Simple hacks to align your investment loans

A property investment loan needs to work with your income structure, not against it.

Dentists often earn through a mix of associate income, principal earnings, and dividend distributions. Your investment loan structure should reflect that reality. The lender you choose, the features you select, and the way you arrange your borrowing all shape whether your property helps or hinders your broader wealth strategy. If your loan is rigid and your income fluctuates, you lose control at exactly the moment you need it most.

How Loan Structure Affects Tax Deductions

Every dollar of interest on an investment loan is typically tax-deductible, but only if the loan remains tied to the investment property. Consider a dentist who borrows $600,000 to purchase a rental property. If they later redraw $50,000 from that loan to renovate their own home, the interest on that $50,000 portion is no longer deductible. The ATO treats redraws on investment loans as personal use unless the funds are reinvested into the income-producing asset. Setting up a separate loan or offset account from the start preserves the full deduction and keeps your records clear. An investment loan arranged with this structure protects your tax position without requiring constant vigilance.

Interest Only Repayments and Cash Flow Control

Interest only repayments reduce your monthly outgoings and let you direct surplus income toward other priorities. On a $600,000 loan at current variable rates, switching from principal and interest to interest only might lower repayments by around $1,000 per month, depending on the rate. That difference can be redirected into an offset account, used to pay down non-deductible debt on your home, or held as a buffer during periods when your practice income dips. Interest only periods typically run for one to five years, and can often be renewed if your circumstances support it. The rental income covers most or all of the interest, and you retain flexibility without being locked into a repayment schedule that assumes consistent cash flow.

Offset Accounts Versus Redraw Facilities

An offset account sits alongside your loan and reduces the interest you pay without altering the loan balance. If you have $50,000 in the offset and a $600,000 loan, you only pay interest on $550,000. The funds remain accessible at any time, and because you have not reduced the loan balance, the full $600,000 remains deductible. A redraw facility, by contrast, allows you to withdraw extra repayments you have already made. That withdrawal can muddy your tax position if the redrawn funds are used for non-investment purposes. Dentists with variable income benefit from the clarity and flexibility of an offset. You can park quarterly dividend payments, hold advance billings, or accumulate surplus cash without compromising your deductions. Some lenders charge a higher rate for loans with offset accounts. Compare the rate difference against the value of that flexibility, particularly if your income structure means you carry surplus cash for part of the year.

Fixed Versus Variable Rates for Investment Properties

Variable rates give you access to offset accounts, the ability to make extra repayments, and portability if you refinance. Fixed rates lock in your repayment amount for a set term, which can be useful if you want certainty or expect rates to rise. Most lenders allow you to fix a portion of your loan and leave the rest variable, giving you partial protection without losing all flexibility. In our experience, dentists who split their loan between fixed and variable portions strike a workable balance. They gain some insulation from rate movements while retaining access to features that support active portfolio management. If you plan to refinance your investment loan or release equity within a few years, keeping at least part of the loan variable avoids break costs and preserves your options.

Borrowing Capacity and Portfolio Expansion

Lenders assess your borrowing capacity using your net rental income, which is usually calculated as 80% of the actual rent to account for vacancies and maintenance. If your property generates $600 per week, the lender will credit you with $480 per week of income. Your loan repayments are then subtracted from that figure, along with your other commitments. If you are on an interest only loan, your repayments are lower, so your serviceability improves. That stronger position increases your capacity to borrow again if you want to expand your property portfolio. Each lender applies different serviceability buffers and rental shading policies. A broker can identify which lender will give you the most usable capacity based on your income mix and existing commitments, rather than defaulting to the lender you used last time.

CGT and Negative Gearing Changes from the 2026-27 Budget

From 1 July 2027, negative gearing and capital gains tax treatment changed for established residential properties purchased after 12 May 2026. If you bought an established investment property after Budget night, rental losses can only be offset against rental income or capital gains from residential property, not against your wage or business income. Carried forward losses remain available to offset future property income, so the deduction is deferred rather than lost. The 50% capital gains tax discount has been replaced with inflation-based indexation and a minimum 30% tax on gains. Properties purchased before 13 May 2026 are grandfathered under the old rules. New builds retain access to full negative gearing and offer a choice between the 50% discount and the new indexation method, whichever is more favourable. These changes do not affect the way you structure your loan, but they do affect which properties deliver the strongest after-tax return. If you are considering a new investment, speak to your accountant about how the revised rules apply to your specific situation and whether a new build offers a better outcome than an established property.

Equity Release and Leveraging Existing Property

If you own your home or another property with available equity, you can borrow against that equity to fund the deposit on an investment property. Lenders typically allow you to borrow up to 80% of your property's value without paying Lenders Mortgage Insurance. If your home is worth $1.2 million and you owe $400,000, you have $560,000 in usable equity at 80% LVR. Releasing $120,000 of that equity gives you a deposit for the investment property and covers stamp duty and other settlement costs. The interest on the equity release loan is deductible if the funds are used to purchase an income-producing asset. Structuring this correctly requires a separate loan split or a standalone facility, so the borrowed funds are not mixed with your non-deductible home loan. Dentists with equity in their principal residence can release that equity to build a portfolio without waiting years to save another deposit.

Your investment loan should adapt as your goals shift. Call one of our team or book an appointment at a time that works for you, and we will arrange a loan structure that supports the way you actually earn and invest.

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