Investment Loans: What Not to Do with Your Property Goals

An investment loan is not the same thing as a property investment strategy.

Most landscapers looking to borrow for a rental property walk into a lender or broker with a property in mind and a deposit saved. That's the application side sorted. But the loan structure, the repayment type, the offset setup and the tax treatment all need to line up with what you're actually trying to achieve. If they don't, you'll spend years paying down a loan that works against your goals rather than for them.

The mistake landscapers make with interest-only periods

Interest-only repayments on an investment loan reduce your monthly outgoings and maximise the amount of interest you can claim as a tax deduction. For a landscaper running their own business and managing irregular cash flow through summer and winter, that flexibility matters. But interest-only is not a set-and-forget decision.

Consider a landscaper who borrows to buy a two-bedroom unit. They take an interest-only period for five years, planning to switch to principal and interest when their income stabilises. The loan amount stays flat for five years. At the end of that period, the repayments jump because the remaining loan term is shorter and the principal still needs to be repaid. If their income hasn't lifted as expected, or if variable rates have climbed, they're stuck refinancing or selling.

The better approach is to lock in an interest-only period that aligns with a specific outcome, such as paying down non-deductible debt on your home loan first, or building enough equity to fund a second purchase. Once that's done, switch to principal and interest. The interest-only period is a tool, not a default setting. For more on structuring loans around your specific trade income, see Finance for Tradies.

Fixed versus variable rates for property investors

Fixed rates give you certainty. Variable rates give you flexibility and access to offset accounts. For an investment loan, the offset account is often worth more than the certainty.

A landscaper with a $400,000 investment loan on a variable rate and a linked offset account can park their business operating account in that offset. If they hold $30,000 in the offset on average, they're saving interest on that amount without reducing the loan balance. The full loan amount stays deductible. If they'd fixed the rate instead, that $30,000 sits in a separate account earning negligible interest and getting taxed.

Fixed rates make sense if you're borrowing at the upper limit of your serviceability and need to lock in repayments you can afford, or if you expect rates to climb sharply. But for most landscapers with variable income and a healthy cash buffer, a variable rate with a proper offset setup delivers more value. You can split the loan if you want some of both, but don't fix the whole amount just because it feels safer.

Deposit size and LMI on investment loans

Lenders Mortgage Insurance gets charged when your loan to value ratio exceeds 80 per cent. On an investment loan, the LMI premium is higher than it would be for an owner-occupier loan at the same LVR, because the lender's risk weight is higher under the prudential standards.

For a landscaper buying a rental property, the decision is whether to wait and save a 20 per cent deposit, or pay the LMI and get into the market sooner. If property values in your target area are climbing faster than you can save, paying the LMI might make sense. If the market is flat, you're better off waiting and keeping that capital for settlement costs, repairs or a larger offset buffer. The LMI premium itself is not deductible, though you can sometimes capitalise it into the loan amount.

Some lenders will go to 90 per cent or even 95 per cent LVR on investment loans, but the LMI premium at that level is steep, and your serviceability needs to be rock solid. If you're self-employed and using low-doc or alternative income verification, you'll generally be capped at 80 per cent LVR regardless of your willingness to pay LMI.

Serviceability buffers and debt-to-income limits

Every lender assesses your ability to repay an investment loan by adding a buffer of at least 3.0 percentage points to the loan's interest rate. If you're borrowing at 6.5 per cent variable, the lender tests your serviceability at 9.5 per cent. They also apply a debt-to-income limit: from February 2026, no more than 20 per cent of a lender's new investment loans can go to borrowers with total debt of six times their income or more.

For a landscaper earning $120,000 a year, that means total debt across all loans can't exceed $720,000 if you want to stay under the DTI threshold. If you've already got a $500,000 home loan, you've got $220,000 of headroom before you hit the limit. That doesn't mean you can't borrow more, it just means the lender has less capacity to approve it, and you might need to shop around.

Rental income from the investment property helps your serviceability, but lenders typically only count 80 per cent of the expected rent to account for vacancy periods and management costs. If the property rents for $500 a week, the lender will assess it at $400 a week, or roughly $20,800 a year.

Negative gearing and the tax changes from 2027-28

Negative gearing means your rental income is less than your loan interest and holding costs, and you claim that loss against your other income to reduce your tax. For landscapers on a decent taxable income, that's a meaningful offset.

But the rules changed in May 2026. If you buy an established rental property now, you can still negatively gear it until 30 June 2027. From the 2027-28 income year onward, losses from that property can only be offset against other residential property income, not against your landscaping income. Losses can be carried forward, and you can still claim them when you sell, but the year-to-year tax benefit disappears unless you own multiple properties or qualify for an exemption.

New builds are exempt. If you buy a property that's just been built on vacant land, or a development that increases the dwelling count, you can negatively gear it under the old rules indefinitely. That's a significant difference in after-tax cash flow, and it's worth running the numbers with your accountant before you commit to a purchase. The capital gains tax treatment also changes from July 2027, replacing the 50 per cent discount with cost base indexing and a 30 per cent minimum rate on real gains. For more on how investment loans fit into your broader property plans, see Investment Loans for Tradies.

What actually drives portfolio growth

Portfolio growth is not about owning multiple properties. It's about owning properties that increase your total equity faster than they drain your cash flow.

A landscaper earning $130,000 a year buys a $500,000 unit with a 20 per cent deposit and an investment loan of $400,000. Rent covers most of the interest, and after tax deductions the property costs them $3,000 a year to hold. Over five years, the property appreciates to $600,000. They've spent $15,000 holding it, and they've gained $100,000 in equity. They use $80,000 of that equity as a deposit on a second property, leaving $20,000 in the first property as a buffer.

That's the formula. You don't need to buy ten properties. You need to buy properties that grow equity faster than they consume income, and then use that equity to fund the next purchase when your serviceability allows it. The loan structure needs to support that strategy, which means keeping debt separated, keeping deductible debt high, and keeping your cash flow predictable. For more on how to release equity properly, see Equity Release Loans for Tradies.

Refinancing an investment loan when your circumstances change

You don't refinance an investment loan just because another lender offers a lower rate. You refinance when the loan no longer fits your circumstances, or when you need to access equity, or when your current lender won't offer you the features you now need.

A landscaper with a $350,000 investment loan on a fixed rate that's about to expire might refinance to a variable rate with an offset if they've built up a cash buffer. Another landscaper with an interest-only loan coming to the end of its five-year term might refinance to a new lender and take another five-year interest-only period rather than switching to principal and interest. Refinancing resets your options, but it also resets your costs: application fees, valuation fees, discharge fees and sometimes a new round of LMI if you're borrowing more.

The decision comes down to whether the benefit outweighs the cost. If you're refinancing to access $100,000 in equity to fund a second purchase, the cost is worth it. If you're refinancing to save 0.2 per cent on the interest rate and the break costs and fees eat up two years of that saving, it's not. For more on structuring loans around your individual trade circumstances, see Home Loans for Landscapers.

Call one of our team or book an appointment at a time that works for you. We work with landscapers across Australia and can structure investment loans around your actual property goals, not just the purchase you've got in front of you right now.

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