The Smart Way to Finance an Investment Property in Australia (A First-Time Investor’s Playbook)

Whether you’re buying your first investment property or planning number two and three, the finance structure you choose will either accelerate your portfolio—or quietly hold it back. This guide walks you through the essentials of investment property finance in Australia, in plain English, with a clear focus on cash flow, scalability, and risk management.

I’m Jack Brazel, a mortgage broker and active property investor. My approach is simple: strategy first, loan next. Here’s how to set your portfolio up the right way from day one.

1) Start with the plan, not the product

Most investors begin by hunting for the “best rate.” That’s fine—but structure and policy usually decide what you can buy, how fast you can grow, and how well you sleep when rates move. Before choosing a lender:

• Define your next 12–24 months. One purchase or two? Renovation? Subdivision? Hold or flip?

• Know your buffers. Aim for multiple months of expenses in offsets across your loans.

• Pick a structure that scales. Fewer headaches now and more borrowing capacity later.

A well-designed plan means you won’t have to refinance every time you want to make a move.

2) Borrowing capacity: what really matters

Every lender calculates borrowing capacity differently, but most look at:

• Income mix: PAYG vs. self-employed, bonuses, overtime, rental income (often shaded), and negative gearing add-backs (varies by lender).

• Living expenses: Measured against your declared spend and internal benchmarks.

• Existing debts: Credit cards (limit matters), car loans, HECS/HELP, personal loans, and BNPL.

• Assessment rates: Lenders test your repayments at a higher “buffered” rate to ensure you can handle increases.

Practical tip: Clean up unused credit limits, roll short-term debts into a smarter structure (if appropriate), and gather docs early (payslips, tax returns, rental statements). Small tweaks can create meaningful capacity.

3) The engine room: how to structure the loan(s)

The right loan structure protects cash flow and gives you options later. Key decisions:

Interest-Only (IO) vs Principal & Interest (P&I)

• IO can maximise cash flow and flexibility, keeping more cash in your offset for buffers and future deposits.

• P&I steadily reduces debt and can improve some lenders’ willingness on future loans.

• Blended approach: IO on investments for cash flow, P&I on your owner-occupied loan to build equity faster—depends on goals and tax advice.

Offsets and loan splits

• Offset accounts attached to investment loans keep your cash working while preserving deductibility when used correctly (seek tax advice).

• Multiple splits let you separate purposes (e.g., deposit, reno funds) and fix/variable portions independently.

Fixed vs variable

• Fixed gives repayment certainty; variable offers flexibility (offsets, extra repayments, easier changes).

• Consider partial fixes: split the loan so part is fixed for certainty and part remains variable for flexibility.

4) Keep securities uncrossed

Cross-collateralisation ties multiple properties to one loan or one facility. It sounds tidy; it isn’t. It can:

• Limit your flexibility to sell or refinance one property

• Give the bank more control over your portfolio

• Complicate valuations and release of equity

Best practice: Stand-alone securities. Each property has its own loan(s) secured only by that property, with deposits/equity released separately. It’s cleaner and easier to manage as your portfolio grows.

5) Using equity for the next deposit

Growing investors typically leverage equity in one property to fund the next.

• Equity release (a separate split) can provide your deposit and costs without touching personal savings.

• Staying at or under 80% LVR helps avoid Lenders Mortgage Insurance (LMI), while higher LVRs with LMI can make sense if the numbers stack up.

• Purpose matters: Keep investment equity separate from personal spending to maintain clean deductibility (confirm with your accountant).

Tip: Order valuations strategically and with the right lender. Valuers differ; a stronger valuation can change what’s possible.

6) Cash flow first: buffers win portfolios

The investors who sleep best keep fat buffers.

• Park surplus cash in offsets attached to your investment loans.

• Stress test: vacancies, repairs, rate rises.

• Insure appropriately (landlord, building, income protection via your adviser).

• Track rent and expenses monthly and adjust fast.

Cash flow discipline turns market swings into opportunities.

7) Valuations: how to improve your odds

Valuations drive LVRs, equity release, and refinance success. To help:

• Provide recent comparable sales (settled, similar attributes).

• Share renovation invoices, DA approvals, leases, and rental appraisals.

• Present the property well for any internal inspection.

You can’t control every outcome, but you can make the valuer’s job easier—and sometimes better.

8) Refinancing and restructuring: when to pull the lever

Good reasons to review:

• Rate creep: loyalty tax is real—pricing can drift over time.

• Structure creep: messy splits, offsets not aligned, or IO terms expiring soon.

• Policy mismatch: your current lender’s rules now block your next move.

• Equity unlock: renovations, rising values, or debt reshuffles for growth.

• Cash flow pressure: re-cut the structure to restore buffers and stability.

Refinancing isn’t a pastime; it’s a tool. Use it deliberately to reduce friction and fund the next acquisition.

9) Common mistakes (and how to dodge them)

1. Chasing the headline rate and ignoring policy and structure.

2. Cross-collateralising everything because it “looks neat.”

3. Using redraw instead of offset for investment funds—can muddy deductibility (seek tax advice).

4. Letting IO terms expire without a plan—sudden P&I jumps can sting.

5. No buffers—one surprise expense and the plan stalls.

6. Leaving high-limit credit cards open—limits slash capacity even if unused.

7. Single-lender dependence—great until that lender’s policy changes.

8. Poor documentation—slow files miss deals.

10) Your first investment, step by step

1. Discovery & plan: clarify goals, budget, timelines, buffers.

2. Capacity & docs: we model your borrowing capacity and collect paperwork.

3. Pre-approval: align lender policy to your strategy; structure for growth.

4. Search & offer: you hunt the right asset; we stay on speed-dial.

5. Valuation & unconditional: manage the valuation process and any conditions.

6. Settlement: line up accounts, offsets, and a simple repayment plan.

7. Post-settlement check-in: confirm rent, cash flow, and next steps.

8. Quarterly tune-ups: keep buffers healthy and structure on track.

Case study (hypothetical): from tight cash flow to growth-ready

The scenario: First-time investors bought a townhouse with a basic P&I loan. Cash flow was thin, buffers thinner, and their second purchase felt miles away.

What we did:

• Re-cut the structure: IO on the investment, offset account for buffers, and a new split to quarantine future costs.

• Negotiated sharper pricing and policy alignment for their income mix.

• Modelled savings and set a disciplined offset plan.

Result: Cash flow improved, buffers rebuilt, and they qualified comfortably for property #2 within the year—without risky shortcuts.

FAQs

Is interest-only risky?

It depends on your plan and buffers. IO can improve cash flow and flexibility, but requires discipline to manage principal over time. The right mix of IO/P&I is strategy-dependent.

Should I fix my rate?

Fixing buys certainty, variable buys flexibility. Many investors split loans—some fixed for stability, some variable for offsets and extra repayments.

How much deposit do I need?

Anywhere from ~20% plus costs (to avoid LMI) to lower deposits with LMI if appropriate. The “right” answer depends on your risk profile and timeline.

What’s wrong with cross-collateralisation?

It reduces flexibility and can complicate sales, refinances, and equity releases. Stand-alone securities usually make portfolio management easier.

Can I use equity from my home to buy an investment?

Yes—commonly via a separate split. Keep the purpose clean and seek tax advice to maintain deductibility.

Do I need an offset account?

Offsets aren’t mandatory, but for many investors they’re invaluable for cash flow management and flexibility.

The bottom line

Strong portfolios are built on clear plans, clean structures, and robust buffers. Rates matter—but the right policy, security setup, and cash flow design matter more. When your lending is engineered for growth, each purchase becomes easier, not harder.

If you’re ready to map your borrowing power, structure your loans the smart way, and buy with confidence, I’d love to help.