Plan the next property without losing sight of the one after it.
Lenders generally look at investment applications differently to owner-occupier ones, particularly how they treat expected rental income and your overall portfolio of debts. As you add properties, the assessment gets more sensitive to policy differences, not less.
A worked example: rental income shading
Say the expected rent on a property is $600 a week, around $31,200 a year. Lenders don’t typically count that in full toward servicing; most apply a “shading” discount to allow for vacancy, agent fees and maintenance. One policy might count 80% of expected rent (roughly $24,960 assessable); another might count 70%, or want an actual signed lease before counting any of it for a new purchase. On a single property that’s a few thousand dollars of difference, across a growing portfolio, the gap compounds.
What else varies by lender
- Rental income shading, the percentage of expected or actual rent counted toward servicing
- Existing investment debt treatment, how interest-only balances on other properties are factored into your capacity for the next one
- Interest-only availability and maximum term, not every lender offers the same IO terms on investment lending, and policy in this area has tightened and loosened over time
- Portfolio servicing calculators, once you hold multiple properties, some lenders reassess your whole portfolio’s serviceability at every new application, not just the new loan in isolation
- Maximum LVR for investment purchases, often, though not always, a little more conservative than owner-occupied lending
Equity is not borrowing capacity
A property that’s grown in value gives you usable equity, but that alone doesn’t mean the next purchase is serviceable, the servicing test still applies to your income, expenses and existing debts, not just the equity available as a deposit. Two investors with identical equity positions can have very different capacity for a third or fourth property, depending on how their existing debts and rental income are being read by a given lender’s policy.
What to prepare
- Current lease agreements or a rental appraisal for any property not yet tenanted
- A full list of existing investment debts, balances, rates and whether each is P&I or IO
- Recent rates notices and, if held, valuations for existing properties
- A clear view of your overall portfolio strategy, buy-and-hold, value-add, or planning to sell, since it can affect which structure fits best
Next step: the Funds Position and Deposit & LVR tools give you a starting estimate; talk with KartikKumar about how your existing portfolio affects the next purchase specifically.