By Jason Given · 2026-05-06 · 8 min read
Most first-time investors focus on finding the right property. The experienced ones focus on getting the loan structure right before they sign anything. The difference in tax outcomes, cash flow, and future borrowing capacity between a well-structured loan and a poorly structured one can be tens of thousands of dollars over five years.
The most common question: should I pay interest only (IO) or principal and interest (P&I) on my investment loan?
For most investors, IO is the better choice — at least in the early years. Here is why:
The trade-off: You are not reducing the investment loan balance, which means you carry the debt longer. The strategy works best when rental income is rising and you plan to hold long-term.
Cross-collateralisation — using both your home and investment property as security on the same loan facility — is one of the most common structural mistakes investors make. It seems harmless at the time but creates problems later:
The solution: keep your investment loan completely separate, secured only against the investment property. Use a separate loan against your home equity to access your deposit — these are two distinct facilities.
If your home has increased in value since purchase, you likely have usable equity. Lenders will generally lend up to 80% of your home's value (without LMI) — subtract your existing mortgage and the difference is your usable equity.
Example: Home value $900,000. Existing mortgage $450,000. 80% of $900K = $720K. Usable equity = $270,000. This can fund a deposit and purchase costs for an investment property up to approximately $1.35 million (at 20% deposit).
Lenders add 70–80% of expected rental income to your gross income when assessing investment loan serviceability. They then stress-test the total at 3% above the actual rate. On a 5.5% investment loan, that means assessment at 8.5%.
This is why getting pre-approval before you start searching matters — you want to know your exact borrowing capacity before you make an offer on a property.
Lendology's approach: We structure investment loans to maximise tax efficiency, keep securities separate, and preserve your borrowing capacity for future purchases. Book an investor consultation →
Most investors use interest-only (IO) on investment properties, particularly in the early years. This maximises your tax deduction (the full interest payment is deductible against rental income) and reduces your cash flow commitment, freeing funds for your owner-occupied loan or next deposit. IO periods are typically 5 years — after that, the loan reverts to P&I unless you refinance or renew.
Yes — this is one of the most common ways Adelaide investors fund their first investment. If your home has increased in value, you can access a portion of that equity as a deposit for an investment property, often without needing cash savings. The key is to keep the loans separate — cross-collateralisation (using both properties as security on the same loan) should generally be avoided.
Cross-collateralisation means the lender uses both your home and investment property as security on one or more loans. While it can sometimes allow a higher borrowing amount, it gives the lender disproportionate control — if you want to sell one property, the lender must agree and values are assessed together. Keeping loans separate gives you more flexibility and cleaner tax treatment.
Lenders typically count 70–80% of expected rental income in your servicing calculation (after a vacancy buffer). They then add this to your other income and assess your ability to service the full loan at a stress-tested rate (currently 3% above the actual rate). This is why some investors can borrow more than they expect — rental income genuinely helps serviceability.