the loan, not the principal, which keeps the monthly repayment lower and improves cash flow. The loan balance does not reduce, but the property is expected to grow in value over time.

Interest only periods typically run for one to five years, after which the loan reverts to principal and interest unless you apply to extend. The benefit is that your out-of-pocket cost each month is lower, which matters when rental income does not cover the full repayment. The downside is that you are not building equity through loan reduction, only through property price growth.

For Defence members with variable incomes due to allowances or deployment, interest only loans can provide breathing room during periods of lower pay. Once you return to standard duties or receive a pay rise, you can switch to principal and interest or make extra repayments to reduce the balance.

Fixed Rate or Variable Rate for Investment Loans

You can fix the interest rate on an investment loan, lock in a variable rate, or split the loan across both. Fixed rates give you certainty over repayments for a set period, usually one to five years. Variable rates move with the market and usually come with more flexibility, such as the ability to make extra repayments or access a redraw facility.

Most lenders price investment loans at a slightly higher rate than owner-occupier loans, typically 0.20 to 0.50 percentage points higher. The exact margin depends on your deposit size, loan amount, and lender. Some lenders also reduce the rate if you already hold an owner-occupier loan with them, treating the investment loan as part of a package.

If you expect interest rates to rise, a fixed rate can protect you from repayment increases. If you expect rates to fall or want the flexibility to make lump sum payments from deployment income, a variable rate or split structure works better. There is no universal right answer, and the decision depends on your cash flow, risk tolerance, and how long you plan to hold the loan.

Borrowing Capacity and the Debt to Income Cap

From 1 February 2026, lenders apply a debt to income cap to new loans. Total borrowings cannot exceed six times your gross annual income for more than 20 per cent of a lender's investor loan book. For most ADF members, this cap will not bind, but it does matter if you are trying to borrow a large amount relative to your salary or if you already have other debts.

Lenders also apply a serviceability buffer of 3 percentage points above the actual interest rate when they assess whether you can afford the loan. If the investment loan rate is 6.5 per cent, they will test your ability to repay at 9.5 per cent. This buffer is set by the regulator and is not negotiable.

Allowances can be included in your income assessment, but lenders treat them differently. Field allowance, separation allowance, and deployment allowances are often included at 80 to 100 per cent of their value, depending on the lender. You will need to provide recent payslips showing the allowances and, in some cases, a letter from your unit confirming their ongoing nature. Your borrowing capacity for an investment loan is usually lower than for an owner-occupier loan because lenders only count 80 per cent of the rental income.

Claimable Expenses and Tax Deductions

Even with the new quarantine rules on rental losses, you can still claim the same expenses. Interest on the loan, property management fees, council and water rates, building insurance, repairs and maintenance, and depreciation on fixtures and fittings are all deductible. The difference is where those deductions can be used.

For established properties purchased after 12 May 2026, deductions that create a loss are quarantined. For new builds or properties purchased before that date, deductions that create a loss can offset other income. The deductions themselves have not changed, only the ability to use them immediately.

Depreciation is a non-cash deduction that can add several thousand dollars per year to your total claimable expenses, particularly on newer properties. You will need a quantity surveyor's depreciation schedule, which costs around $500 to $800, to claim this correctly. It is worth doing if the property is less than 15 years old.

Loan Features That Matter for Investors

Most investment loan products include an offset account or redraw facility. An offset account is a transaction account linked to the loan. The balance in the offset reduces the amount of interest charged without reducing the loan balance itself. If you have a $400,000 loan and $20,000 in the offset account, you only pay interest on $380,000.

This feature is useful if you are building cash reserves for future purchases or holding deployment income that you want to keep liquid. The alternative is a redraw facility, which lets you withdraw any extra repayments you have made above the minimum. Redraw is less flexible than offset because some lenders restrict how much or how often you can access it, and there can be processing delays.

Portability is another feature to consider. If you sell the investment property and buy another, some lenders will let you transfer the loan to the new property without reapplying or paying discharge fees. This is useful for ADF members who may move between posting locations and want to adjust their portfolio without starting from scratch.

Refinancing an Investment Loan

Once you have held an investment loan for a year or more, refinancing can reduce your rate, access equity for further purchases, or switch loan features. Lenders compete for refinance business, and the rates offered to new customers are often lower than the rate you are paying on an existing loan.

Refinancing also lets you consolidate debt or restructure your loans if your circumstances have changed. If you have paid down your owner-occupier loan and built equity, you can refinance both loans at the same time to access better pricing or release equity for a second investment property. We regularly see members refinance after a posting, a promotion, or a change in family circumstances that affects cash flow or long-term plans.

Building a Multi-Property Portfolio

Once you have held your first investment property for 12 to 24 months, the equity in that property can be used to fund a second purchase. This is how most investors grow a portfolio without saving another deposit from salary. The first property increases in value, you access that equity, and you use it as the deposit for the next property.

The new tax rules make this progression more important. If your first property is an established dwelling purchased after 12 May 2026 and it runs at a loss, that loss is quarantined. If you then purchase a second property that turns a profit, the loss from the first property can offset the profit from the second. The quarantine applies across your entire residential rental income, not property by property. This means that as your portfolio grows and rental income increases, those stored losses become useful again. You can read more about this in our article on expanding your property portfolio.

Call one of our team or book an appointment at a time that works for you. We work with ADF members across all ranks and posting locations, and we can structure your investment loan to suit your deployment schedule, income profile, and long-term plans.

Frequently Asked Questions