Common Mistakes When Buying Rental Property in Kariong

Common Mistakes When Buying Rental Property in Kariong

Kariong investors often underestimate how much capital they'll need to settle an investment purchase.

Deposit requirements for investment properties differ from owner-occupied lending. Most lenders require at least 10 per cent genuine savings for an investment purchase, plus settlement costs including stamp duty, legal fees, and potentially LMI if your deposit sits below 20 per cent. In our experience, buyers who've only planned for the deposit itself can find themselves short by several thousand dollars at settlement.

Consider a buyer purchasing a rental unit near the Kariong village shops. At a 10 per cent deposit, the lender requires proof that those funds have been held in savings for at least three months. The buyer also needs to cover stamp duty, which in New South Wales for investment purchases does not include any first home buyer concessions, plus conveyancing, building and pest inspections, and LMI. The total cash requirement can sit 30 to 40 per cent higher than the deposit alone.

Choosing Principal and Interest Over Interest Only Without Running the Numbers

Interest-only repayments reduce your monthly loan cost and maximise deductions against rental income.

Many Kariong investors default to principal and interest repayments because that's what they're familiar with from their own home loan. For an investment property held primarily for income and long-term capital growth, interest-only periods of up to five years are common and can improve cash flow during the early years of ownership. All interest on an investment loan is deductible against rental income, but principal repayments are not. Reducing the principal may feel responsible, but it also reduces the amount you can claim each year.

Interest-only structures work well when you're building a portfolio or when rental income sits close to holding costs. Once the property is positively geared or you're approaching retirement, switching to principal and interest can make sense. Lenders generally offer interest-only periods of one to five years, with the option to extend or revert depending on your circumstances at the time.

Assuming Your Owner-Occupied Lender Will Offer the Same Terms for Investment Property

Lenders assess investment loans differently, and some are more willing to lend to property investors than others.

Your current lender may not be the most suitable choice for an investment purchase. Some lenders cap the number of investment properties they'll finance for a single borrower. Others apply higher interest rates or stricter serviceability tests to investor lending compared to owner-occupied loans. A mortgage broker can compare options across the panel and identify lenders with stronger appetite for investor lending, particularly if you're planning to grow a portfolio over time.

Lenders also differ in how they treat rental income. Some will assess 80 per cent of the expected rent to account for vacancy and maintenance costs. Others use 75 per cent. That difference can affect how much you're able to borrow, especially if you're holding multiple investment properties. We regularly see this impact serviceability when a Kariong buyer is adding a second or third property to their portfolio.

Not Structuring the Loan to Allow for Future Borrowing

Offset accounts and redraw facilities are treated differently by lenders when you apply for your next loan.

If you're planning to purchase more than one investment property, the way you structure your first loan matters. Lenders assess your serviceability based on the full loan limit, not the amount you've drawn down. If you use a redraw facility to park extra cash, that balance doesn't reduce your assessed debt when you apply for a second property. An offset account, on the other hand, is treated as savings. It reduces the interest you pay without affecting your ability to borrow again.

This becomes relevant when you want to leverage equity from your first property to fund a deposit on a second. Keeping your loan structure clean and your equity accessible makes the next purchase smoother. Some lenders also limit how many interest-only investment loans they'll approve for one borrower, so knowing those policies upfront helps you plan your portfolio growth without hitting a wall later.

Overlooking How Vacancy and Holding Costs Affect Serviceability

Lenders assume your rental property won't be tenanted 100 per cent of the time, and they build that assumption into their assessment.

When a lender calculates your ability to service an investment loan, they don't use the full weekly rent as income. Most apply a shading rate, typically 20 to 25 per cent, to account for vacancy periods, maintenance, and management fees. If the property rents for $600 per week, the lender may only assess $450 to $480 of that as usable income.

Kariong has a vacancy rate that sits below the broader Central Coast average, particularly for units and townhouses close to the train station and the M1. Tenants in the area include families working in Gosford or commuting to Sydney, plus employees at the nearby industrial estates. Even with strong rental demand, lenders won't adjust their shading rate based on local conditions. You need to structure your finances assuming the rent will cover less of the holding costs than you might expect.

Forgetting That Investment Loan Rates Differ from Owner-Occupied Rates

Investment loan interest rates are typically higher than owner-occupied rates, and that margin affects both your repayments and your borrowing capacity.

Lenders charge a premium on investment lending because the risk profile differs. If a borrower faces financial pressure, they're more likely to prioritise repayments on their own home over an investment property. The rate difference varies by lender and loan type, but it generally sits between 0.20 and 0.50 percentage points. That margin applies whether you're on a variable or fixed rate.

The rate you're charged also depends on your deposit size, loan amount, and whether you're taking an interest-only or principal and interest structure. Lenders offer discounts based on those factors, and the size of the discount can vary significantly between institutions. A refinance from another lender might be worth considering if you've held the property for a few years and your equity position has improved, particularly if rates have shifted or your current lender no longer offers the most suitable product.

Picking a Loan Based on Rate Alone Without Considering Features

The lowest rate doesn't always deliver the lowest cost or the most flexibility over the life of the loan.

Some lenders offer sharp rates but limit your ability to make extra repayments, charge high exit fees, or restrict offset accounts to principal and interest loans only. If you're planning to sell or refinance within a few years, a fixed rate with high break costs can lock you in at the wrong time. If you're building a portfolio, a lender that caps the number of investment properties per borrower will limit your growth.

You also want to consider how the lender will treat future borrowing. Some assess your investment loans more conservatively when you apply for additional finance, which can reduce your borrowing capacity as your portfolio grows. Others are more flexible and will work with investors who are steadily building equity and rental income. Understanding those differences upfront means you're not replacing your lender every time you add a property.

Underestimating How Long Approval and Settlement Will Take

Investment loan applications take longer to assess than most owner-occupied loans, and missing a settlement deadline can cost you the property.

Lenders require additional documentation for investment purchases, including rental appraisals, details of any existing investment properties, and evidence of how you'll service the loan during vacancy periods. If you're using equity from your home to fund the deposit, the lender will need a valuation on that property as well. Processing times can stretch beyond four weeks during busy periods, and any missing information will delay the assessment further.

Kariong's property market moves quickly, particularly for well-located units and townhouses within walking distance of Kariong station. Vendors expect settlement within 30 to 42 days in most cases. If you're competing with other buyers, having your finance pre-approved or at least your serviceability confirmed gives you confidence to move when the right property comes up. Waiting until after you've signed a contract to start the application means you're working against the clock, and that pressure rarely leads to the most suitable loan structure.

Call one of our team or book an appointment at a time that works for you. We'll walk through your deposit position, compare lenders that are active in investment lending, and structure a loan that fits your plans for the property and any future purchases you're considering.

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