Property Portfolios & What Not to Overlook

Growing a property portfolio in Bunbury means working with lenders who assess your total position, not just your next purchase.

Most local investors start with a single rental property, then find that adding a second or third becomes more complicated than they expected. Lenders review your entire portfolio when you apply for another investment loan, and the way your existing loans are structured can either open up borrowing capacity or shut it down. The difference often comes down to decisions you made on your first property without realising they would matter later.

How Lenders Assess Your Whole Portfolio

When you apply for finance on a second or third property, the lender calculates serviceability across every loan you hold, not just the new one. They apply a buffer of at least three percentage points above the actual interest rate on all your mortgages and check whether your income can cover the combined repayments. Rental income from your existing properties is included, but most lenders only count 80 per cent of it to account for vacancies and maintenance. If your first property is on a principal and interest loan with a rate of 6.5 per cent, the lender tests it at 9.5 per cent. If you have two properties and want a third, all three are tested at that buffered rate, even if the actual repayments are much lower.

Consider an investor who bought a unit in South Bunbury a few years ago and now wants to add a second property in Withers. The existing loan is on principal and interest, with repayments around $2,400 a month and rent covering $1,800. The lender counts $1,440 of that rent (80 per cent) and tests the loan repayment at the buffered rate, which might be $3,200 a month in the assessment. The gap between rental income and the tested repayment reduces the investor's borrowing capacity for the second property. If that first loan had been structured as interest only, the tested repayment would be lower, leaving more borrowing room.

Interest Only Loans for Portfolio Growth

Interest only repayments reduce the amount a lender deducts from your serviceability, which is why many portfolio investors use them. The repayment on an interest only loan is typically 40 to 50 per cent lower than principal and interest, and while that doesn't change the underlying debt, it does change what the lender thinks you can afford to borrow next. Interest only periods usually run for one to five years, after which the loan converts to principal and interest unless you apply to extend it. Some lenders restrict interest only extensions to one or two cycles, others are more flexible, particularly if the property continues to perform and your income is stable.

From 1 July 2027, net rental losses on residential properties acquired on or after 12 May 2026 can only be offset against other residential rental income or carried forward, not against your salary. Properties bought before that date continue under the existing rules where losses can be deducted against wages. Interest only loans don't create a loss by themselves, but they do keep your deductible interest expense higher for longer, which matters more if you're quarantining losses under the new rules. For investors buying now with a view to holding long-term, the choice between interest only and principal and interest affects both current cash flow and future serviceability.

Using Equity from Your First Property

Once your first property has increased in value or you've paid down the loan, you can borrow against that equity to fund the deposit on your next purchase. Lenders typically allow you to borrow up to 80 per cent of a property's value without paying Lenders Mortgage Insurance. If your South Bunbury unit was purchased for $400,000 and is now worth $480,000, the lender will lend up to $384,000 against it. If you owe $320,000, you could access around $64,000 in equity. That amount can cover a 10 or 20 per cent deposit on the next property, plus some or all of the stamp duty and settlement costs.

The new loan against your first property is added to your total debt position, so it increases the amount being tested for serviceability. Releasing equity works when your income and existing rental income can support both the increased debt on the first property and the new loan on the second. If serviceability is tight, some investors release a smaller amount of equity and contribute savings to make up the difference, or they wait until rental income increases or their salary rises. Bunbury's rental market has tightened over the past few years, with vacancy rates often below 1 per cent, so rental income assumptions in this region tend to be reliable as long as the property is tenanted.

Loan Structure Across Multiple Properties

The way you split your loans across properties affects how much flexibility you have later. Some investors put all their debt against the investment properties and keep their owner-occupied home loan small or paid off. Others consolidate everything into one facility. The difference matters for tax deductions and for what happens if you want to sell one property or move house. Interest on a loan is only deductible if the borrowed funds are used to purchase or hold an income-producing asset. If you borrow against your investment property to renovate your own home, that portion of the interest isn't deductible, even though the loan is secured against the rental.

Keeping each loan purpose clear from the start avoids problems later. If you release equity from your first investment to buy your second, the new loan should be split so the portion used for the deposit sits separately from any amount used for other purposes. Most lenders can structure this as separate splits within the one loan account. When your accountant reviews your claims, they can see exactly which portion of each loan relates to each property. Bunbury investors who plan to build a portfolio over five or ten years usually benefit from sitting down with a broker and an accountant early to map out how the loans should be structured, rather than retrofitting the structure after the fact.

What Happens When You Refinance One Property in a Portfolio

Refinancing one property in a portfolio is common when a fixed rate expires, when you want to release more equity, or when another lender offers a lower rate. The new lender will assess your entire financial position, including all your properties and loans, even if you're only refinancing one of them. Some lenders are more comfortable with multi-property investors than others, and their serviceability policies vary. A lender that was happy to give you your second investment loan might apply tighter serviceability when you come back for your third, particularly if debt-to-income limits are being enforced. From February this year, lenders can only write 20 per cent of new investor loans at a debt-to-income ratio of six times or more, so if your total debt is high relative to your income, you may find fewer lenders willing to approve the loan even if the rental income is strong.

In our experience, Bunbury investors often refinance after their portfolio reaches two or three properties to consolidate with a lender that has higher portfolio limits or better serviceability treatment of rental income. The trigger is usually a fixed rate expiry or a decision to buy the next property. Timing the refinance before you start looking for the next purchase means you know exactly what your borrowing capacity is and you're not scrambling to restructure loans while a contract is pending.

Capital Gains Tax Changes for Properties Acquired from May This Year

If you purchased an investment property on or after 12 May this year, the capital gains tax treatment when you sell will be different depending on when the gain accrued. Gains that build up before 1 July next year are taxed under the existing 50 per cent discount rule. Gains after that date are taxed using cost base indexation and a minimum 30 per cent rate on the real gain, unless the property qualifies as an eligible new build, in which case you can choose between indexation or the discount. Properties you already owned before 12 May are grandfathered under the old rules until you sell. The tax outcome doesn't change how lenders assess the loan, but it does affect the after-tax return when you eventually sell, which is worth considering when you're deciding whether to hold or sell as your portfolio grows.

Call one of our team or book an appointment at a time that works for you. We'll review your current loans, your equity position, and the lending options that suit the next stage of your portfolio.

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