Using Equity to Buy Investment Property in Bentleigh

Using equity from your existing property to buy an investment property lets you enter the market without starting from scratch.

The process involves borrowing against the value you've built up in your current home to fund a deposit on a second property. Lenders assess your borrowing capacity based on your total debt position, including both loans, and the rental income from the new property plays a role in serviceability.

How Equity Release Works for Investment Property

Equity is the difference between what your property is worth and what you owe on it. If your home in Bentleigh is valued at $1,200,000 and you owe $600,000, you have $600,000 in equity. Lenders will typically allow you to borrow up to 80 per cent of your property's value without requiring lenders mortgage insurance. At that threshold, you could access up to $360,000 in usable equity ($1,200,000 x 0.80 = $960,000, minus the existing $600,000 loan). This amount can be used to fund a deposit, stamp duty and other acquisition costs on the investment property.

Consider a buyer who owns a home in Bentleigh outright, valued at $1,100,000. They want to purchase an investment property in a neighbouring suburb. At 80 per cent LVR, they could access $880,000 by refinancing their home. After setting aside funds for stamp duty and settlement costs, they have enough to purchase a property in the mid-$800,000 range with a standard deposit. The rental income from that property is then assessed by the lender, and their existing income needs to service both the refinanced loan on the Bentleigh home and the new investment loan.

Borrowing Capacity with Two Loans

When you apply for an investment loan using equity, lenders assess your ability to service both your existing mortgage and the new loan. Rental income from the investment property is included in the serviceability calculation, but lenders typically apply a haircut of around 20 per cent to account for vacancy and management costs. If the property generates $600 per week in rent, the lender may only count $480 per week in the assessment. Your other income, existing debts and living expenses are also factored in, and the lender applies a serviceability buffer of at least 3.0 percentage points above the loan rate.

Debt-to-income limits also apply. From February 2026, lenders can only write up to 20 per cent of their new investment loans to borrowers with a total debt-to-income ratio of six times or greater. If your total debt across both properties equals seven times your gross income, you may still qualify, but the lender's internal allocation of high-DTI loans will affect whether your application is approved. Working with a broker who understands how different lenders apply these limits can make a material difference to your borrowing capacity and refinancing options.

Interest Only or Principal and Interest

Investment loans can be structured as interest only or principal and interest. Interest only repayments are lower in the short term, which can improve cash flow, particularly if the property is negatively geared. The interest paid on the investment loan is deductible, provided the property is rented or genuinely available for rent. Principal repayments are not deductible. Many investors choose interest only for the first five years, then switch to principal and interest, though some lenders allow longer interest only periods depending on the loan size and LVR.

If you choose principal and interest from the start, your loan balance reduces over time, which builds equity in the investment property and may improve your borrowing position if you want to acquire a third property later. The choice depends on your cash flow, tax position and longer-term investment strategy. A broker can model both structures based on your circumstances and show you the difference in repayments and total interest cost over the life of the loan.

Tax Treatment for Properties Acquired After May 2026

For residential investment properties acquired after 7:30pm AEST on 12 May 2026, losses can only be offset against income from other residential properties, including capital gains, from the 2027-28 income year onwards. Properties you already owned, or had under contract, at that time continue to allow full negative gearing against all income. New builds purchased after May 2026 are exempt and retain full negative gearing. If you are considering an established investment property in Bentleigh or nearby suburbs, the ability to offset losses against your salary ends from the 2027-28 financial year, which changes the after-tax cost of holding the property.

Capital gains tax treatment also changes from July 2027. Gains accruing after that date will be taxed using cost base indexation and a minimum 30 per cent rate on real gains, rather than the current 50 per cent discount. For a property purchased now and sold in future years, the gain will be split, with the portion accruing before July 2027 taxed under current rules and the portion after that date taxed under the new rules. These changes do not affect owner-occupied property or commercial property.

Bentleigh as an Investment Location

Bentleigh sits within the City of Glen Eira and is serviced by Bentleigh station on the Frankston line, with direct access to the CBD in under 30 minutes. The suburb has a mix of established homes, townhouses and newer unit developments, and is close to the retail and dining precinct on Centre Road. Rental demand in Bentleigh is supported by proximity to Monash Medical Centre, Moorabbin Airport employment precincts and a range of private and public schools. Investors targeting this area typically look at either older-style units near the station or newer townhouses within walking distance of Centre Road.

Vacancy rates in the Glen Eira area have remained low relative to other parts of Melbourne, which supports rental yield. Body corporate fees on units vary depending on the age and amenities of the building, and these fees are a deductible expense. When assessing rental income, lenders will factor in body corporate costs as part of the property's overall holding cost, which can affect serviceability. If you are buying a unit in Bentleigh, ask for a copy of the body corporate financial statements and recent meeting minutes during due diligence.

Structuring the Loan and Managing LVR

Most lenders will allow you to borrow up to 80 per cent of the combined value of your properties without paying lenders mortgage insurance. If you go above that threshold, LMI is charged on the amount above 80 per cent, and the premium can be capitalised into the loan or paid upfront. For a $1,000,000 property purchased with a 90 per cent LVR, the LMI premium could be several thousand dollars, depending on the lender and the loan amount. Some lenders offer LMI waivers for certain professions, including medical, legal and accounting professionals, which can reduce upfront costs if you qualify.

Your total LVR is calculated across both properties. If your Bentleigh home is worth $1,200,000 with a $700,000 loan, and you purchase an $850,000 investment property with a $680,000 loan, your total debt is $1,380,000 and your total property value is $2,050,000, giving a combined LVR of around 67 per cent. This leaves room for future borrowing if property values rise or if you pay down the loans. Keeping your LVR below 80 per cent also means you avoid LMI on future purchases, provided values do not fall.

What Lenders Look for in an Investment Loan Application

Lenders assess investment loan applications differently to owner-occupier loans. Rental income is verified through a rental appraisal or signed lease, and the lender applies a discount to that income in the serviceability calculation. Your existing debts, including credit cards, personal loans and the mortgage on your home, are factored in at their full limit or outstanding balance. Living expenses are assessed using either your actual declared expenses or a benchmark figure based on the Household Expenditure Measure, whichever is higher.

Your employment history and income stability are also assessed. If you are self-employed, lenders typically require two years of tax returns and may also request business financials or accountant-prepared statements. If you have recently changed jobs or taken a pay cut, this can affect your borrowing capacity. Lenders also review your credit file and repayment history. Late payments, defaults or court judgments will limit your options and may result in a higher interest rate or lower maximum LVR. A loan health check before applying can identify any issues that need to be addressed.

Variable or Fixed Rate for Investment Property

Investment loans are available on variable or fixed rate terms, or a combination of both. Variable rates allow you to make extra repayments without penalty and give you access to offset accounts, which can reduce the interest charged on the loan. Fixed rates lock in your repayment for a set period, typically one to five years, which provides certainty but limits flexibility. If you break a fixed rate loan early, you may be liable for break costs, which can be substantial if rates have fallen since you fixed.

Many investors split their loan between variable and fixed, which provides some rate protection while maintaining flexibility. The split can be adjusted to suit your circumstances. If cash flow is tight, a higher fixed portion may provide more certainty. If you expect to receive lump sum income or want the option to pay down the loan, a higher variable portion may be more suitable. Your broker can access investment loan options from banks and lenders across Australia and compare the features and rates available.

Ongoing Costs and Deductions

Interest on the investment loan is deductible, along with property management fees, council rates, insurance, repairs and maintenance, and depreciation on the building and fixtures. Body corporate fees, land tax and lender fees are also deductible. Stamp duty and other upfront acquisition costs are not deductible but form part of the cost base for capital gains tax purposes. Keep records of all expenses, including receipts and invoices, and provide these to your accountant at the end of each financial year.

If the property is negatively geared under current rules, the loss can be offset against your other income, which reduces your taxable income and increases your tax refund. From the 2027-28 income year, losses on properties acquired after May 2026 can only be offset against residential property income, so the tax benefit is deferred until you sell the property or acquire additional rental properties. Unused losses are carried forward and can be claimed in future years.

Call one of our team or book an appointment at a time that works for you to discuss your borrowing capacity, loan structure and the investment loan products available for your situation.

Frequently Asked Questions