Simple hacks to fund your first investment property

How much deposit do you need for your first investment property?

Most lenders require a 20 per cent deposit for investment loans to avoid Lenders Mortgage Insurance. You can borrow with less, but the cost of LMI rises quickly once your loan to value ratio climbs above 80 per cent.

Consider someone buying an apartment in Merrylands as their first investment property. At a 20 per cent deposit, they avoid LMI entirely and typically secure better investor interest rates. With a 10 per cent deposit, they face an LMI premium that may add several thousand dollars to the upfront cost, capitalised into the loan or paid at settlement.

The deposit must come from genuine savings or equity. If you already own a home in or near Merrylands, you can use equity from that property to fund the deposit for your investment purchase. Lenders assess your total borrowing, including the new investment loan, against your income and existing commitments.

Does rental income count when lenders assess borrowing capacity?

Lenders include rental income in your borrowing capacity, but they typically only count 80 per cent of the expected rent to account for vacancy and maintenance periods. The remainder is treated as a buffer.

In Merrylands, where the rental market includes a mix of families, young professionals and workers commuting to Parramatta and the CBD, vacancy rates are generally low. Even so, lenders apply the same 80 per cent rule regardless of local conditions. If the property is expected to rent for $500 per week, the lender will assess your income as if it generates $400 per week.

This shading affects how much you can borrow. If the investment property is negatively geared, the shortfall between rental income and loan repayments is added to your monthly commitments when the lender calculates serviceability. Your borrowing capacity for the investment loan depends on your income, existing debts and how much rental income the lender will recognise.

Should you structure your first investment loan as interest only or principal and interest?

Interest only repayments keep your monthly costs lower and can improve cash flow, especially in the early years when rental income may not cover all holding costs. Most lenders offer interest only periods of up to five years on investment loans.

The trade-off is that you are not reducing the loan balance during that period. Once the interest only term ends, repayments revert to principal and interest, which increases the monthly cost. For someone buying their first investment property in Merrylands, an interest only structure can make the numbers work in the short term while you build equity in your main residence or increase your income.

Principal and interest repayments cost more each month, but you are paying down the debt from day one. If your goal is to own the property outright within 15 or 20 years, or if you are planning to use equity from the investment property to fund a second purchase, paying down principal sooner can accelerate your timeline.

What loan features matter most for first-time property investors?

An offset account linked to your investment loan allows you to park surplus cash and reduce the interest charged without making additional repayments. The benefit is flexibility. If you need access to that cash later, it remains available, whereas extra repayments into the loan itself may be harder to redraw depending on your loan terms.

Redraw facilities let you access any extra repayments you have made above the minimum. Some lenders place conditions on redraws, including minimum amounts and processing times. If you plan to make extra repayments during periods of stronger cash flow, check how the redraw process works before signing.

Rate discounts are typically larger on principal and interest loans than on interest only loans, and they may also vary depending on your deposit size and total borrowing. If you are refinancing an existing loan to fund your first investment property, the discount you receive on the new facility can differ from your current rate.

How does negative gearing work for properties bought after May 2026?

Losses from investment properties acquired after 12 May 2026 can only be offset against other income from residential properties, including capital gains, starting from the 2027-28 income year. Properties held at 12 May 2026 or under contract at that time continue to allow losses to be deducted against all income.

For a first investment property purchase in Merrylands, this means that if you are negatively geared in the first few years, you can carry those losses forward and apply them to reduce tax on rental income once the property becomes positively geared, or against capital gains when you sell. You cannot use the loss to reduce your salary income unless the property qualifies as an eligible new build.

Eligible new builds include dwellings constructed on previously vacant land and properties where the total number of dwellings increases. A unit in a newly completed development in Merrylands qualifies. A renovated older apartment does not.

Interest on your investment loan remains deductible regardless of when you bought, along with other holding costs like council rates, insurance, property management fees and maintenance. The change affects only how and when you can use those deductions to offset other income.

What happens to capital gains tax when you sell your first investment property?

For gains accruing before 1 July 2027, the 50 per cent CGT discount continues to apply if you have held the property for more than 12 months. From 1 July 2027, you index the cost base in line with inflation and pay tax on above-inflation gains only, with a 30 per cent minimum tax rate on real gains accruing after that date.

If you buy an investment property in Merrylands now and sell it in a few years, part of the gain is taxed under the old rules and part under the new rules. You can either obtain a market valuation as at 1 July 2027 or use an ATO formula to split the gain between the two periods.

For eligible new builds, you can choose between the 50 per cent discount and the new indexed cost base method at the time you sell. Whichever delivers the lower tax bill is the one you pick. This choice only applies to new builds, not to established properties.

Can you use equity from your home to buy an investment property in Merrylands?

If you own your home and have built up equity, you can access that equity to fund the deposit and purchase costs for an investment property without selling your existing property. Lenders assess the combined borrowing across both properties and apply serviceability tests to the total debt.

In our experience, buyers in Merrylands who already own a home in the area or nearby suburbs like Guildford, Wentworthville or Granville often use this approach to enter the investment market. The existing property may have increased in value over the past few years, creating equity that can be released through a refinance or top-up.

The risk is that you are now servicing two loans. If interest rates rise or rental income falls, your cash flow tightens. Lenders apply a serviceability buffer of at least 3.0 percentage points above the loan rate when they assess your application, so you need to demonstrate that you can afford both loans even if rates move higher.

You can read more about how to structure this type of borrowing on our investment loans page, or speak to someone who can model different scenarios based on your current equity position.

How do lenders assess your first investment loan application?

Lenders look at your income, existing debts, living expenses, credit history and the rental income the property is expected to generate. They apply the 3.0 percentage point serviceability buffer to the loan rate and assess whether you can afford the repayments at that higher rate.

If you are buying in Merrylands, the lender will also consider the property type and location. Units in older blocks with high body corporate fees or deferred maintenance may be viewed as higher risk than newer apartments or standalone houses. Some lenders cap the number of investment loans they will provide to a single borrower, or limit lending in certain postcodes if they consider the area oversupplied.

Your tax return from the previous financial year is part of the assessment, along with recent payslips, bank statements and details of any other assets or liabilities. If you are self-employed or earning income from a business, lenders typically require two years of financials. The more documentation you provide upfront, the faster the process moves.

What other costs should you budget for when buying your first investment property?

Stamp duty is the largest upfront cost after the deposit. In New South Wales, stamp duty on investment properties is calculated on the full purchase price with no concessions. Legal fees, building and pest inspections, and lender application fees add to the total.

Ongoing costs include council rates, water rates, strata fees if the property is in a complex, landlord insurance, property management fees (typically around 5 to 7 per cent of the rent plus GST), and maintenance. These costs are deductible, but they still need to be funded from rental income or your own cash flow.

If your deposit is less than 20 per cent and you are paying LMI, that premium is also part of the upfront cost. Some lenders let you capitalise the LMI into the loan rather than paying it at settlement, which reduces the cash you need on the day but increases your loan balance and monthly repayments.

What makes Merrylands an option for first-time investors?

Merrylands is located around 25 kilometres west of the Sydney CBD, with direct train access to Parramatta, the CBD and surrounding suburbs. The area attracts renters working in Parramatta's business district, as well as families and older residents who have lived in the suburb for years.

The housing stock includes a mix of older brick units, townhouses and detached homes on smaller blocks. Stockland Mall Merrylands and Merrylands RSL are central to the local retail and community life, and the suburb is close to schools, parks and the Prospect Reservoir walking trails.

Rental demand is supported by the suburb's affordability relative to inner western suburbs and its transport links. Vacancy rates in the area are generally low, though the 80 per cent rental income rule applies regardless of local conditions when lenders assess your application.

Call one of our team or book an appointment at a time that works for you to talk through your deposit position, borrowing capacity and loan structure before you start looking at properties. We work with investors across Merrylands and surrounding suburbs and can connect you with lenders who understand the local market.

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