Buying Your First Investment Property: How to Structure the Loan

I've bought investment properties of my own, so I'll be straight with you: the structure matters as much as the rate. Two investors can buy identical properties, borrow the same amount, and end up in very different positions a few years later purely because of how they set the loans up. This is general information, not personal tax or financial advice, and I'd always want you to loop in your accountant. But here's the framework I use with clients.

Interest-only or principal and interest?

On your own home, paying down principal is almost always the goal. On an investment, it's a genuine decision. Interest-only repayments are lower, which helps cash flow and, because investment loan interest is generally tax deductible, some investors prefer to keep repayments as interest for a period. Principal and interest means you're building equity in the property and lowering the debt. Neither is automatically right. It depends on your cash flow, your other debts and your plans, which is a conversation to have with your accountant in the loop.

Using equity instead of cash

Most people buying their first investment don't use cash savings for the deposit. Instead, they draw on the equity built up in their own home. If your home has grown in value and you've paid the loan down, you may be able to borrow against that equity to fund the deposit and costs on the investment, sometimes without touching your savings at all. How that's set up matters for tax and flexibility, so it's worth getting the structure right rather than just taking the first option a bank offers. I explain the equity side more in the refinancing guide.

Should you cross-securitise? Usually not

Cross-securitisation is when one lender uses both your home and your investment as security for the loans, tangled together. Banks like it because it locks you in. I generally steer clients away from it, because it makes selling or refinancing one property harder and gives one lender a lot of control over both. Keeping the properties on separate, standalone loans usually gives you more room to move. There are exceptions, but the default should be to keep things untangled.

Offset accounts and keeping options open

• An offset account against the investment loan can hold your cash while reducing the interest, without permanently paying down deductible debt. That flexibility can be valuable, so weigh it up with your accountant.
• Think about the next purchase now. The way you structure this loan affects your borrowing power for the one after it, so it pays to plan two moves ahead.
• Rental income is assessed differently by different lenders, and so are your expenses. Picking the right lender for an investor profile can meaningfully change what you can borrow.
• If you're weighing offset against redraw for the cash, the offset vs redraw guide breaks down the difference.

The first investment property is the one that teaches you the most. Get the structure clean and the second one is far easier. Get it tangled and you'll spend years unpicking it.

There's a lot riding on getting this right, and it's very situation specific, so I won't pretend a guide can replace a proper plan. What I can do is set the loan up so it supports your strategy rather than fights it, and coordinate with your accountant so the tax side lines up. Have a look at how I help investors on the investment property page. If you're investing through super, that's a different structure again, covered on the SMSF loans page.