Avoid These 4 Investment Property Type Mistakes

The property you pick determines the loan you can access, the deposit you'll need and the rental income a lender will count.

Narrabundah sits close to central Canberra with a mix of older brick units near the Canberra Hospital precinct, newer townhouses around the Dairy Road area, and standalone houses with larger blocks closer to Red Hill. Each property type attracts different investor profiles and different lending conditions. A two-bedroom apartment in a block with high body corporate fees will be assessed differently to a three-bedroom house on a corner block, even if both properties settle at the same purchase price.

Choosing a Unit Without Checking Lender Serviceability Rules

Most lenders apply stricter serviceability criteria to units and apartments compared to houses. They reduce the rental income they'll count by a vacancy factor, typically around 5 per cent, and some lenders apply a further reduction if the property is in a high-density building or if the body corporate levies exceed a certain threshold. A unit generating $550 per week in rent might only be assessed at $522 per week after the vacancy adjustment, and that difference affects how much you can borrow across your entire portfolio.

Consider an investor buying a two-bedroom unit in one of the older complexes near Jerrabomberra Avenue. The unit is priced within reach and the rent covers most of the loan repayment. But when the lender applies a 5 per cent vacancy adjustment and sees quarterly body corporate fees sitting at $1,400, the net position shifts. The investor's borrowing capacity drops, and they either need to increase their deposit or look at a different property type where serviceability is less constrained.

Picking a Property Type That Limits Your Portfolio Growth

Lenders apply different risk weights under APRA's Prudential Standard APS 112 depending on the property type and loan-to-value ratio. A property that pushes your LVR above 80 per cent will attract Lenders Mortgage Insurance, and if it's an apartment in a building where more than 50 per cent of the units are investor-owned, some lenders will either decline the loan or price it at a higher margin. That pricing difference compounds over time, particularly if you plan to leverage equity from the first property to fund a second purchase.

In our experience, investors who choose a property type based on cash flow alone often hit a ceiling when they try to expand. A house in Narrabundah's older residential streets, even with a higher purchase price, may offer more flexibility for future borrowing because it's valued more consistently across lenders and doesn't carry the serviceability reductions that apply to apartments.

Ignoring How Interest-Only Loans Interact With Property Type

Interest-only loans are commonly used for investment loans to maximise tax deductions and preserve cash flow. But lenders treat interest-only applications differently depending on the property type. A long-term interest-only loan on an apartment with an LVR above 80 per cent may be classified as non-standard under APS 112 if the interest-only period exceeds five years, which increases the capital requirement for the lender and often results in a declined application or a shorter approved term.

An investor looking at a new townhouse in the Dairy Road precinct with a 15 per cent deposit might assume they can lock in a ten-year interest-only period. The lender approves five years interest-only, then requires a switch to principal and interest. The repayment jumps by several hundred dollars per week, the property becomes negatively geared by a wider margin, and the investor's serviceability for future borrowing is reduced. Knowing how the property type and loan structure interact before you make an offer avoids that outcome.

Buying New Without Understanding How Lenders Value Off-the-Plan Purchases

Off-the-plan apartments and townhouses in Narrabundah's newer developments often come with a construction period of 12 to 24 months. Lenders typically require a formal valuation at settlement, not at contract. If the market softens or if the final valuation comes in below the contract price, the lender will only lend against the lower valuation figure. That means you'll need to bring additional cash to settlement or renegotiate the purchase, and if you've already paid a 10 per cent deposit, you risk losing that amount if you can't proceed.

Some lenders also apply a sunset clause risk assessment for off-the-plan contracts extending beyond 18 months, particularly where the developer has multiple projects underway. If you're buying new, ask your broker which lenders will provide pre-approval based on the contract price and which will only commit subject to valuation at completion. That clarity shapes your deposit planning and your risk exposure.

For investors affected by the negative gearing changes that apply to established residential properties acquired after 12 May 2026, eligible new builds remain exempt. Losses from new builds can still be deducted against all income, including salary, which makes the property type decision directly relevant to your tax position. But the definition of an eligible new build under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 is specific. A dwelling constructed on vacant land qualifies, as does a development that increases the total number of dwellings on the site. A knock-down rebuild that replaces one house with one house does not. If you're considering a new build partly for the negative gearing treatment, confirm the property meets the definition before you exchange contracts.

Narrabundah's established housing stock around the Jerrabomberra Wetlands and closer to the hospital precinct will generally fall under the new negative gearing rules for any investor purchasing after 12 May 2026, unless the property was under contract before that date. Losses from those properties can only be offset against income from other residential property or carried forward to offset future residential gains. If your primary income is from salary and you're planning to negatively gear, the after-tax position changes, and the property type you choose needs to deliver stronger capital growth or rental yield to justify the holding cost. For those looking to review their current loan structure before adding to their portfolio, a loan health check can clarify where you stand.

Different property types also carry different claimable expenses. A house with a yard might generate deductible costs for lawn care and pest control, while an apartment shifts those costs into body corporate levies, some of which are deductible and some of which are not. Depreciation schedules vary as well. A newly built townhouse will have higher depreciation deductions in the early years compared to an older brick unit. These differences affect your net tax position and your cash flow, and they should feed into the property type decision before you make an offer.

If you're refinancing an existing investment property to access equity for a second purchase, the property type of the security property affects how much equity a lender will release. A house on a standard residential block will typically be valued more conservatively but with greater consistency across lenders, while an apartment may receive a lower valuation or a reduced maximum LVR from some lenders. You can read more about how equity release works in the refinancing section.

Call one of our team or book an appointment at a time that works for you. We'll walk through the property types you're considering, the lenders who'll support each option, and the loan structure that keeps your next investment within reach.

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