Complete guide to buying property #2. Whether it's an investment or upgrade, we'll show you deposit options, equity strategies, and lender criteria.
The financing strategy depends on your goal - investment or upgrade
Goal: Keep your current home, buy property #2 as an investment to generate rental income and build wealth.
Goal: Sell your current home and buy a bigger/better property. Moving from property #1 to property #2.
What lenders look for when you're buying property #2
Lenders assess if you can service BOTH loans - your existing mortgage plus the new one.
💡 Tip: Investment rental income helps serviceability! 80% of rent counts as income.
Maximum LVR for second property depends on purpose and your situation.
| Situation | Max LVR | Deposit Needed |
|---|---|---|
| Investment Property | 90% (with LMI) | 10% |
| Owner-Occupier Upgrade | 95% (with LMI) | 5% |
| Avoid LMI | 80% | 20% |
| Ideal LVR | 70-80% | 20-30% |
Your credit score matters more for second property loans.
Lenders prefer stable employment when you have multiple loans.
Some lenders want to see you've saved part of the deposit (not just using equity).
Genuine Savings = Money held for 3+ months
Not Genuine Savings:
Not all properties are treated equally by lenders.
Stamp duty adds $20K-$60K+ to your purchase cost - here's what to expect
Since it's your second property, you DON'T get first home buyer stamp duty exemptions or discounts (even if you sell property #1 first).
Exception: Some states offer concessions if you're upgrading and selling your PPOR within a certain timeframe. Check your state rules.
| $500,000 | $17,990 |
| $750,000 | $28,490 |
| $1,000,000 | $40,490 |
| +8% Foreign Buyer Surcharge | |
| $500,000 | $21,970 |
| $750,000 | $38,470 |
| $1,000,000 | $55,000 |
| +8% Foreign Buyer Surcharge | |
| $500,000 | $15,925 |
| $750,000 | $26,425 |
| $1,000,000 | $38,025 |
| +8% Foreign Buyer Surcharge | |
Stamp duty on investment property is TAX DEDUCTIBLE - but spread over 5 years, not claimed upfront.
Example: $40,000 stamp duty = $8,000/year deduction for 5 years = ~$3,600/year tax saving (45% bracket)
Key differences in financing, rates, and tax treatment
| Factor | Investment Property | Owner-Occupier (Upgrade) |
|---|---|---|
| Interest Rate | 6.3-6.8% (0.2-0.4% higher) |
5.9-6.4% (Lower rates) |
| Deposit Required | 10-20% (20% to avoid LMI) |
5-20% (More low-deposit options) |
| Tax Deductibility | ✅ Interest 100% deductible ✅ All expenses deductible |
❌ No tax deductions ❌ Pay from after-tax income |
| Loan Features | Interest-only common Offset preferred Flexibility key |
P&I standard Offset available Focus on paying down |
| Serviceability | Rental income helps (80%) Must still cover shortfalls |
Based on your income only No rental income to help |
| Capital Gains Tax | ❌ Pay CGT when you sell (50% discount if held 12+ months) |
✅ No CGT on PPOR (If lived in 12+ months) |
| Stamp Duty | Full rate Deductible over 5 years |
Full rate Some states offer upgrade concessions |
| Lender Preference | More scrutiny Tighter serviceability |
Easier to qualify Better rates/terms |
Which is better? It depends on your goal:
Yes, but you'll pay LMI.
For investment properties, most lenders allow 10% deposit (90% LVR) but you'll pay Lenders Mortgage Insurance ($10K-$30K depending on loan size).
For owner-occupier upgrades, some lenders allow 5% deposit with LMI.
Better option: Use equity from property #1 to reach 20% deposit and avoid LMI entirely.
Typically up to 80% LVR across all properties.
Formula: (Property Value × 80%) - Current Loan = Usable Equity
Example: Property worth $800K with $400K loan = ($640K - $400K) = $240K usable equity
Some lenders allow 85-90% LVR but you'll pay LMI and higher rates.
Keep it if:
Sell it if:
Using Equity: Increase loan on property #1 to access funds for property #2 deposit. You keep both properties long-term.
Bridging Loan: Short-term loan (6-12 months) that lets you buy property #2 BEFORE selling property #1. You sell property #1 and pay off bridging loan.
Key difference: Bridging is temporary (for upgraders), equity is permanent (for investors).
No. The First Home Guarantee (5% deposit, no LMI) is only for first home buyers who have never owned property before.
If you already own property #1, you're not eligible - even if you sell it first.
Alternative: Use equity from property #1 or save 10-20% deposit.
Lenders typically count 80% of rental income toward your borrowing capacity.
Example:
The 20% buffer accounts for vacancies, maintenance, and management costs.
No CGT if it's your main residence (PPOR).
If you've lived in property #1 as your main residence, there's no capital gains tax when you sell it.
BUT: If you converted it to an investment property and rented it out, CGT applies for the period it was an investment (with some exceptions under the 6-year rule).
Tip: Consult an accountant before converting PPOR to investment.
Options to increase serviceability:
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