Do you know the new rules for multiple properties?

If you own one investment property in WA and you're thinking about a second or third, the rules around borrowing and tax treatment are shifting in ways that will affect how you fund and structure each purchase.

From 1 July 2027, losses from most residential investment properties purchased after 12 May 2026 can no longer be offset against your wage or salary. That change, alongside tighter lending assessments already in place, means the order in which you buy, the type of property you choose, and the way you use equity all carry more weight than they did 18 months ago.

What changes from mid-2027 for property investors

Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, rental losses from residential dwellings acquired after 12 May 2026 can only be offset against other residential rental income or carried forward. You can't use those losses to reduce tax on your wages or other non-property income. Properties you already owned at that date, or had under contract, remain under the old rules and you can continue to negatively gear them in the way you're used to. New builds that add to housing supply are also excluded from the change, so an investor buying a newly constructed dwelling on vacant land or a development that increases the dwelling count can still claim losses against their salary.

The shift matters most if you're building a portfolio over time. Your first property might be negatively geared under the old rules, but your second or third, if it's an established dwelling, will have losses quarantined unless you have other rental income to absorb them.

How lenders assess borrowing capacity when you already own investment property

When you apply for an investment loan to buy a second or third property, the lender looks at the debt and rental income from your existing holdings. They will stress-test your serviceability using a buffer of three percentage points above the actual interest rate, and from February this year, they're also tracking how many loans they approve above six times your income.

In our experience, borrowers with one established investment property who want to buy another often find their capacity is tighter than expected. The rental income from the first property is typically shaded by 20 per cent to account for vacancy and maintenance, and if that property is negatively geared, the net loss reduces what you can borrow for the next purchase. If your second property will also be negatively geared and those losses can't reduce your taxable income after mid-2027, you're carrying the cash flow impact without the tax offset, which tightens cash flow further and can influence how much a lender is willing to advance.

Consider an investor in Bunbury who owns a unit returning $450 per week. After the lender's 20 per cent shading, that's treated as $360 per week. If the loan repayments and other holding costs exceed the shaded rental income by $200 per week, that shortfall is deducted from the borrower's assessed income before the lender calculates what they can lend for the second property. If the borrower earns $95,000 and the first property creates a $10,000 annual shortfall, their effective income for serviceability drops to around $85,000. Add a family and other commitments, and the amount available for a second loan can be $100,000 to $150,000 lower than the borrower expected.

Using equity to fund your next deposit without selling

Most investors building a portfolio use equity from their existing property rather than saving a new deposit in cash. The loan to value ratio across your portfolio is the key constraint. Lenders will typically allow you to borrow up to 80 per cent of a property's value without Lenders Mortgage Insurance, though some will go to 90 per cent with LMI if your income and credit profile support it.

If your first property has increased in value or you've paid down some of the loan, that equity can be accessed through refinancing or a separate equity release. The equity amount you can draw is the difference between the property's current value, multiplied by 80 per cent (or 90 per cent if you're willing to pay LMI), and your existing loan balance. That released equity then forms the deposit for your next purchase, plus covers stamp duty and other upfront costs.

The order matters because each property you add reduces the equity buffer in your existing holdings and increases the debt load that must be serviced. If you release equity to buy a second property and that second property doesn't generate positive cash flow, your ability to access equity again for a third purchase is constrained by the combined serviceability of both loans.

Interest only repayments and why investors use them

Many investors choose interest only repayments on their investment property finance because it lowers the monthly cash outflow and preserves cash for the next deposit or for covering shortfalls. On a $400,000 loan at a variable interest rate of around 6.5 per cent, a principal and interest repayment might be close to $2,530 per month, while an interest only repayment would be around $2,170. That difference of $360 per month can make the property cash flow neutral instead of negatively geared, or it can free up income to help you qualify for the next loan.

Interest only periods are typically offered for one to five years, after which the loan reverts to principal and interest unless you apply to extend. Lenders are more cautious with interest only lending now than they were a few years ago, and they will assess whether you can service the loan on a principal and interest basis even if you're applying for interest only. The strategy works when you're actively building a portfolio and you want to minimise repayments in the short term, but it's important to have a plan for when the interest only period ends or when you want to start paying down debt.

Structuring loans separately versus cross-collateralising

When you buy a second investment property, you have a choice about how the loans are secured. Some lenders will offer to cross-collateralise, meaning both properties secure both loans. Others will keep each loan separate, with each property securing only its own debt. Keeping loans separate gives you more flexibility later. If you want to sell one property, refinance one loan, or switch lenders for one property, you can do so without needing to discharge or restructure the other.

Cross-collateralisation can sometimes make it easier to borrow without LMI, because the combined value of two properties can bring your overall loan to value ratio below 80 per cent even if one property is leveraged more heavily. But it locks you into that lender across both properties, and if you want to move one loan later, the lender can require you to refinance both or bring the remaining loan back below 80 per cent, which might mean paying down a lump sum you don't have.

For investors planning to grow a portfolio past two or three properties, separate loans and separate securities usually make more sense. It keeps your options open and avoids the need to unwind complex security arrangements when your circumstances or the lending market changes.

Rental income, vacancy rates, and how lenders treat cash flow

Lenders will only count rental income if you can provide a signed lease or a rental appraisal from a licensed property manager. They then shade that income to account for periods when the property might be vacant or undergoing repairs. The standard shading is 20 per cent, though some lenders use 25 per cent depending on the location and property type.

In regional WA, vacancy rates have been low over the past two years, but lenders still apply the shading regardless of local conditions. If a property in Geraldton rents for $500 per week, the lender will assess it at $400 per week. That shaded figure is what gets added to your income when they calculate borrowing capacity. If your actual rental income is higher and the property rarely sits vacant, you'll have more cash flow in practice than the lender gives you credit for, but the shading still applies to the approval.

For investors with multiple properties, the cumulative effect of shading and interest costs can mean that even a portfolio generating positive cash flow on paper is assessed as neutral or negative by the lender, which limits further borrowing.

Choosing between established dwellings and new builds after the rule change

If you're buying a second or third investment property after mid-2027 and you want to retain the ability to offset losses against your salary, the property needs to qualify as an eligible new build. That means it was constructed on previously vacant land, or it replaced an existing dwelling and increased the number of dwellings on the site. A knock-down rebuild that replaces one house with one house does not qualify. A duplex that replaces a single house does.

New builds often carry higher purchase prices relative to rental returns, particularly in outer suburbs or growth corridors, so the decision isn't only about tax treatment. You need to weigh the cash flow of the property, the capital growth prospects, and whether the ability to claim losses against your wage justifies the higher entry cost. In some cases, buying an established dwelling at a lower price with quarantined losses still makes sense if the rental yield and equity growth support your long-term strategy.

For investors in Perth's northern or southern corridors where new estates are still being released, the option to buy a new build and retain full negative gearing might suit buyers who are still accumulating equity and relying on salary to cover shortfalls.

Portfolio growth when your income is already stretched

Once you own two investment properties, adding a third often depends more on rental income than on salary. If your wage is fully committed to servicing existing debt and living expenses, lenders will look at whether the rental income from your existing properties, after shading, can support another loan.

This is where positive cash flow properties or properties with higher rental yields become relevant. A unit in a regional centre returning 6 per cent might generate enough net rental income, after shading and costs, to support the serviceability test for another $200,000 to $300,000 in borrowing. A house in a capital city suburb returning 3.5 per cent might not, even if the capital growth prospects are stronger.

Some investors at this stage will switch from interest only to principal and interest on one property to reduce the interest cost and improve the serviceability picture, or they'll sell one property to release equity and reduce debt before buying the next. There's no single formula, but the common thread is that income, both wage and rental, becomes the limiting factor once you're past the first or second property.

If you're holding multiple investment properties or you're planning to add another in the next 12 to 24 months, the structure you set up now will determine how much flexibility you have later. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions