Investment Loans: 6 Things to Know Before Buying a Duplex

A duplex offers rental income from two separate tenancies under one title, but the finance structure depends on whether both dwellings are tenanted or one is owner-occupied.

Buying a duplex as an investment property means you're applying for an investor home loan with terms that differ from an owner-occupier facility. The dwelling classification, rental income treatment and deposit requirements all shift when both dwellings are tenanted, and understanding those differences before you apply will save you time and avoid unnecessary surprises during the assessment process.

How Lenders Assess Rental Income on a Duplex

Lenders typically apply a shading factor of 70 to 80 per cent to the expected rental income when calculating your borrowing capacity. A duplex with a combined rental appraisal of $1,200 per week would be assessed at approximately $840 to $960 per week, depending on the lender's policy. Some lenders treat dual-occupancy properties as higher risk and may require both dwellings to be tenanted before they include any rental income in the serviceability calculation. Others will accept a rental appraisal for vacant dwellings, provided the property is genuinely available for lease. If one dwelling is to be owner-occupied, the entire loan is generally treated as a split-purpose facility, with the owner-occupied portion assessed at a lower interest rate and the investment portion assessed using shaded rental income.

Duplexes in areas such as Rosebud and Rye often attract strong demand from holidaymakers during summer, but rental income from short-term holiday letting is treated differently to long-term residential leases. Most lenders will either disregard short-term rental income entirely or require at least 12 months of documented income history before they include it in the assessment, and even then it may be shaded more heavily than long-term rent.

Deposit and Equity Requirements for Duplex Investment Loans

Most lenders require a minimum deposit of 20 per cent of the purchase price to avoid Lenders Mortgage Insurance on an investment loan. Borrowing above 80 per cent loan to value ratio is possible, but the LMI premium increases sharply as the LVR rises, and some lenders cap investor lending at 90 or 95 per cent depending on the applicant's income, credit history and the property location. A duplex purchased using equity from an existing property is assessed on the combined security position. If you hold equity in a home in Mount Eliza and want to use that equity as a deposit for a duplex in Hastings, the lender will value both properties and calculate the total LVR across the portfolio. The usable equity is typically capped at 80 per cent of the existing property's value, less any outstanding debt against that property.

Consider a scenario where you own a home valued at $900,000 with a remaining mortgage of $400,000. The lender would calculate 80 per cent of $900,000, which is $720,000, then subtract the $400,000 debt to arrive at $320,000 in available equity. After allowing for settlement costs and a buffer, you might have $280,000 to $300,000 to apply as a deposit. If the duplex is priced within the suburb's current median range and requires a 20 per cent deposit, you would have enough equity to proceed without LMI, provided your income supports the combined loan repayments.

Interest Rate Structure: Fixed, Variable or Split

Investor interest rates are typically priced 20 to 40 basis points higher than equivalent owner-occupier rates, and that margin applies to both variable and fixed rate products. A variable rate gives you flexibility to make extra repayments without penalty and allows you to redraw funds if the loan structure permits, which can be useful for managing cash flow or funding future improvements to the property. A fixed rate locks in your repayment amount for a set term, usually between one and five years, but limits your ability to make lump sum repayments and may carry break costs if you repay or refinance before the fixed term ends. Some investors choose a split structure, with part of the loan on a fixed rate and part on a variable rate, to balance repayment certainty with flexibility.

Interest-only repayments are commonly used for investment loans because they reduce the monthly outgoing and maximise the tax-deductible interest expense. An interest-only period typically runs for one to five years, after which the loan reverts to principal and interest repayments unless you negotiate an extension. Not all lenders offer interest-only terms on high LVR loans, and some will limit the interest-only period to three years where the LVR exceeds 80 per cent.

Negative Gearing Rules from the 2027-28 Income Year

Under legislation that received royal assent in June, established residential investment properties acquired after 12 May 2026 are subject to revised negative gearing rules from the 2027-28 income year. Losses from those properties can only be deducted against income from other residential properties, including capital gains on residential properties, rather than against salary or other income. Losses can be carried forward to offset residential property income in future years. Properties held at 12 May 2026, including those under contract awaiting settlement at that time, continue to be fully deductible against all income until sold. Eligible new builds acquired after 12 May 2026 also retain full negative gearing against all income.

A duplex is generally not classified as a new build unless it was constructed on previously vacant land or replaced an existing dwelling and increased the number of dwellings on the title. A knock-down rebuild that results in the same number of dwellings is not eligible. If you're considering a duplex that is already constructed and tenanted, the property will likely be subject to the revised rules if purchased after 12 May 2026, and you should account for that when modelling the after-tax cash flow.

How Body Corporate and Strata Fees Affect Borrowing Capacity

Duplexes on a single title do not usually have a body corporate, but some dual-occupancy developments are subdivided into separate strata titles with shared common areas and ongoing levies. Where a body corporate exists, the quarterly or annual levy is treated as a recurring expense in the lender's serviceability assessment, reducing your borrowing capacity in the same way council rates or insurance premiums do. Lenders also review the body corporate financial statements and sinking fund balance to assess whether the building is well maintained and whether any special levies are likely in the near term. A low sinking fund balance or deferred maintenance may prompt the lender to request a building inspection or apply a valuation discount.

Properties in coastal areas such as Dromana and Safety Beach are more exposed to weather-related wear, and body corporate levies in those areas often include higher allocations for external painting, salt corrosion treatment and storm damage repair. A duplex with a body corporate levy of $3,000 per year will reduce your borrowing capacity by approximately $15,000 to $20,000 depending on the lender's assessment rate, so it's worth confirming the levy amount and reviewing the body corporate records before making an offer.

Tax Deductions and Claimable Expenses on Duplex Investments

Interest on the portion of the loan used to acquire the investment property is deductible in the financial year it is incurred, provided the property is rented or genuinely available for rent. Other ongoing holding costs such as council rates, insurance, property management fees, repairs and depreciation on the building and fixtures are also deductible. Costs associated with the initial purchase, including stamp duty, conveyancing fees and LMI premiums, are not immediately deductible but are added to the cost base of the property for capital gains tax purposes when you eventually sell.

If you engage a quantity surveyor to prepare a depreciation schedule, you can claim deductions for the decline in value of the building and the plant and equipment within each dwelling. A duplex built within the last 40 years will generally have a higher depreciation entitlement than an older property, and the deduction can be significant in the first few years of ownership. Rental income must be declared in full, and the vacancy period between tenancies is included as part of the rental period for deduction purposes, provided you can demonstrate the property was advertised and genuinely available for lease during that time.

Capital gains tax applies when you sell the property, and the tax treatment depends on when you acquired the property and when the gain accrued. Under legislation that commenced in June, gains accruing from 1 July 2027 will be taxed using cost base indexation and a 30 per cent minimum tax rate on the indexed gain, rather than the current 50 per cent discount. For properties acquired before 1 July 2027 and sold after that date, the gain is apportioned and taxed under the old rules for the portion accruing before 1 July 2027 and the new rules for the portion accruing after that date. Investors can either obtain a market valuation as at 1 July 2027 or apply an ATO apportionment formula. The main residence exemption does not apply to investment properties, even if you later move into one of the dwellings, unless you change the use and it becomes your principal place of residence for a period recognised by the ATO.

Call one of our team or book an appointment at a time that works for you. Bayland Finance works with investors across the Mornington Peninsula, and we'll walk you through the loan structure, deposit options and tax treatment that applies to your duplex purchase.

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