Why Self-Employed Directors Should Structure Investment Loans

Self-employed company directors purchasing an investment apartment face lending conditions that differ sharply from those applied to wage earners.

The way you extract income from your company, the rental yield on the apartment you select, and the timing of your purchase relative to new negative gearing quarantine rules all influence both how much you can borrow and the long-term tax treatment of the investment. For directors who operate through a company structure, the interplay between serviceability assessment, debt-to-income caps and portfolio strategy requires focused attention before any contract is signed.

How Lenders Assess Income for Self-Employed Company Directors

Lenders typically assess a company director's income using either two years of tax returns or, in some cases, a single-year return plus year-to-date financials. The assessable figure depends on whether you take a salary, dividends, or a combination of both, and whether franking credits are included in the calculation varies by lender.

Consider a director who draws a base salary of $80,000 and distributes $60,000 in fully franked dividends each year. Some lenders will add the franking credits to the dividend figure, lifting the assessable income to approximately $105,000. Others exclude franking entirely and cap the assessable income at $80,000 plus the unfranked component, effectively treating the dividend as supplementary. The difference between those two treatments can shift borrowing capacity by $100,000 or more. We work with lenders whose credit policies align with how you structure your remuneration, rather than forcing your income into a template designed for PAYG employees.

Why Rental Income Projections Matter More Under the DTI Cap

From February, APRA introduced a debt-to-income cap that limits new investor loans above six times gross income to 20 per cent of each lender's investor portfolio. For directors whose assessable income sits between $120,000 and $160,000, this cap becomes binding at loan amounts between $720,000 and $960,000.

Rental income from the apartment you purchase is added to your assessable income, but it is typically shaded to between 70 and 80 per cent of the lease amount to allow for vacancy and management costs. An apartment in Chatswood leasing for $750 per week will add approximately $28,000 to your assessable income after shading. That lift can move you below the six-times threshold or allow a larger loan without breaching it. Choosing an apartment with strong rental demand in a precinct close to the station and commercial district is not only a tenant retention decision but also a serviceability decision at the point of application.

The Negative Gearing Quarantine and Why Purchase Timing Now Shapes Tax Treatment

From 1 July 2027, net rental losses on residential investment properties acquired on or after 7:30pm AEST on 12 May 2026 will be quarantined and can only be offset against other residential rental income or carried forward. They cannot be deducted against salary, dividends or business income.

If you purchased an apartment under contract before that announcement, you retain full negative gearing under the existing rules until you sell. If you are purchasing now, the quarantine will apply from mid-2027. The immediate impact is not in the interest deduction itself, which remains claimable, but in the inability to use the rental loss to reduce tax on your director income during the holding period. For a director on the top marginal rate holding an apartment that generates a $15,000 annual loss, the quarantine removes approximately $7,000 in annual tax relief. That loss is not extinguished but is carried forward and can be applied against a future capital gain when you sell, or against positive rental income if your circumstances or the property's performance change.

Interest-Only Versus Principal-and-Interest Repayment for Cash Flow and Portfolio Growth

Most lenders will approve interest-only terms for up to five years on an investment loan, with the option to extend or revert to principal and interest at the end of that period. The appeal for a self-employed director is that interest-only repayments preserve operating cash flow, particularly during months when company revenue is uneven or when you are reinvesting profit into the business rather than distributing it.

An apartment purchased for $850,000 with a 20 per cent deposit and a loan of $680,000 at a variable rate will require monthly repayments of approximately $3,900 on an interest-only basis, compared with around $4,900 on a principal-and-interest loan over 30 years. The $1,000 monthly difference can be directed toward a second deposit, offset account, or working capital. The downside is that the loan balance does not reduce, so equity growth depends entirely on capital appreciation and any voluntary repayments you make during the interest-only period. We see directors use interest-only terms to build a portfolio of two or three apartments over a compressed timeframe, then switch to principal and interest once rental income and business distributions stabilise.

Variable Rate or Fixed Rate for Investment Apartment Loans

Variable rate loans allow full offset account access and unlimited additional repayments, both of which are restricted or unavailable on most fixed rate products. For a director holding surplus cash in the business or personal structure, an offset account linked to the investment loan reduces the interest charged without requiring a formal repayment, and the funds remain accessible if needed.

Fixed rate loans provide repayment certainty but come with break costs if you repay early, and they typically do not permit offset. The decision depends on whether cash flow predictability or capital flexibility is the higher priority. In our experience, directors with variable revenue streams prefer variable rate loans to retain the ability to park cash in offset during strong quarters and draw it down during lean periods. If you are managing multiple properties or anticipate refinancing within three years to access equity for a further purchase, a variable loan avoids the break cost friction.

Loan to Value Ratio and Lenders Mortgage Insurance on Apartment Purchases

Most lenders will offer investment loans up to 90 per cent LVR, though Lenders Mortgage Insurance applies to any loan above 80 per cent. LMI premiums are capitalised into the loan and are a claimable expense in the year they are incurred, which provides some tax relief for directors purchasing with a smaller deposit.

An apartment purchased at $850,000 with a 10 per cent deposit will attract an LMI premium of approximately $25,000 to $30,000, depending on the lender and your income profile. That premium is added to the loan amount, lifting the total debt to around $795,000. The premium is deductible in the financial year of settlement, which can offset some of the cash flow impact, but the higher loan amount also increases the ongoing interest expense and affects your serviceability calculation for any subsequent purchase. If you have access to a 20 per cent deposit, either through savings or by using equity from another property, avoiding LMI reduces both the loan balance and the interest cost over the life of the loan.

Body Corporate Costs and How They Affect Serviceability and Cash Flow

Lenders include body corporate fees in their serviceability calculation, and higher fees reduce the amount you can borrow. An apartment in a building with a pool, concierge and lift access may carry quarterly fees of $2,500 to $3,500, which annualises to $10,000 to $14,000. That figure is deducted from your net rental income and can reduce your borrowing capacity by $50,000 to $70,000 depending on the lender's assessment rate.

Body corporate fees are fully deductible, but they are a fixed cost that does not decline even if the apartment is vacant. When comparing two apartments with similar rental yields, the one with lower strata fees will deliver stronger net cash flow and support a larger loan. We regularly see directors underestimate this line item and then find their borrowing capacity falls short of the purchase price they had in mind. Requesting a copy of the strata report and the last two years of levy notices before making an offer gives you the actual figure to include in your serviceability calculation.

Equity Release from an Existing Property to Fund the Deposit

If you own your home or another investment property with available equity, you can borrow against that property to fund the deposit and settlement costs on the apartment purchase without selling or liquidating other assets. Lenders will typically allow you to access equity up to 80 per cent of the property's current value, minus any existing debt.

A home valued at $1.4 million with a remaining mortgage of $400,000 provides usable equity of approximately $720,000, from which you could draw $200,000 to fund a 20 per cent deposit plus costs on an apartment purchase around $850,000. The $200,000 is added to your home loan, and because it is used to acquire an income-producing asset, the interest on that portion becomes deductible. Structuring the facility as a split loan with separate accounts for the deductible and non-deductible portions is essential to maintain the integrity of your tax position. We arrange this structure at the outset to avoid the administrative burden and ATO risk of trying to separate the interest later.

Call one of our team or book an appointment at a time that works for you. We work with self-employed directors across Sydney and structure investment loan applications to align with how your income is drawn, how your portfolio is held, and the timing of tax changes that affect rental deductions and capital gains treatment.

Frequently Asked Questions