Investment Property Types and Loan Structures That Work

Different investment property types carry different risks in the eyes of lenders.

A one-bedroom apartment in a high-density Melbourne tower might offer strong rental returns, but securing finance for it can be harder than buying a three-bedroom house in Ballarat. The property type affects your deposit requirements, the interest rate you'll pay, and whether certain lenders will even consider your application.

How Lenders View Apartments Versus Houses

Lenders typically favour established houses over apartments when assessing investment loan applications. A house on its own title in suburbs like Williamstown or Werribee will usually attract lower interest rates and require a smaller investor deposit than a high-rise unit.

Consider someone looking to purchase a one-bedroom apartment in Southbank priced at $450,000. Several major banks limit lending in buildings where more than 50% of units are owned by investors or where a single entity owns multiple units. If the building fails these tests, the buyer might need a 30% deposit instead of the standard 20%, or face loan to value ratio restrictions that push the borrowing costs higher. That same buyer purchasing a townhouse in Footscray for the same price would likely access standard lending terms with a 20% deposit and avoid these building-specific hurdles.

Why Regional Properties Face Different Rules

Properties outside metropolitan Melbourne often require larger deposits and attract different investment loan terms. Lenders view regional markets as higher risk due to smaller buyer pools and potential vacancy rate concerns.

A rental property in Bendigo or Mildura might deliver solid rental income, but many lenders will cap your loan to value ratio at 80% rather than the 90% sometimes available for metro properties. Some lenders also apply postcode restrictions, meaning properties in certain regional areas won't be considered at all. If you're looking at regional property investment, expect to provide at least a 20% deposit and potentially accept a slightly higher variable interest rate compared to an equivalent purchase in Geelong or Ballarat.

Units in Small Blocks Versus High-Rise Developments

A two-bedroom unit in a block of eight in Coburg will attract different lending terms than a similar unit on the 25th floor of a 300-unit tower in Docklands. Lenders prefer smaller complexes because they're seen as lower risk for resale.

High-rise developments, particularly those still settling or with large numbers of investor-owned units, can trigger stricter lending policies. You might face higher interest rates, restrictions on interest only arrangements, or requirements for a larger deposit. Some lenders maintain internal lists of buildings they won't lend against at all. Body corporate fees also play a role in your borrowing capacity, as higher fees reduce the rental income calculation lenders use to assess serviceability.

How Land Size Affects Borrowing for Houses

Properties on larger blocks generally receive more favourable treatment than those on subdivided or smaller parcels. A house on a 600-square-metre block in Werribee will be easier to finance than the same house on a 200-square-metre battleaxe block.

Lenders assess land size as part of property security because it affects long-term value retention. Homes on very small lots or unusual configurations may require a larger deposit or face valuation discounts. This particularly affects areas where subdivided blocks have become common. If you're comparing two similar rental properties at the same price point, the one with more land will typically offer better loan terms and stronger options for leverage equity later.

What Happens with Studio Apartments and Serviced Apartments

Studio apartments and serviced apartment complexes carry the highest lending restrictions. Most major banks won't lend against studio apartments at all, and those that do require deposits of 30% or more.

Serviced apartments with hotel-style management agreements create additional complications. Lenders treat rental income from these properties differently, often discounting projected returns or excluding them entirely from serviceability calculations. If you're attracted to these property types for their potentially higher yields, understand that your investment property finance options will be limited. You'll likely need to approach specialist lenders rather than major banks, and the interest rate will reflect the perceived higher risk.

Townhouses and Attached Properties

Townhouses sit between apartments and houses in how lenders assess them. A townhouse on its own title in Cranbourne or Pakenham will generally receive similar treatment to a standalone house, but strata-titled townhouses face some of the same scrutiny as apartments.

The key difference is whether the property has its own land title or sits on common property. Own-title townhouses avoid the building concentration issues that affect apartments and typically don't face the same lending restrictions. Strata-titled townhouses may still trigger questions about owner-occupier versus investor ratios in the complex, but these are usually less strict than for high-rise buildings. Body corporate fees for townhouses tend to be lower than apartments, which helps with your borrowing capacity calculations.

Dual Occupancy and Properties with Multiple Dwellings

Properties with two dwellings on one title offer higher rental income but present financing challenges. A house with a self-contained unit at the rear might generate $800 per week total, but lenders will discount the second income stream or only recognise one dwelling for valuation purposes.

Some lenders will only provide interest only investment loans at lower loan amounts for dual occupancy properties, even if the combined rental income would support higher borrowing. If you're considering this type of property investment strategy, you'll need to confirm upfront which lenders will recognise both income streams and whether they'll lend on your proposed structure. Properties like this can work well for portfolio growth once you understand the lending parameters, but they require more specific structuring than single-dwelling investments.

The property type you choose shapes everything from your deposit size to your capacity for future refinancing. Before you commit to a purchase, confirm that your preferred property won't lock you into higher costs or limit your options. Call one of our team or book an appointment at a time that works for you to discuss which investment property types align with your borrowing capacity and long-term plans.

Frequently Asked Questions