The property type you choose affects your borrowing capacity, your ongoing expenses, and your ability to refinance or expand your portfolio later.
For self-employed contractors in Sydney, the distinction matters because lenders assess risk differently depending on whether you're buying a house, a unit, or something less conventional. Your income documentation needs are the same regardless, but the investment loan terms, LVR limits, and interest rate pricing often shift according to what you're securing the debt against. That affects how much you can borrow and what it costs you over time.
Houses on Standard Residential Land
A standalone house on its own title attracts the widest range of lenders and the most favourable pricing.
Most ADIs treat these properties as lower risk because the land component typically appreciates, and there are no body corporate complications or shared liability. For contractors with variable income, access to a larger pool of lenders means more flexibility when one institution's serviceability policy is restrictive. At current variable rates, a house in a suburb like Parramatta or Penrith might attract pricing 10 to 20 basis points lower than an equivalent unit, depending on the lender's portfolio composition at the time.
The trade-off is capital outlay. Median house prices across greater Sydney remain substantially higher than unit prices, so your deposit requirement and stamp duty are proportionally larger. If you're aiming to enter the market with limited savings but strong ongoing income, a house may push your LVR above 80 per cent, which brings Lenders Mortgage Insurance into the equation. LMI on investment loans is calculated on the full loan amount and LVR, and the premium can add several thousand dollars to your upfront costs.
In our experience, contractors who have been trading for at least two full financial years and can demonstrate consistent net profit often find it easier to secure approval for a house, even at higher LVRs, because the asset itself is viewed as more liquid.
Units and Apartments in Strata Schemes
A unit or apartment is secured by a strata title and includes a share in common property managed by an owners corporation.
Lenders apply additional scrutiny to strata properties, particularly around the size of the building, the proportion of owner-occupiers versus investors, and whether the body corporate holds adequate sinking fund reserves. Some lenders impose LVR caps of 80 or 90 per cent on units in buildings above a certain height or with more than 50 per cent investor occupancy. For contractors, this can limit your borrowing capacity even when your income is sufficient, because the property itself triggers a more conservative risk weight under APS 112.
Ongoing body corporate fees are another layer. These fees cover building insurance, maintenance of common areas, and contributions to the sinking fund. They're not directly deductible from your loan serviceability calculation, but they do reduce your disposable income and therefore your capacity to service additional debt. A unit in a newer building near Sydney's CBD might carry quarterly levies of several thousand dollars, and lenders factor that into their assessment.
Consider a contractor purchasing a two-bedroom unit in Rhodes. The property is part of a high-rise development with resort-style facilities. The body corporate fee is around $1,200 per quarter, and the building is 70 per cent investment-owned. Two lenders decline the application on the basis that the building exceeds their internal investor concentration threshold. A third lender approves the loan, but caps the LVR at 80 per cent and prices the interest rate 15 basis points higher than their advertised rate for houses. The contractor proceeds because the rental yield in the area is strong and the property suits tenants working in nearby Parramatta.
The benefit of units, particularly in areas with high tenant demand, is rental yield. Smaller properties at lower purchase prices often achieve better percentage returns than houses, and that income helps offset holding costs if you're operating under the new negative gearing rules that apply from the 2027-28 income year for established properties acquired after May 2026.
New Builds and Off-the-Plan Developments
A new build is a dwelling constructed on previously vacant land or a development that increases the total number of dwellings on a site.
Under the current tax framework, eligible new builds purchased after May 2026 retain full negative gearing against all income, and buyers can choose between the 50 per cent CGT discount or cost base indexation when they eventually sell. For contractors building wealth through property, that distinction can be valuable over a long holding period, especially if you're in a higher marginal tax bracket and expect to hold the property through multiple income cycles.
The challenge with off-the-plan purchases is valuation risk. You contract to buy at today's price, but settlement occurs 12 to 24 months later. If the market softens or the development saturates the local rental market, the bank's valuation at settlement may come in below the contract price. That shortfall has to be covered by additional cash or equity, or the lender will reduce the loan amount. For self-employed borrowers, that can derail settlement because your capacity to quickly source additional funds may be constrained by your operating cash flow.
Some lenders also apply higher interest rates to off-the-plan stock, particularly in areas with high levels of new supply. Western Sydney corridors such as Marsden Park and Schofields have seen substantial residential development, and lenders occasionally apply postcode-level overlays that increase pricing or cap LVRs.
Townhouses and Torrens Title Duplexes
A townhouse or duplex on its own Torrens title is treated similarly to a standalone house by most lenders.
The key distinction is whether the property is part of a community title or strata scheme. If there's a body corporate and shared common property, the lending assessment resembles that of a unit. If the title is freehold and you own the land beneath the dwelling outright, the assessment resembles a house. For contractors, that difference affects both the range of lenders available and the pricing you'll be offered.
Torrens title townhouses in suburbs like Blacktown or Liverpool often deliver a middle ground between house and unit pricing, with lower entry costs than a standalone house and fewer ongoing fees than a high-rise apartment. Rental demand for these properties is solid among families who want space but can't afford a full house, and that supports vacancy rates and long-term tenancy stability.
Where a duplex or townhouse is part of a small strata scheme with only a handful of lots, some lenders treat it as higher risk because the body corporate lacks scale and sinking fund contributions may not cover major repairs. Others take the opposite view and see a small scheme as lower risk because decision-making is simpler. Your broker can identify which lenders fall into which camp, and that determines where your application is lodged.
Granny Flats and Dual Occupancy Properties
A granny flat is a self-contained dwelling on the same title as a primary residence, while dual occupancy refers to two dwellings on one lot.
Most lenders will not provide investment loans secured solely against a granny flat, because it cannot be sold separately from the primary dwelling. If you own the primary residence outright or with substantial equity, some lenders will allow you to use that equity to fund the construction of a granny flat and treat the rental income from the flat as part of your serviceability. For contractors, this can be a way to generate passive income without purchasing a separate property, but it depends on your existing equity position and the lender's policy on secondary dwellings.
Dual occupancy on a single title is treated similarly to a house by some lenders and as a non-standard security by others. If both dwellings can be rented independently, the combined rental income may support a higher borrowing capacity, but the lender will assess the property's resale market and whether future buyers would value the dual occupancy setup or prefer to renovate or subdivide.
In Sydney's middle-ring suburbs, dual occupancy is becoming more common as land values rise and councils adjust planning controls to encourage higher-density housing. If you're considering this type of property, expect the lender to request a detailed rental appraisal and a valuation that reflects the current configuration, not a hypothetical future subdivision.
Commercial Hybrid and Mixed-Use Properties
A property with both residential and commercial components, such as a shop with an apartment above, requires a commercial loan structure rather than a standard residential investment loan.
Lenders assess these properties based on the income they generate, the lease terms in place, and the creditworthiness of any commercial tenants. For contractors, this type of property can offer diversification, but it also introduces complexity around loan serviceability, insurance, and tax treatment. Commercial lending typically requires a larger deposit, often 30 to 40 per cent, and loan terms are shorter than residential mortgages.
If the property is predominantly residential with only a small commercial component, some lenders may still consider it under a residential loan structure, but the interest rate and LVR will reflect the mixed-use nature. You'll need to demonstrate that both the residential and commercial components are tenanted or genuinely available for lease, and the lender will apply a discount to the commercial rental income to account for vacancy risk.
For contractors with established client bases or related business interests, a mixed-use property can align with your broader financial strategy, but the lending assessment is far more involved than a standard residential investment, and the documentation requirements are more extensive.
How Property Type Affects Your Borrowing Capacity
Lenders calculate your borrowing capacity by applying a serviceability buffer to the loan product rate and assessing your net income after tax, existing debts, and ongoing living expenses.
Property type affects this calculation in two ways. First, the interest rate you're offered varies depending on the perceived risk of the security. A house in a high-demand suburb may be priced 10 to 20 basis points lower than a unit in the same suburb, and that difference compounds over a 30-year loan term. Second, certain property types attract LVR caps or require larger deposits, which reduces the loan amount you can request and therefore the total purchase price you can afford.
For self-employed contractors, borrowing capacity is already constrained by the need to average your income over two financial years and account for business expenses. Adding a property type that attracts conservative lending terms can limit your options further. Working with a broker who understands both your income structure and the lending appetite for different property types ensures your application is lodged with the right lender from the outset.
Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Do lenders charge higher interest rates for units compared to houses?
Yes, many lenders price units 10 to 20 basis points higher than houses due to different risk weights under APS 112. The exact margin depends on the lender's portfolio composition and the specific characteristics of the building, such as size and investor concentration.
Can I get an investment loan for a granny flat in Sydney?
Most lenders will not provide a loan secured solely against a granny flat because it cannot be sold separately. Some lenders will allow you to use equity in your primary residence to fund construction and treat the rental income in your serviceability, but this depends on your existing equity position.
What is the benefit of buying a new build investment property after May 2026?
Eligible new builds purchased after May 2026 retain full negative gearing against all income, and you can choose between the 50 per cent CGT discount or cost base indexation when you sell. Established properties acquired after that date are subject to quarantined losses from the 2027-28 income year.
Why do some lenders reject investment loan applications for high-rise units?
Some lenders impose internal limits on buildings with high investor concentration, typically above 50 per cent, or buildings above a certain height. These properties are considered higher risk due to potential oversupply, difficulty in resale, and reliance on body corporate governance.
How does property type affect my LVR limit as a self-employed contractor?
Houses on standard residential land typically support LVRs up to 95 per cent with LMI, while units in high-rise buildings or buildings with high investor occupancy may be capped at 80 or 90 per cent. Your income structure as a contractor is assessed separately, but the property type determines the maximum LVR the lender will offer.
