In short: Lenders do not count all your rent. A common approach is to take around 80% of the gross rent, which allows for vacancy, agent fees, rates, insurance and maintenance. Short-stay accommodation, granny flats, rooming arrangements and rural properties are often shaded harder or excluded, and the loan on the property is assessed at the buffered rate in full.
Every investor eventually asks the same question: the property rents for $650 a week, so why did the lender only count $520? The answer is a decades-old convention that quietly determines how many properties you can hold. Understanding it is the difference between building a portfolio and stalling at property two.
Why the shading exists
The rent you collect is not the money you keep. Between the tenant and your bank account sit the letting fee, the management fee, council rates, water rates, building insurance, landlord insurance, owners corporation levies, repairs, and the weeks the property sits empty between tenants.
Rather than ask you to itemise all of it, lenders apply a flat discount. That is the shading. Around 20% is the common landing point because it approximates the real cost of holding a standard residential rental. It is a shortcut, not a judgement about your property.
The consequence is that a property yielding well on paper contributes less to serviceability than the yield suggests, while the loan against it is assessed in full at your rate plus the APRA buffer of 3 percentage points. Rent is discounted; debt is not.
How rental income is commonly shaded
Policy varies between lenders and changes without notice, so we check the current position before you apply.
| Property or income type | Common shading | Gross or net | Typical evidence | Notes |
|---|---|---|---|---|
| Standard house or unit, tenanted | Around 80% of gross | Gross rent, shaded | Current lease plus a rental statement | The baseline treatment |
| Standard house or unit, vacant | Around 80% of the appraised rent | Gross appraisal, shaded | Written appraisal from a licensed agent, usually a range | Some lenders use the lower end of the range |
| Newly built or off the plan | Around 80% of the appraised rent | Gross appraisal, shaded | Agent appraisal or valuer's rental estimate | The valuer's estimate often overrides the agent's |
| Short-stay or holiday letting | Commonly 50%–65%, some lenders nil | Often net, after platform and cleaning costs | Two years of tax returns showing the income | Treated as business-like and seasonal |
| Granny flat or secondary dwelling | Commonly 50%–80%, some lenders nil | Gross, shaded | Lease, plus council approval for the dwelling | Unapproved structures are almost always excluded |
| Dual occupancy or dual key | Often around 80% on both, but some count one only | Gross, shaded | Two leases | Valuation and marketability drive the decision |
| Commercial property | Commonly 65%–80% | Often net of outgoings | Lease with term, tenant details, outgoings schedule | Lease expiry date matters a great deal |
| Rural or lifestyle property | Often shaded harder, or excluded | Gross, shaded | Lease | Land size limits apply at most lenders |
| Overseas rental income | Often shaded hard or excluded | Gross, converted then shaded | Lease, tax return, translations | See the foreign income rules |
Two clarifications that come up constantly. Gross versus net: most lenders shade the gross rent, which is why 80% is the number you hear; a smaller group ask for net rent after outgoings and shade less. Do not assume the second lender is more generous until the maths is done. Vacancy: the shading is intended to cover normal vacancy, so a lender will not usually apply a second discount for it. But a property vacant at application is different. Some lenders will not count appraised rent at all on an existing investment until a lease is in place.
If your overseas rental income is in the mix, it is converted and then shaded on top of the currency discount. See foreign currency income home loans.
Worked example: 80% versus 50% shading
Ravi earns a salary of $95,000. He owns an investment property in Melbourne's north renting at $650 a week, which is $33,800 a year gross.
Case 1: a standard tenanted rental, shaded at 80%.
$33,800 × 0.80 = $27,040 counted. Assessed gross income: $95,000 + $27,040 = $122,040.
Case 2: the same property let as short-stay accommodation, shaded at 50%.
$33,800 × 0.50 = $16,900 counted. Assessed gross income: $95,000 + $16,900 = $111,900.
The arithmetic on the 2026–27 resident tax scale plus the 2% Medicare levy:
| Case 1 ($122,040) | Case 2 ($111,900) | |
|---|---|---|
| Tax: $4,020 on the 15% band | $4,020 | $4,020 |
| Plus 30% above $45,000 | $23,112 | $20,070 |
| Total tax | $27,132 | $24,090 |
| Medicare levy at 2% | $2,440.80 | $2,238.00 |
| Net income | $92,467.20 | $85,572.00 |
| Net per month | $7,705.60 | $7,131.00 |
The monthly difference is $574.60. At a rate of 6.00% p.a. assessed with the APRA buffer of 3 percentage points, the assessment rate is 9.00%, and over a 30-year term $1 of monthly surplus supports about $124 of loan.
$574.60 × 124 = about $71,200 of borrowing capacity.
Switching a property from a standard lease to short-stay letting can improve cash flow and still cost you $71,000 of capacity for the next purchase. That is a trade-off worth making deliberately rather than by accident. These figures are illustrative, they ignore the tax deductions available on the property itself, and every lender's calculator differs. Model your own position with the investment property cashflow calculator and the borrowing power calculator.
The other half: how the existing loan is assessed
Shaded rent is only one side. The loan secured against the investment property is a liability, and how the lender assesses it decides whether you can buy again.
- Existing loans with the same lender are usually assessed at that lender's own assessment rate, being the actual rate plus at least the 3 percentage point buffer.
- Interest-only loans are frequently assessed on principal and interest repayments over the remaining term after the interest-only period ends, which produces a much higher assessed repayment than you actually pay. This is the single biggest surprise for investors with multiple interest-only facilities. See interest-only loans explained.
- Negative gearing benefits are added back by some lenders and ignored by others. Where they are counted, the tax benefit lifts assessed income. See negative gearing explained.
How to make rental income count for more
- Get a realistic written appraisal from a licensed agent for any untenanted property. If the agent says $650 and the valuer says $560, most lenders use $560, which is a common late-stage reduction.
- Keep the granny flat approved and separately leased. Council approval plus a written lease turns an excluded income into a counted one at some lenders.
- Think before switching to short-stay. Better cash flow, worse serviceability, and some lenders will not lend against the property at all.
- Keep your consumer debt down. Rental income shaded at 80% goes further when it is not being absorbed by card limits and buy now pay later. See how to improve borrowing power and buy now pay later and your home loan.
For the broader strategy of using an existing property to fund the next one, see how to use equity to buy an investment property and the investment property guide.
Frequently asked questions
Why do lenders only count 80% of rental income?
The 20% discount stands in for the costs of holding a rental: agent fees, council and water rates, insurance, repairs and vacancy. Rather than verifying each item, lenders apply a flat shading. Some use 75%, some use 80%, and a few use net rent after outgoings with a smaller discount. The intent is the same in every case.
Does Airbnb or short-stay income count for a home loan?
Sometimes, but it is shaded harder than a standard lease, commonly to 50% to 65%, and some lenders will not count it at all. Where it is accepted, lenders usually want two years of tax returns rather than a lease, because the income is seasonal and business-like. Switching a property to short-stay can improve cash flow and reduce your borrowing capacity at the same time.
Will a lender count granny flat rent?
It depends entirely on approval. A secondary dwelling with council approval, a separate lease and a valuation that supports it will be counted by some lenders, often shaded to between 50% and 80%. An unapproved structure is generally excluded and can also reduce the valuation of the whole property. Get the approvals documented before you rely on the income.
What happens if my investment property is vacant when I apply?
Most lenders will accept a written rental appraisal from a licensed agent and shade it as usual, though some use the lower end of the appraised range and a few will not count anything until a lease is signed. If the property has been vacant for an extended period, expect questions. Having a lease signed before you apply removes the issue.
Talk to GNT Finance
Shading policy is what decides whether you can buy the next property, and it varies more between lenders than almost any other rule. Gorakh Timilsina assessed investment files as a senior credit officer, so GNT Finance can tell you which lender will read your lease, your granny flat or your short-stay returns most favourably, and how to structure the debt so property three is still possible. 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. Lender policy varies and changes without notice, and tax treatment depends on your circumstances; confirm current rules with 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.