In short: To buy an investment property in Melbourne you typically need a 10–20% deposit plus around 5–6% of the price for stamp duty and costs, an investment loan assessed at your rate plus 3 percentage points, and a clear plan for the cashflow gap between rent and outgoings. On a $650,000 purchase, budget roughly $165,000 upfront at 80% LVR, or about $100,000 at 90% with LMI.
This guide walks through every stage: how investment loans differ from owner-occupier loans, the true upfront cost, how lenders test your borrowing power, how to read yield and cashflow, the tax rules that matter in Victoria, and the mistakes we see most often from investors in Melbourne's northern growth corridor.
How an investment loan differs from a home loan
Lenders price and assess investment lending differently because, statistically, investors are more likely to walk away from a property that is not their home.
- Higher interest rates. Investment loans usually carry a premium over an equivalent owner-occupier loan, and interest-only investment loans carry a further premium.
- Lower maximum LVR at some lenders. Most will lend to 90% on an investment property with LMI, some to 95%, but pricing improves sharply at 80% or below.
- Rental income is shaded. Lenders count only 70–80% of the expected rent, to allow for vacancy, agent fees and repairs.
- Interest-only is common. Many investors choose interest-only for the first 1–5 years to maximise deductible interest and preserve cashflow. Read interest-only loans explained before you decide.
- Existing home equity can fund the deposit. If you already own a home, you may not need cash at all. See how to use equity to buy an investment property.
Our investment property loans page covers the loan products in more depth; this guide focuses on the decisions around them.
How much deposit you need
The deposit question is really a question about loan-to-value ratio (LVR). Below 80% LVR you avoid lenders mortgage insurance (LMI) and get the best pricing. Between 80% and 90% you pay LMI, which on an investment purchase in Victoria can run from a few thousand dollars to well over $15,000 depending on price and LVR.
Stamp duty in Victoria for an investor is charged at the general rate with no concessions. For prices between $130,001 and $960,000 the formula is $2,870 plus 6% of the amount over $130,000.
| Purchase price | 20% deposit | 10% deposit | Stamp duty (general rate) | LMI at 90% LVR (estimate) |
|---|---|---|---|---|
| $500,000 | $100,000 | $50,000 | $25,070 | approx. $8,000–$10,000 |
| $650,000 | $130,000 | $65,000 | $34,070 | approx. $11,000–$14,000 |
| $800,000 | $160,000 | $80,000 | $43,070 | approx. $14,000–$18,000 |
LMI figures are indicative only; run your own numbers in the LMI calculator and the stamp duty calculator.
Full upfront cost on a $650,000 Craigieburn house
| Item | At 80% LVR | At 90% LVR |
|---|---|---|
| Deposit | $130,000 | $65,000 |
| Stamp duty (VIC general rate) | $34,070 | $34,070 |
| Transfer and mortgage registration fees | approx. $1,500 | approx. $1,500 |
| Conveyancing | approx. $1,500 | approx. $1,500 |
| Building and pest inspection | approx. $600 | approx. $600 |
| Lender application and valuation | approx. $600 | approx. $600 |
| LMI | nil | approx. $12,000 (often capitalised) |
| Cash needed | approx. $168,000 | approx. $103,000 plus LMI |
The upfront costs calculator lets you swap in a different price and LVR.
How lenders test your borrowing power
Every lender must assess whether you can afford the loan at your actual rate plus a 3 percentage point buffer set by APRA. For illustration, a loan at 6.00% p.a. is tested at 9.00% p.a. That buffer applies to your existing home loan too, so an investor with a $500,000 home loan and a proposed $520,000 investment loan is tested on more than $1 million of debt at 9.00%.
On the income side, the lender adds your salary, 70–80% of the expected rent, and sometimes negative gearing tax benefits (a smaller group of lenders add these back). On the expense side it uses the higher of your declared living expenses or a statistical benchmark, plus credit card limits, car loans and HECS.
Because Gorakh Timilsina spent years as a senior credit officer assessing applications, GNT Finance structures investor files the way an assessor wants to read them: rental appraisal attached, expenses reconciled to statements, and the loan purpose clearly documented. Check where you stand with the borrowing power calculator.
Yield versus growth
Investors talk about two returns: rental yield (income) and capital growth (price appreciation). Most Melbourne houses lean toward growth; units and regional properties lean toward yield.
Gross yield = annual rent ÷ purchase price. Net yield deducts running costs.
| Example | Price | Weekly rent | Annual rent | Gross yield | Costs (approx.) | Net yield |
|---|---|---|---|---|---|---|
| Craigieburn house | $650,000 | $520 | $27,040 | 4.16% | $6,000 | 3.24% |
| Werribee unit | $450,000 | $430 | $22,360 | 4.97% | $7,000 (incl. owners corporation) | 3.41% |
| Mernda townhouse | $560,000 | $480 | $24,960 | 4.46% | $5,500 | 3.47% |
Compare net yield with your interest rate: if the loan costs 6.00% and net yield is 3.24%, the gap is what you fund from your own pocket each year, before tax.
Cashflow worked example
Take that $650,000 Craigieburn house with a $520,000 interest-only loan (80% LVR).
| Line | Annual amount |
|---|---|
| Rent received ($520 per week) | $27,040 |
| Interest (for illustration, at 6.00% p.a. on $520,000) | −$31,200 |
| Agent fees, rates, insurance, water, maintenance | −$6,000 |
| Land tax (site value around $350,000) | −$1,500 |
| Pre-tax shortfall | −$11,660 |
| Depreciation (non-cash deduction, estimate) | −$5,000 |
| Taxable rental loss | −$16,660 |
| Tax saving at 32% (30% bracket plus 2% Medicare levy) | +$5,331 |
| After-tax cash cost per year | approx. $6,329 (about $122 per week) |
That $122 per week is the real cost of holding the property, which you weigh against expected growth. If the property grows 4% a year, that is $26,000 in year one against a $6,329 cash cost. If it grows 0%, you have paid $6,329 for nothing but a future option. The investment property cashflow calculator models different rents, rates and vacancy periods; negative gearing explained goes deeper on the tax side.
Timing and the off-the-plan concession
Two timing points matter for Melbourne investors in 2026. First, Victoria's temporary off-the-plan duty concession for apartments and townhouses, which is open to investors as well as owner-occupiers, ends on 20 October 2026. Under it, duty is calculated on the land and construction completed at the contract date rather than the finished price, which on a $650,000 off-the-plan townhouse in Wollert can cut duty by tens of thousands of dollars. Contracts must be signed before the deadline; check the details on sro.vic.gov.au and read buying off the plan for the risks that come with it.
Second, interest rate direction. Investors often wait for cuts before buying, but lenders test you at your rate plus 3 percentage points regardless, and prices in the growth corridors tend to move ahead of rate changes rather than after them. A fixed or split loan can lock in certainty on part of the debt; compare in the split loan calculator.
Rate rise stress test
| Scenario on the $520,000 Craigieburn loan | Annual interest | After-tax cash cost (32% bracket) |
|---|---|---|
| For illustration, at 6.00% p.a. | $31,200 | approx. $6,300 |
| Rate rises 1.00 point to 7.00% p.a. | $36,400 | approx. $9,850 |
| Rate rises 2.00 points to 8.00% p.a. | $41,600 | approx. $13,400 |
If the third row would strain your household, the purchase is too large, whatever the tax deduction says.
Ownership structures
| Structure | Best for | Watch-outs |
|---|---|---|
| Individual name | Single higher-income earner using negative gearing | All loss offsets go to one person; land tax threshold used once |
| Joint names (tenants in common) | Couples with unequal incomes wanting to split ownership, say 70/30 | Loss and gains split in the same proportion; hard to change later |
| Family or unit trust | Asset protection, distributing profit | Losses trapped in the trust; VIC trust land tax surcharge rates; lender appetite narrower |
| SMSF (limited recourse borrowing) | Long-term hold in a low-tax environment | Strict rules, higher deposit, cannot live in it |
The choice affects tax for decades, so get accounting advice before the contract is signed; changing names after settlement triggers duty again. For couples, our legal explainer on joint tenants versus tenants in common covers the difference. The SMSF property guide covers super fund purchases.
Land tax, CGT and depreciation in Victoria
Land tax
Your own home is exempt, but investment land is taxed on its site value each year. The 2024–2033 Victorian general rates are:
| Total taxable site value | Land tax |
|---|---|
| Under $50,000 | Nil |
| $50,000 to under $100,000 | $500 |
| $100,000 to under $300,000 | $975 |
| $300,000 to under $600,000 | $1,350 plus 0.3% of value over $300,000 |
| $600,000 to under $1 million | $2,250 plus 0.6% of value over $600,000 |
| $1 million to under $1.8 million | $4,650 plus 0.9% of value over $1 million |
Land values across your investment holdings are aggregated, so a second and third property push you up the scale. A 4% absentee owner surcharge applies to foreign owners, and vacant residential land tax applies state-wide to homes left empty for more than six months. Use the Victorian land tax calculator and read land tax in Victoria explained and vacant residential land tax.
Capital gains tax
When you sell, the gain (sale price less cost base, which includes purchase price, duty, buying and selling costs and capital improvements) is added to your income. Hold for more than 12 months and only 50% of the gain is taxed. Selling in a low-income year, or in retirement, can cut the bill materially. Estimate it with the capital gains tax calculator and read capital gains tax on property. The ATO's rental property guide at ato.gov.au sets out what is deductible.
Depreciation
A quantity surveyor's depreciation schedule (typically $600–$800) itemises the building's capital works (2.5% a year for buildings constructed after 1987) and plant and equipment. On a newer house in Mickleham or Donnybrook, first-year depreciation can exceed $8,000, all deductible without any cash leaving your pocket. Established homes bought after May 2017 can generally claim capital works but not second-hand plant and equipment.
Choosing the property
Where you buy matters more than which lender you use. A few principles that hold up across cycles:
- Buy where people want to rent, not just where it is cheap. Vacancy rates, days on market and rent growth tell you more than the purchase price.
- Land content drives growth; buildings depreciate. A house on 400 square metres in Wollert or Mernda generally outgrows a high-rise apartment.
- Infrastructure is the leading indicator. Melbourne's north (Mickleham, Donnybrook, Kalkallo, Craigieburn) keeps adding train stations, schools and shopping centres; our local pages for Mickleham and Donnybrook describe the area.
- New versus established. New homes bring depreciation and low maintenance but a builder's margin; established homes bring land and negotiation room. See house and land versus established.
- Mind the owners corporation. Apartment levies of $3,000–$6,000 a year can wipe out the yield advantage.
Managing the property
Budget 6–8% of rent (plus GST and letting fees) for a property manager. Self-managing saves the fee but costs you time and exposes you to Victorian rental law compliance: minimum standards, gas and electrical safety checks every two years, and strict bond and notice rules. Landlord insurance (around $1,200–$1,800 a year) covers rent default and malicious damage and is deductible.
Investment property checklist
- Confirm borrowing power with the +3 percentage point buffer applied to all debts.
- Decide the ownership structure with your accountant before you sign anything.
- Get pre-approval so you can act at auction or on a private sale with confidence.
- Obtain a written rental appraisal for the lender.
- Budget stamp duty, LMI (if over 80%), conveyancing, inspections and a $10,000 cash buffer.
- Model cashflow at your rate plus 2% and with four weeks' vacancy.
- Order a depreciation schedule after settlement.
- Set up a separate offset or loan split so investment interest is never mixed with personal spending.
- Lodge a PAYG withholding variation with the ATO if you want the tax benefit in each pay rather than at tax time.
- Diary an annual loan review and a rent review.
Common mistakes
- Buying for the tax deduction. A deduction only softens a loss; the property still has to grow.
- Cross-collateralising with the family home when a standalone loan would do. It ties both properties together and limits your options when you sell or refinance.
- Ignoring land tax aggregation. Investors with three Melbourne properties are often surprised by the annual bill.
- Using redraw from the home loan to pay investment costs, which muddies deductibility.
- No buffer. A hot water service, a vacancy and a rate rise can arrive in the same quarter.
- Chasing the cheapest suburb. Low prices usually reflect low demand, which shows up as low rent growth and slow resale.
Frequently asked questions
How much deposit do I need for an investment property?
Most lenders want at least 10% of the purchase price plus stamp duty and costs, and you will pay LMI above 80% LVR. On a $650,000 Melbourne property that means about $103,000 cash at 90% LVR (plus LMI) or about $168,000 at 80% LVR. If you own a home with equity, a separate equity loan can replace the cash deposit entirely.
Can I use my home equity to buy an investment property?
Yes. Lenders let you borrow against your home up to 80% of its value (sometimes 90% with LMI) and use that money as the deposit and costs for the investment purchase. The investment property is then bought with its own loan, usually at 80% LVR. Keep the two loans separate so the interest on the equity loan stays clearly deductible.
Is it better to pay interest-only on an investment property?
Interest-only keeps repayments lower and every dollar deductible, which suits investors who still have non-deductible home loan debt to pay down first. The trade-off is a higher rate, no reduction in the balance, and a repayment jump when the interest-only term ends. Investors with no other debt often choose principal and interest for the lower rate and forced saving.
Can I live in my investment property?
You can, but you must tell your lender and the ATO. The lender may reprice the loan to owner-occupier rates (which is usually good news). For tax, interest stops being deductible while you live there, and moving in can start the clock on a partial main residence exemption for capital gains tax. Stamp duty is unaffected once the purchase has settled.
What is a good rental yield in Melbourne?
Gross yields of around 4–5% for houses and 5–6% for units are typical across Melbourne's growth corridors at the time of writing. Anything above 5% for a house usually means a regional location or a property with a lower growth outlook. Focus on net yield after rates, insurance, management and owners corporation fees, and compare it with your interest rate.
Do I pay land tax on one investment property in Victoria?
Yes, if the site value of the land is $50,000 or more, which covers virtually every Melbourne property. A house in Craigieburn with a site value of $350,000 attracts about $1,500 a year at the 2024–2033 general rates. Your own home is exempt, but every investment property is aggregated onto a single assessment.
Talk to GNT Finance
GNT Finance structures investment loans for buyers across Melbourne and Victoria, from a first rental in Wollert to a portfolio review. We compare lenders on rate, LVR policy and how they treat rental income, and there is no cost to you for our home-loan service in most cases. Book a free consultation or call 0426 403 703.
This page is general information only and not legal, tax or financial advice. Laws change — confirm current rules with the State Revenue Office, the ATO or a licensed professional.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.