Avoid These 5 Mistakes When Choosing Your Investment Property

Buying Without Checking Your Borrowing Capacity First

You need to know what you can borrow before you start looking at properties. Lenders assess investment loans differently to owner-occupier loans, applying higher interest rate buffers and lower serviceability assumptions because rental income is discounted by around 20 per cent to account for vacancy and management costs.

Consider a buyer who earns $95,000 annually and already owns their home with a $400,000 mortgage. They find a unit in Erina close to the hospital precinct listed at $650,000 and assume they can afford it because the rental yield looks reasonable. When they apply for finance, the lender calculates serviceability at the loan rate plus a 3.0 percentage point buffer, assumes only 80 per cent of the expected rental income, and factors in their existing mortgage. The loan is declined because their debt-to-income ratio exceeds the lender's policy limit. They have already paid for a building inspection and engaged a conveyancer.

Before you start attending open homes, speak to a broker who can run a proper borrowing capacity assessment that includes your current debts, the rental income you expect to receive, and the serviceability buffer. That calculation tells you the realistic price range you should be searching within, not the range you hope to afford.

Ignoring Body Corporate Costs in Older Apartment Complexes

Body corporate fees vary widely across Erina, and older strata buildings often carry higher levies due to maintenance backlogs and sinking fund shortfalls. A two-bedroom unit in an older block near the Erina Fair precinct might charge $1,800 per quarter, while a similar unit in a newer development charges $900. Over a year, that difference is $3,600, which directly affects your cash flow and the property's appeal to future buyers.

Lenders do not include body corporate fees in your loan repayment, but you need to budget for them as an ongoing holding cost. If the levy is high relative to the rent you can charge, the property may be negatively geared to a degree that puts pressure on your after-tax income. Request a copy of the strata report before making an offer. Look for the current levy amount, any special levies planned or recently paid, and the balance of the sinking fund. Buildings with a low sinking fund balance and ageing common infrastructure often impose special levies within a few years of purchase.

Choosing a Property Based on Rental Yield Alone

A high rental yield does not automatically make a property a sound investment. Yield is calculated by dividing annual rent by purchase price, so properties in areas with low capital growth or limited buyer demand can show inflated yields simply because prices have stagnated.

A one-bedroom unit on the outskirts of Erina might rent for $400 per week and sell for $450,000, giving a gross yield of around 4.6 per cent. A three-bedroom house closer to the town centre might rent for $650 per week and sell for $950,000, giving a gross yield of 3.6 per cent. The unit delivers higher immediate cash flow, but the house is more likely to appreciate in value over time because it appeals to families, offers land value, and sits in a more tightly held pocket. If your goal is long-term wealth rather than short-term income, capital growth potential matters more than yield.

Yield also ignores holding costs. A property with a 5 per cent gross yield and $4,000 in annual body corporate fees delivers a lower net return than a property with a 4 per cent gross yield and no strata costs. Factor in all expenses before comparing returns.

Underestimating Holding Costs and Settlement Requirements

Investment property ownership involves more than the mortgage repayment. You need to budget for council rates, water rates, insurance, property management fees, maintenance, and any body corporate levies. If the property is vacant for even a few weeks between tenants, you carry all those costs without rental income to offset them.

Settlement costs also add up quickly. You will pay stamp duty, conveyancing fees, building and pest inspection fees, and potentially lenders mortgage insurance if your deposit is below 20 per cent. In New South Wales, stamp duty on a $700,000 investment property is over $27,000. That amount needs to come from savings or equity and cannot be rolled into the loan in most cases.

If you are borrowing at a loan-to-value ratio above 80 per cent, lenders mortgage insurance can add several thousand dollars to your upfront costs. The premium is calculated based on the loan amount and LVR, and while it protects the lender, you pay for it. Some lenders allow you to capitalise the LMI premium into the loan, but that increases your borrowing amount and your ongoing repayments. Make sure you have a clear picture of total cash required before you sign a contract.

Overlooking How Legislation Affects Your Tax Position

From the 2027-28 income year, losses on established investment properties purchased after 12 May 2026 can only be offset against income from other residential properties, not against your salary or wage income. Excess losses can be carried forward, but they do not reduce your tax in the year they occur unless you have other property income to offset them against.

If you bought an established property in Erina after that date and it costs you $8,000 more per year to hold than it generates in rent, that $8,000 loss cannot reduce your taxable income unless you earn income from another rental property or sell a property and realise a capital gain. The tax benefit many investors relied on to manage cash flow in the early years of ownership is no longer available for new purchases of established stock. Properties classified as eligible new builds remain fully negatively geared, as do properties purchased before the cut-off date.

This does not mean you should avoid established properties, but it does mean your cash flow needs to be stronger from day one. The property needs to be close to neutral or you need enough surplus income to carry the loss without a tax offset. Speak to your accountant and your broker before committing, particularly if you were relying on negative gearing to make the numbers work. If you are considering investment loans for new builds or other property types, the rules differ and your broker can walk you through the options that suit your circumstances.

Call one of our team or book an appointment at a time that works for you. We will walk through your income, your existing commitments, the property you are considering, and the loan structures that give you the most flexibility as your portfolio grows.