Last updated: July 2026 · Reviewed by John Pierre Saliba, Director and Mortgage Broker, MFAA Accredited
How much deposit do I need for an investment property in Sydney?
Most lenders require a minimum 10% deposit for investment properties, with 20% recommended to avoid Lenders Mortgage Insurance (LMI). On a $900,000 unit (Sydney median), that is $90,000 at 10% (plus approximately $15,000 to $25,000 in LMI) or $180,000 at 20% with no LMI.
Some profession-based LMI waivers allow doctors, lawyers, and accountants to borrow up to 90% without LMI. If you already own a home with equity, you can use that equity as the deposit instead of cash savings.
- 10% deposit on $900K unit: $90,000 + LMI ($15,000 to $25,000)
- 20% deposit on $900K unit: $180,000, no LMI
- LMI waiver professions: Doctors, dentists, lawyers, accountants, senior executives
- Equity from existing home: Can replace or supplement cash savings
Can I buy an investment property if I already have a home loan?
Yes, and this is the most common path to property investment. If your home has increased in value, you can access the equity (the difference between your home's value and your loan balance) to fund the deposit on an investment property.
For example, if your home is worth $1.2M and you owe $700K, you have $500K in equity. At 80% LVR, you can access up to $260K ($1.2M x 80% = $960K minus $700K owed). That is enough for a 20% deposit on a $1.3M investment property.
The key is keeping the investment debt separate from your home loan for tax purposes. Your broker should structure the loans so that the investment borrowing is in a separate split or facility. This ensures the interest on the investment portion remains fully tax-deductible and is not mixed with non-deductible home loan debt.
What are the tax benefits of property investment in Australia?
Investment property expenses are tax-deductible, including:
- Loan interest (the largest deduction)
- Property management fees
- Council rates
- Insurance
- Repairs and maintenance
- Depreciation (building and fixtures)
- Landlord insurance
If your total costs exceed rental income (negative gearing), the loss reduces your taxable income. Important: the May 2026 Budget changed negative gearing rules. For established properties purchased after 12 May 2026, rental losses are quarantined and cannot be offset against salary income. New builds retain full negative gearing benefits. Speak to your accountant and broker before purchasing.
Should I buy a house or unit for my first investment property?
For beginners in Sydney, units often make more sense. Units have a lower entry price ($700K to $900K vs $1.2M+ for houses), higher rental yields (3-4% vs 2-2.5% for houses), and lower maintenance costs. Houses offer stronger long-term capital growth because you own the land.
The trade-off is clear: units for cashflow and affordability, houses for growth. Many first-time investors start with a well-located unit in a small block (under 20 units, avoid large tower blocks) in suburbs like Marrickville or Ashfield, and then leverage the equity into a house later.
How do I choose the right suburb for investment?
Look for:
- Proximity to transport: Within 10 minutes walk of a train station
- Population growth: Suburbs with increasing demand
- Low vacancy rates: Under 2%
- Infrastructure investment: New metro lines, hospital upgrades, university expansions
- Diversified tenant base: Not dependent on one employer or industry
In Sydney, suburbs along the Metro West corridor (like Burwood and Five Dock), the Western Sydney Airport precinct, and established inner-ring suburbs with limited new supply consistently perform well.
Avoid: suburbs with oversupply of new apartments, single-industry towns, and areas with vacancy rates above 3%.
What is the difference between interest-only and principal and interest loans for investment?
Interest-only (IO) loans mean you pay only the interest for a set period (typically 5 years), keeping repayments lower and maximising your tax deduction (since 100% of the repayment is deductible interest). Principal and interest (P&I) loans include both interest and principal repayment, meaning your debt reduces over time but repayments are higher and only the interest portion is deductible.
Most experienced investors use IO for investment properties and P&I for their home loan. This maximises deductible debt while paying down non-deductible debt faster.
What are the costs of buying an investment property beyond the deposit?
Budget for:
- Stamp duty: $25,000 to $40,000 on a $900K property in NSW (no exemptions for investors)
- Legal/conveyancing fees: $1,500 to $3,000
- Building and pest inspection: $500 to $800
- Loan application fees: $0 to $600
- LMI (if applicable): $15,000 to $30,000 at 90% LVR
- Landlord insurance: $1,200 to $2,500/year
Total upfront costs beyond the deposit are typically $30,000 to $45,000. Factor these into your savings target.
What happened with the May 2026 Budget changes for property investors?
The Albanese Government abolished negative gearing on established residential investment properties purchased after 7:30pm on 12 May 2026. From 1 July 2027, rental losses on these properties can no longer be offset against your salary. The losses are quarantined and can only offset future rental income or capital gains from that property.
New builds are fully exempt: negative gearing and the 50% CGT discount are retained. This makes new construction the clear choice for investors seeking tax benefits.
Existing investment properties purchased before the cutoff are fully grandfathered.
How much rental income can I expect in Sydney?
Gross rental yields in Sydney average 2.5-3.5% for units and 1.8-2.5% for houses. A $900K unit in the Inner West might rent for $650 to $750 per week ($33,800 to $39,000/year), giving a gross yield of 3.7-4.3%. A $1.6M house in the same area might rent for $850 to $1,000 per week, giving a 2.8-3.2% yield.
Net yield (after expenses) is typically 1-1.5% lower. Rental income covers a portion of your holding costs; the balance is your out-of-pocket cost, partially offset by tax deductions.
What is the step-by-step process for buying my first investment property?
Step 1: Get a borrowing power assessment (free through a broker).
Step 2: Get pre-approved for a loan.
Step 3: Research suburbs and set your budget.
Step 4: Inspect properties and get a building inspection on your shortlist.
Step 5: Make an offer or bid at auction (subject to finance if private sale).
Step 6: Exchange contracts and pay the deposit (usually 10% of purchase price, held in trust).
Step 7: Your broker submits the full loan application and arranges valuation.
Step 8: Receive formal approval.
Step 9: Settlement (typically 42 days after exchange).
Step 10: Appoint a property manager and find a tenant.
The biggest mistake first-time investors make is buying based on emotion instead of numbers. Before I recommend any lender or structure, I model the full cashflow: rental income, interest costs, rates, insurance, management fees, depreciation, tax impact, and your weekly out-of-pocket cost. If the numbers do not work, we look at a different property or a different strategy. I have talked people out of bad purchases more times than I can count, and that is part of what a good broker does.
