How to Finance an Investment Unit in Parramatta

Parramatta's unit market attracts buyers looking to build a rental portfolio close to Westfield, the medical precinct, and the new metro stations. Borrowing capacity, lender appetite, and the upcoming negative gearing changes all affect how much you can borrow and how the numbers sit over the medium term.

Investment Loan Amount and Borrowing Capacity for Units

Lenders calculate your borrowing capacity using a serviceability buffer of three percentage points above the product rate and, from February, a debt-to-income cap that limits how much some buyers can borrow regardless of income. For an investment unit, rental income is included at between 70 and 80 per cent of gross rent, depending on the lender. Most apply 80 per cent. That means a unit renting for $600 per week adds roughly $25,000 to your annual income for serviceability purposes.

Consider a buyer earning $120,000 per year who already holds a mortgage of $450,000 on an owner-occupied property. They want to buy a one-bedroom unit in Parramatta with a 10 per cent deposit. After accounting for existing repayments, personal expenses, and the serviceability buffer, the buyer's maximum loan amount sits around $350,000 to $380,000, depending on the lender and the rental income they accept. That borrowing range will cover most one-bedroom units within a kilometre of the CBD but may fall short for new builds or larger two-bedroom stock near Church Street.

The debt-to-income cap allows lenders to fund up to 20 per cent of their new investor loans above a ratio of six times gross income. For a buyer earning $120,000, that threshold is $720,000. Adding the existing mortgage and the new loan, total debt would sit around $800,000 to $830,000, which exceeds the cap. Some lenders will still approve the loan if it falls within their 20 per cent allowance, but others will decline or ask for a larger deposit to bring the loan amount down. Borrowing capacity for investment units now depends as much on your total debt as it does on your income and rental return.

Investor Deposit and Lenders Mortgage Insurance

Most lenders require a minimum 10 per cent deposit for an investment loan, though some will accept as low as 5 per cent for strong applicants with high income and low existing debt. Borrowing above 80 per cent loan to value ratio means paying Lenders Mortgage Insurance, which can add several thousand dollars to your upfront costs. For a unit purchased at $550,000 with a 10 per cent deposit, LMI typically ranges from $8,000 to $12,000, depending on the lender and your employment type.

LMI is capitalised into the loan amount in most cases, which increases your debt and your monthly repayment. Some lenders waive or discount LMI for certain professions or for buyers using equity from an existing property to fund the deposit. If you hold sufficient equity in your current home, you may not need to provide cash savings at all. Releasing equity to cover the deposit and costs is common, but it does increase the debt on your owner-occupied property and may affect your ability to refinance that loan later.

Interest Only Investment Loans and Repayment Structure

Interest only repayments reduce your monthly outgoing and improve cash flow, which is why most buyers purchasing Parramatta units choose this structure for the first one to five years. At current variable rates, an interest only loan of $500,000 costs roughly $2,000 per month in interest, compared with around $2,900 for principal and interest. The difference allows you to hold the property through periods of lower occupancy or higher body corporate levies without relying on personal income to cover the shortfall.

Interest only is not available indefinitely. Most lenders cap the period at five years, after which the loan converts to principal and interest and the repayment increases. Some lenders allow you to extend the interest only period by applying for a loan review, but approval is not automatic. If your income has dropped or your other debts have increased, the lender may decline the extension and require you to start paying down the principal.

Fixed rate interest only products are also available, though the rate is usually higher than the equivalent variable product. Fixing gives you certainty over repayments, which is useful if you expect rates to rise or if your rental income is marginal. Variable rates allow you to make extra repayments or pay out the loan early without a break cost, which gives you more flexibility if your circumstances change.

Body Corporate and Lender Assessment of Units

Lenders assess units differently to houses. They look at the body corporate, the building age, the number of storeys, and the proportion of owner-occupiers versus investors. Most lenders will not fund units in buildings where more than 50 per cent of the lots are owned by a single entity or where the body corporate has a deficit in the sinking fund. Some lenders also decline to fund studio apartments or units smaller than 40 square metres.

For a two-bedroom unit in one of the newer towers along George Street, the body corporate levy might sit between $1,200 and $1,800 per quarter. Lenders include this amount in their serviceability calculation, so higher levies reduce how much you can borrow. Some buildings also charge special levies for remediation or upgrades, and if a special levy is on foot at the time of application, some lenders will decline the loan until it is resolved.

Order a copy of the strata report before you make an offer. The report shows the financial position of the body corporate, any planned or current works, and any disputes or non-compliant owners. If the sinking fund balance is low or if there are multiple special levies planned, the lender may decline the loan or reduce the LVR to 70 per cent.

Tax Benefits and the Negative Gearing Changes from July 2027

Rental losses on investment property can currently be offset against your salary or other income, which reduces your taxable income and increases your after-tax cash flow. That arrangement changes from 1 July 2027 for properties purchased on or after 7:30pm on 12 May 2026. Losses on those properties will be quarantined and can only be offset against other rental income or carried forward to offset future rental income or capital gains. Losses cannot be offset against wages.

If you purchase a unit in Parramatta between now and 30 June 2027, you can claim rental losses against your salary until 30 June 2027, after which the losses are quarantined. If you purchased before 7:30pm on 12 May 2026, you can continue to claim losses against salary indefinitely under the grandfathering rule.

The exception is eligible new builds. If the unit you buy was constructed on previously vacant land or is part of a development that increased the total number of dwellings, you can continue to negatively gear under the old rules even if you buy after 12 May 2026. Most of the new towers in Parramatta qualify, but not all. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify. A development that replaces one house with six units does qualify. Ask the developer or selling agent for confirmation before you exchange.

For a buyer on a marginal tax rate of 37 per cent, a rental loss of $10,000 per year currently saves $3,700 in tax. After 1 July 2027, that same loss saves nothing in the year it occurs but can be carried forward to reduce tax on future rental profits or on the capital gain when you sell. The cash flow impact is significant if you were relying on the tax refund to cover part of the shortfall.

Claimable Expenses and Maximising Tax Deductions

Interest on the investment loan is fully deductible, as are body corporate fees, council and water rates, repairs and maintenance, property management fees, landlord insurance, and depreciation on the building and fixtures. For a unit purchased in a building completed within the last few years, depreciation can add several thousand dollars to your deductions each year. You will need a quantity surveyor's report to claim depreciation, and the cost of the report is also deductible.

Stamp duty and other acquisition costs are not immediately deductible. They are added to the cost base of the property and reduce your capital gain when you sell. Loan establishment fees and LMI can be claimed over five years or over the life of the loan, depending on the structure you choose. Legal fees related to the purchase are also part of the cost base, not an immediate deduction.

Keep records of all expenses from the date you sign the contract, not the date settlement occurs. If you pay body corporate levies or council rates before settlement as part of the adjustment, those amounts are deductible in the year you pay them if the property is income-producing at that time.

Variable Rate and Fixed Rate Investment Loan Products

Variable rate products dominate the investment market because they allow unlimited extra repayments and do not carry break costs if you refinance or sell early. Most lenders also offer better discounts on variable products for investment loans, which means the ongoing rate is lower. At current settings, the difference between a discounted variable investment rate and a three-year fixed rate sits at around 0.3 to 0.5 percentage points, depending on the lender and the LVR.

Some buyers split the loan between variable and fixed to balance flexibility and certainty. A 50-50 split gives you the option to make extra repayments on the variable portion while locking in half the loan at a known rate. The downside is that you pay two sets of fees and some lenders apply less competitive rates to split loans than they do to single-product loans.

Fixed rate investment loans are available for terms from one to five years, though most buyers choose two or three years. If you fix and rates fall, you cannot refinance or break the loan without paying a break cost that can run into the tens of thousands. If you fix and rates rise, you have protected your cash flow and may be able to refinance to a variable product at the end of the fixed term without penalty.

Investment loan interest rates sit higher than owner-occupied rates by around 0.3 to 0.6 percentage points across most lenders. The gap reflects the higher risk lenders assign to investment lending and the higher capital weighting applied under prudential standards. Some lenders also apply a higher rate to interest only loans than to principal and interest loans, even within the investment category.

Vacancy Rate and Rental Income in Parramatta

Parramatta's vacancy rate for units has hovered between 2.5 and 4 per cent over the last 18 months, with tighter conditions in buildings close to the train station and the hospital. Lenders do not adjust serviceability for vacancy, but you need to factor holding costs into your own cash flow planning. A unit that sits vacant for four weeks in a year reduces your gross rental income by roughly 8 per cent, and you still need to cover the loan repayment, body corporate, and other outgoings during that period.

Rental yield on one-bedroom units in Parramatta typically sits between 4 and 5 per cent gross, depending on the building and the floor level. Two-bedroom units return slightly less in percentage terms but attract longer-term tenants and lower turnover. If the rental income does not cover the loan repayment and holding costs, the property is negatively geared. If it does, the property is positively geared or neutral. Positive gearing is less common for units purchased with a 10 per cent deposit at current price levels.

Lenders assess rental income using a market rent valuation, not the actual rent you have agreed with a tenant. If you sign a lease at below-market rent to secure a tenant quickly, the lender will still use the market figure for serviceability, which can work in your favour. If the market rent falls between application and settlement, the lender may reassess your capacity and reduce the approved loan amount.

Investment Property Refinance and Portfolio Growth

Once you have held the unit for 12 to 24 months and the property has appreciated or the loan balance has reduced, you may be able to refinance and release equity to fund a second purchase. Most lenders allow you to borrow up to 80 per cent of the property's current value without paying LMI again, provided your serviceability supports the increased debt. If the unit was purchased at $550,000 and is now valued at $600,000, you could refinance to $480,000 and release around $30,000 in equity after costs, assuming your original loan was $495,000.

Refinancing an investment loan also allows you to access a lower rate if your current lender has not passed on recent rate cuts or if a competitor is offering a higher discount. The refinance process takes four to six weeks in most cases, and you will need to provide updated income evidence, updated rental statements, and a new valuation. Some lenders waive valuation fees or offer cash rebates to attract refinance business, which can offset part of the discharge and settlement costs.

Portfolio growth depends on maintaining serviceability and staying within the debt-to-income cap as your total debt increases. Each additional property reduces your borrowing capacity for the next one unless your income increases or your other debts reduce. Buyers who start with a single unit often find that they cannot add a second property until they have paid down the first loan or increased their rental income by adding another asset.

Call one of our team or book an appointment at a time that works for you to talk through your borrowing capacity, the lender appetite for Parramatta units, and how the negative gearing changes affect your structure and timing.

Frequently Asked Questions