Simple hacks to finance your investment townhouse

A company director purchasing an investment townhouse borrows differently to a wage earner.

Your income flows through a company structure, your tax returns show distributions and franking credits, and lenders assess you under commercial-grade scrutiny even though the asset itself is residential. The deposit requirement, the way rental income is treated, and the loan features that matter most all shift when you are purchasing a townhouse as an investment rather than a home.

How lenders assess company directors for investment loans

Lenders treat company directors as self-employed and require two full years of financials, including personal and company tax returns, to confirm sustainable income. Your assessable income is not your salary alone. Most lenders add back dividends, franked distributions, and in some cases a portion of retained company profit, then apply a loading factor to account for tax. The loading ranges from 1.2 to 1.35 depending on the lender.

Consider a director purchasing a townhouse in Parramatta whose company distributes most profit as dividends. She earns a base salary of $80,000 and receives $60,000 in fully franked dividends each year. One lender adds the gross dividend, applies a 1.25 loading, and assesses her on $175,000. Another lender caps the loading at 1.2 and includes only 50 per cent of retained profit, assessing her on $162,000. That $13,000 difference directly affects how much she can borrow, particularly under the debt-to-income cap that now restricts high-leverage lending above six times income.

Structuring your deposit and covering upfront costs

Most lenders require a minimum 10 per cent genuine savings deposit for an investment loan, though some will accept 5 per cent if you pay Lenders Mortgage Insurance. Genuine savings means funds held in your name or your company's name for at least three months. A director dividend paid into your personal account in April qualifies as genuine savings by July.

Townhouse purchases involve body corporate. Lenders review the strata report before unconditional approval and look for sinking fund balances, outstanding levies, and pending special levies. A townhouse with a $40,000 special levy flagged for roof replacement may not settle until you provide evidence the levy is paid or the seller agrees to cover it at settlement. Stamp duty, legal fees, and building and pest inspections add another layer of upfront cost. In New South Wales, stamp duty on a $750,000 investment townhouse is approximately $29,000. That sits on top of your deposit.

Interest-only loans and how they affect company director cashflow

Most directors purchasing investment property choose interest-only repayments for the first one to five years. The interest cost is fully deductible against rental income, and keeping the repayment lower preserves cashflow for reinvestment or distribution within the company.

A $600,000 loan at current variable rates on principal and interest requires roughly $3,600 per month. The same loan on interest-only requires roughly $2,400. That $1,200 difference compounds when you are managing company tax payments, superannuation obligations, and irregular income cycles. Interest-only also means the full loan balance remains outstanding, so you retain maximum equity for future borrowing. When the interest-only period ends, the loan reverts to principal and interest and the repayment increases sharply unless you refinance or extend the interest-only term.

Using rental income in your serviceability calculation

Lenders do not accept 100 per cent of rental income when calculating serviceability. Most apply a shading factor of 20 per cent to account for vacancy, maintenance, and management costs. A townhouse renting for $650 per week generates $33,800 annually, but the lender will assess you on $27,040.

Some lenders require a signed lease before settlement and will only include rental income if the lease is in place at the time of application. Others will accept a rental appraisal from a licensed property manager. If you are purchasing in a precinct with high vacancy rates or oversupply, the lender may apply additional shading or decline to include projected rent altogether. Western Sydney precincts near new apartment developments have seen vacancy rates above 4 per cent in recent quarters, which can trigger closer lender scrutiny on townhouse purchases in those pockets.

Fixed versus variable rates for investment townhouses

Fixed rates provide repayment certainty but remove offset account access and charge break fees if you repay early or refinance before the fixed term ends. Variable rates allow full offset, unlimited extra repayments, and portability, but your repayment moves with the Reserve Bank cash rate.

A split structure, half fixed and half variable, is common among company directors who want partial rate protection without sacrificing flexibility. The variable portion sits in an offset account where you can park company distributions, franking credit refunds, or surplus cashflow. Every dollar in offset reduces the interest charged on that portion of the loan. The fixed portion locks in your deductible interest cost for budgeting and protects against rate rises during the fixed term.

Leveraging equity to fund your townhouse deposit

If you already own property, whether as an individual or through a trust, you can use equity in that property to fund part or all of your townhouse deposit. Lenders will allow you to borrow up to 80 per cent of the value of your existing property without paying LMI, and in some cases up to 90 per cent if you accept the insurance premium.

Consider a director who owns his home in Epping valued at $1,200,000 with a $400,000 mortgage. He has $560,000 in available equity at 80 per cent LVR. He uses $150,000 of that equity as the deposit and stamp duty for a $700,000 townhouse in Ryde. The new loan sits as a separate split secured against both properties, and the interest on the investment portion remains fully deductible. Mixing loan purposes across the same security requires careful structuring to preserve deductibility. You cannot claim interest on funds used for private purposes, even if the loan is secured by an investment property. We structure these splits daily and ensure each loan tranche is documented to match its purpose.

Negative gearing rules and the changes from July 2027

Under current legislation, any loss you make on the townhouse, where interest and other holding costs exceed rental income, can be offset against your salary, company distributions, or other income in the same financial year. That rule continues for any townhouse you purchase and settle before 7:30pm AEST on 12 May 2026.

From 1 July 2027, losses on townhouses purchased after that date can only be offset against other residential rental income or carried forward to offset future rental profits or capital gains. They cannot reduce your salary or distribution income. The only exception is if the townhouse qualifies as an eligible new build, meaning it was constructed on vacant land or added to the dwelling count on the title. A townhouse in a new subdivision qualifies. A townhouse purchased in an established complex does not. If you are weighing up established versus new, the negative gearing treatment may shift the comparison in favour of new stock, particularly if you expect the property to run at a loss in the early years.

Capital gains tax indexation from July 2027

For townhouses owned before 1 July 2027, any gain realised on sale is subject to the existing 50 per cent discount if you hold the property for at least 12 months. For the portion of the gain that accrues after 1 July 2027, the discount is replaced with cost base indexation using the Consumer Price Index, and a minimum 30 per cent tax applies to the indexed gain unless you are receiving a means-tested payment such as the Age Pension at the time of sale.

If you purchase an eligible new build townhouse, you can elect to use the 50 per cent discount instead of indexation. That election is made at the time you lodge your tax return for the year of sale, and it applies only if the property met the new build criteria when you purchased it. The tax outcome on sale 10 or 15 years from now will depend on inflation, your marginal rate, and whether the property remained tenanted. These are long-term holds, and the structure you choose now affects the after-tax return when you exit.

Call one of our team or book an appointment at a time that works for you. We work with company directors across Sydney and structure investment loans that fit your distribution cycle, your growth plans, and the way your accountant runs your year-end. Whether you are adding a townhouse to an existing portfolio or purchasing your first rental property, we will walk you through serviceability, structuring, and settlement with the detail and clarity you expect.

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