Purchasing an investment property as a general dentist requires structuring that accounts for both the income you earn today and the way you want to build wealth over the next twenty years.
You're likely working as an associate, a principal, or moving between the two, which means your income can shift year to year depending on patient volume, billings, and whether you're reinvesting into equipment or taking drawings. Lenders assess these variations differently depending on your employment structure, and the loan you access will reflect both your current circumstances and your plans for the property.
How Investment Loan Structures Differ from Owner-Occupier Finance
An investment loan is assessed on the property's ability to generate rental income and your capacity to service debt across both your home and the investment. Lenders apply a different interest rate margin to investor borrowing, usually between 0.20 and 0.60 percentage points above the equivalent owner-occupier rate, and rental income is discounted by 20 per cent to allow for vacancy and management costs. That discount affects your borrowing capacity directly.
If you're purchasing a two-bedroom unit that rents for $600 per week, the lender will assess your income using $480 per week as the rental contribution. The remaining shortfall must be met from your practice income, and the lender will apply a serviceability buffer of three percentage points above the product rate to ensure you can manage repayments if rates rise. For dentists with variable income streams, this buffer interacts with your last two years of tax returns and your current billing patterns.
Interest Only Repayments and Cash Flow Planning
Interest only repayments allow you to reduce the monthly outgoing on the investment loan without paying down principal. This structure is common among buyers who want to maximise tax deductions while preserving cash flow for other purposes, such as building out a second surgery, purchasing equipment, or funding a principal and interest loan on a primary residence.
Consider a general dentist who purchases an investment property with a loan amount of $650,000 at a variable interest rate. An interest only period of five years means the monthly repayment is calculated solely on the interest portion, which can be several hundred dollars lower than a principal and interest repayment over the same term. That difference can be redirected into offset accounts, additional super contributions, or debt reduction on non-deductible borrowing.
Interest only periods are offered for one to five years initially and can sometimes be extended depending on the lender and the loan to value ratio. Once the interest only period expires, the loan reverts to principal and interest repayments, and the remaining term is recalculated. If you've taken a thirty-year loan with a five-year interest only period, the principal is amortised over the remaining twenty-five years, which increases the repayment from year six onward.
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Negative Gearing and the Legislative Changes from 1 July 2027
Negative gearing allows you to offset the net rental loss from an investment property against your other taxable income, including billings from your practice. The loss is the difference between deductible expenses such as interest, body corporate fees, council rates, and depreciation, and the rental income you receive.
From 1 July 2027, under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, rental losses on residential properties acquired on or after 7:30pm AEST on 12 May 2026 will be quarantined unless the property is an eligible new build. Quarantined losses can only be offset against other residential rental income or carried forward to offset future rental income or capital gains on residential property. They cannot be offset against salary or practice income.
Properties purchased before that date, including those under contract before 7:30pm on 12 May 2026, remain fully negatively geared under the existing rules until sold. Eligible new builds, defined as dwellings constructed on previously vacant land or where the number of dwellings increases, retain full negative gearing. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify.
If you're purchasing an established property now with the intention of using rental losses to reduce your taxable income over the next several years, the structure still applies. If you're considering a purchase after the cut-off and the property is not a new build, the loan will still be deductible, but the loss can only be used against other rental income or carried forward.
Choosing Between Variable and Fixed Rate Investment Loans
A variable rate allows you to make additional repayments, redraw funds, and link an offset account to the loan without restriction. These features are useful if you're planning to use surplus income from your practice to pay down the loan ahead of schedule or if you want to hold cash in offset to reduce interest without locking it away.
A fixed rate locks the interest rate for a set term, typically one to five years, and provides certainty around repayments during that period. Fixed rate loans usually restrict additional repayments to a maximum of $10,000 or $20,000 per year, and offset accounts are either unavailable or function differently. If you break the fixed term early by selling the property, refinancing, or paying out the loan, the lender will charge break costs based on the difference between your fixed rate and the wholesale rate at the time of the break.
Some dentists split the loan between variable and fixed portions to maintain flexibility while locking in part of the rate. A $700,000 loan might be split $400,000 variable with offset and $300,000 fixed for three years. This allows you to hold surplus cash in the offset against the variable portion while the fixed portion provides repayment certainty on the remainder.
Borrowing Capacity and Debt-to-Income Caps
From 1 February 2026, lenders are limited in how much they can lend at a debt-to-income ratio of six times or greater. The cap applies separately to investor and owner-occupier lending, and each lender allocates its investor DTI capacity across its loan book.
If your total debt, including your existing home loan and the proposed investment loan, exceeds six times your gross annual income, the lender may require a larger deposit, decline the application, or refer you to a different lender with remaining DTI capacity. For a general dentist earning $180,000 per year with an existing home loan of $500,000, a proposed investment loan of $600,000 would result in total debt of $1,100,000, which sits just over six times income.
Lenders assess your income using tax returns, notice of assessments, practice financials if you're a principal, and payslips or billing summaries if you're an associate. The way you structure drawings, dividends, and retained earnings will affect the income figure used in the assessment. We work with the lender's credit policy to present your income in the most accurate and favourable way, particularly when you're transitioning between associate and principal roles or building equity in a new practice.
Deposit Requirements and Lenders Mortgage Insurance
Most lenders require a minimum 10 per cent deposit for investment property purchases, though some will lend at 90 per cent loan to value ratio with Lenders Mortgage Insurance. LMI is a one-off premium that protects the lender if you default and the property is sold for less than the outstanding loan amount. The premium increases as the LVR increases, and it's calculated as a percentage of the loan amount.
Some lenders offer LMI waivers for dentists purchasing investment property at LVRs up to 90 per cent, depending on the lender's professional package criteria and your employment status. If you're eligible, the waiver removes the LMI cost entirely, which can be several thousand dollars on a loan above $600,000.
Genuine savings are not always required for investment property purchases in the same way they are for first home buyers, but lenders will ask about the source of your deposit. If the deposit comes from equity in your existing home, the lender will require a valuation of that property and assess your total borrowing across both loans. If the deposit comes from savings, sale proceeds, or a gift, you'll need to provide statements showing the accumulation of funds over at least three months.
Structuring Loan Features for Long-Term Flexibility
The loan features you select at the time of purchase will affect how you manage the property over the next decade. An offset account linked to the variable portion of your loan reduces the interest charged each day based on the balance held in the account, and the interest saved is equivalent to the loan rate applied to that balance.
If you hold $50,000 in offset against a $650,000 variable rate investment loan, you're only charged interest on $600,000. The offset balance remains accessible, which means you can draw on it for practice expenses, equipment purchases, or personal costs without affecting the loan structure.
Redraw allows you to access additional repayments you've made above the minimum, but the lender controls the availability of redraw and may restrict access depending on the loan terms. Offset is generally more flexible because the funds are held in a separate transaction account rather than within the loan itself.
If you're planning to expand your property portfolio over time, keeping the investment loan structure clean is important. Mixing deductible and non-deductible debt within the same loan facility makes it harder to claim interest deductions accurately and creates administrative complexity when you refinance or sell.
How Rental Income is Assessed and What Lenders Require
Lenders assess rental income using a rental appraisal from a licensed property manager or real estate agent, or an existing lease agreement if the property is already tenanted. The appraisal must be dated within 90 days of the application and must state the expected weekly rent for the property in its current condition.
If the property requires renovation before it can be tenanted, some lenders will accept a conditional appraisal that states the expected rent once the work is complete. You'll need to provide evidence that the renovation funds are available and that the work will be completed before settlement or within a short period afterward.
The lender applies a 20 per cent discount to the rental income to account for vacancy, management fees, and maintenance. Some lenders apply a higher discount depending on the location or property type. If the appraisal states the property will rent for $550 per week, the lender will assess your income using $440 per week.
Vacancy rates vary depending on the suburb and the type of property. Units in areas with high investor activity may have longer vacancy periods than houses in suburbs with consistent demand from families. Your mortgage broker can provide guidance on how different property types are assessed and whether the rental income will be sufficient to support the loan amount you're seeking.
Tax Deductions and Claimable Expenses on Investment Property
Interest on the investment loan is deductible in the financial year it's charged, provided the property is rented or genuinely available for rent. Other deductible expenses include council rates, water rates, body corporate fees, property management fees, landlord insurance, repairs and maintenance, and depreciation on the building and fixtures.
Depreciation is calculated using a quantity surveyor's report and is claimed over the effective life of the asset. For properties constructed after certain dates, the building depreciation rate is 2.5 per cent per year, and fixtures such as ovens, air conditioners, and blinds are depreciated separately. Depreciation does not require a cash outlay, which makes it particularly useful for reducing taxable income while preserving cash flow.
If you renovate the property, the cost of repairs is deductible in the year the work is completed, while capital improvements are added to the cost base and reduce your capital gain when you eventually sell. The distinction between repairs and improvements is determined by the ATO based on whether the work restores the property to its original condition or improves it beyond that standard.
Stamp duty on the property purchase is not deductible but is included in the cost base for capital gains tax purposes. Legal fees for the purchase are also added to the cost base, while ongoing legal fees related to managing the property or defending a tenancy dispute are deductible.
When Refinancing an Investment Loan Makes Sense
Refinancing an investment loan is worth considering when your circumstances change, when your current rate is no longer competitive, or when the loan features no longer suit your needs. If you've held the loan for several years and your income has increased, you may be able to refinance to access equity for a second investment property or to consolidate other debt.
Equity is the difference between the property's current value and the outstanding loan balance. If you purchased a property for $700,000 with a $630,000 loan and the property is now worth $820,000 with a loan balance of $600,000, you have $220,000 in equity. Lenders will allow you to borrow against up to 80 per cent of the property's value without LMI, which means you could access additional funds of $56,000 without incurring additional insurance costs.
Refinancing also allows you to move from a higher rate to a lower one, particularly if your existing loan was taken out when rates were higher or if your lender has not passed on recent rate cuts. The interest rate difference of 0.30 or 0.40 percentage points on a $650,000 loan can represent several thousand dollars per year in interest costs.
Call one of our team or book an appointment at a time that works for you. We'll review your current loan structure, compare the investment loan options available, and walk through the refinancing process including costs, timing, and documentation required.
Frequently Asked Questions
Can I still negatively gear an investment property purchased after July 2027?
Yes, but rental losses on established properties purchased on or after 7:30pm AEST on 12 May 2026 can only be offset against other residential rental income or carried forward from 1 July 2027. Eligible new builds retain full negative gearing. Properties purchased before that date remain under existing rules.
What deposit do I need for an investment property loan as a dentist?
Most lenders require a minimum 10 per cent deposit, though some will lend at 90 per cent LVR with Lenders Mortgage Insurance. Some lenders offer LMI waivers for dentists at LVRs up to 90 per cent depending on the lender's professional package criteria and your employment status.
How do lenders assess rental income when calculating borrowing capacity?
Lenders apply a 20 per cent discount to the appraised weekly rent to account for vacancy, management, and maintenance. A property appraised at $600 per week is assessed at $480 per week. The rental appraisal must be dated within 90 days of the application.
Should I choose a variable or fixed rate for my investment loan?
A variable rate offers flexibility for additional repayments, redraw, and offset accounts. A fixed rate provides repayment certainty but restricts extra repayments and may charge break costs if you exit early. Some dentists split the loan between both to balance flexibility and certainty.
What happens to my investment loan repayments after the interest only period ends?
The loan reverts to principal and interest repayments, and the remaining principal is amortised over the remaining loan term. If you have a thirty-year loan with a five-year interest only period, the principal is repaid over the remaining twenty-five years, which increases the monthly repayment.
