Investment loans for units work differently to houses, especially in regional areas where lenders often apply tighter serviceability and lower loan to value ratios.
Buyers in the Barossa Region considering a unit as their first or next investment property face specific decisions around deposit size, loan structure, and whether to move before or after the negative gearing changes scheduled for 1 July 2027. This article walks through the lending mechanics, the current tax treatment, and the local factors that shape unit investment in towns like Tanunda, Nuriootpa, and Gawler.
Why Lenders Treat Units Differently to Houses
Most lenders impose a maximum loan to value ratio of 90 per cent for investment units, compared to 95 per cent for owner-occupied houses or even 90 to 95 per cent for investment houses with some lenders. That means you need a larger deposit upfront, typically at least 10 per cent of the purchase price plus enough to cover stamp duty and other costs.
Lenders also apply tighter serviceability tests to units because of body corporate fees, which reduce your net rental income. Consider a buyer purchasing a two-bedroom unit in Nuriootpa at the suburb's current median. If quarterly body corporate fees sit around $1,200 to $1,500, that's $400 to $500 per month deducted from gross rent before the lender calculates your serviceability. The impact is magnified when the rental yield is already modest, which is common in lifestyle regions where buyers pay for location over rental return.
Some lenders also exclude certain unit types altogether, particularly serviced apartments, student accommodation, or buildings with commercial ground floors. If you're looking at a mixed-use development in Gawler, check with your broker early, because a handful of mainstream lenders will decline the application outright regardless of your financial position.
Deposit and Lenders Mortgage Insurance Costs
If you borrow more than 80 per cent of the property's value, you'll pay Lenders Mortgage Insurance. LMI is a one-off, non-refundable premium that protects the lender if you default, and it can run from several thousand dollars to over $20,000 depending on your loan amount and deposit size.
For investment loans on units, LMI is typically higher than for houses at the same loan to value ratio because lenders view units as slightly higher risk due to resale liquidity and body corporate exposure. Some investors choose to capitalise the LMI premium into the loan amount rather than paying it upfront, but that increases your ongoing repayments and reduces your equity from day one.
If you already own property in the Barossa Region, you may be able to use equity from your home to fund the deposit and avoid LMI altogether by keeping the investment loan at or below 80 per cent. That approach requires a valuation on your existing property and a clear understanding of your total debt position, but it can save you several thousand dollars and speed up settlement.
Interest Only or Principal and Interest
Many property investors choose interest only repayments for the first few years to maximise tax deductions and preserve cash flow, especially if they plan to use rental income to fund other investments or build a portfolio over time.
Under an interest only structure, your monthly repayment is lower because you're not reducing the loan balance, and all interest paid on an investment property loan is generally deductible. The trade-off is that you don't build equity through repayments, so your wealth accumulation depends entirely on capital growth and any extra contributions you make voluntarily.
Principal and interest repayments are less common for investors but make sense if you want to own the property outright within a set timeframe or if your rental income comfortably covers the higher repayment. Some investors also switch from interest only to principal and interest after a few years once their income increases or other debts are cleared.
Variable Rate or Fixed Rate for Investment Units
Variable interest rates on investment loans currently sit above owner-occupied rates, and the gap has widened slightly as lenders respond to tighter capital requirements for investor lending. Variable rates give you flexibility to make extra repayments without penalty and to refinance without break costs, which matters if you plan to restructure your portfolio or access equity within a few years.
Fixed interest rates lock in your repayment for one to five years, which can be useful if you're concerned about rate rises or want certainty for budgeting. The downside is that fixed rate investment loans often carry higher break costs if you sell, refinance, or pay down the loan early, and you lose the ability to redraw or offset against the balance during the fixed period.
Some investors split their loan, fixing half and leaving half variable, to balance certainty with flexibility. That strategy works well if you expect your financial situation to change, for example if you're planning to buy a second investment property and need access to offset or redraw features in the meantime.
How Body Corporate Fees Affect Serviceability
Body corporate fees are deductible for tax purposes, but they reduce your net rental income when lenders calculate how much you can borrow. A unit in Tanunda with $1,800 per quarter in fees and $450 per week in rent yields $23,400 gross annually, but after body corporate and management fees, your net income might drop to around $18,000.
Lenders also apply a serviceability buffer of 3 percentage points above the loan's interest rate and typically assume a vacancy rate of 4 to 6 weeks per year. Those adjustments mean the borrowing capacity for a unit with high body corporate fees can be 10 to 15 per cent lower than a house with the same purchase price and rental return.
In some Barossa Region towns, older unit complexes carry higher body corporate fees because of ageing common areas, lifts, or pools. If you're comparing two properties at similar prices, the one with lower ongoing fees will often allow you to borrow more or service the loan more comfortably, even if the rental yield is slightly lower.
Negative Gearing and the Changes from July 2027
Under current rules, if your rental income is less than your total property expenses including interest, body corporate, rates, and maintenance, you can offset that loss against your salary or other income and reduce your overall tax.
From 1 July 2027, residential investment properties purchased after 7:30pm AEST on 12 May 2026 will no longer be eligible for negative gearing unless they meet the definition of an eligible new build. Losses on those properties can only be offset against other residential rental income or carried forward to offset future rental income or capital gains. Properties already held at that date, or under contract at that time, continue under the existing rules until sold.
For buyers in the Barossa Region, this means a unit purchased now and settled before 1 July 2027 retains full negative gearing, while a unit purchased after mid May 2026 and settled after 1 July 2027 falls under the new quarantine rules unless it's a qualifying new build. Most units in Tanunda, Nuriootpa, and Gawler are established properties, so the new rules will apply.
The change doesn't affect interest deductibility itself, rental income is still assessable and all expenses are still deductible, but the loss can no longer reduce your taxable salary. That shifts the after-tax cost of holding a negatively geared unit, particularly in the first few years when loan interest is highest and rents are still building.
Capital Gains Tax Changes from July 2027
From 1 July 2027, the 50 per cent capital gains tax discount for individuals is replaced with cost base indexation and a minimum 30 per cent tax rate on real gains for affected properties. The change applies only to gains that accrue after 1 July 2027, gains accrued before that date on properties you already own continue under current rules.
For a unit purchased and settled in the next few months, part of any future gain will be calculated under the old discount method and part under the new indexed method. The longer you hold the property, the larger the share of the gain subject to the new rules.
Eligible new build properties offer an election between the 50 per cent discount and the indexed method with the 30 per cent minimum rate, so if you're deciding between an established unit and a newly constructed one, the tax treatment on exit is now a material consideration alongside rental yield and purchase price.
When Units Make Sense in the Barossa Region
Units suit investors who want lower maintenance and a more hands-off ownership experience, especially if you live regionally and don't want to manage large gardens, fences, or external repairs. Body corporate handles most common property upkeep, and tenants in units often stay longer because the property type attracts downsizers, professionals, or small families looking for location over space.
In towns like Gawler, Tanunda, and Nuriootpa, units are often closer to shops, cafes, and medical services than houses at the same price point. That location premium can translate into stronger tenant demand and shorter vacancy periods, even if the headline rental yield is a point or two lower than a house further out.
The trade-off is capital growth. Units typically grow more slowly than detached houses in the same area because land value drives long-term appreciation, and unit buyers own a smaller share of the land. If your investment strategy depends on equity release for portfolio growth within five years, a house may deliver that faster, even if the holding costs are higher in the short term.
Applying for an Investment Loan on a Unit
Lenders assess investment loan applications based on your income, existing debts, living expenses, and the rental income the property will generate. You'll need to provide recent payslips, tax returns, bank statements, and a rental appraisal or current lease if the property is already tenanted.
If you're refinancing an existing loan to access equity for the unit deposit, your broker will coordinate both applications so the equity release and new investment loan settle at the same time. That avoids double handling and reduces the chance of delays if one lender moves slower than the other.
You'll also need to factor in stamp duty, which is calculated on the full purchase price with no concessions for investors, and settlement costs including legal fees, building and pest inspection, and lender valuation. In South Australia, stamp duty on a property around the median for a Barossa unit typically runs into the low thousands, so budget for that separately from your deposit.
Choosing the Right Loan Product
Not every lender offers the same range of investment loan features, and some of the larger banks price their investor products less competitively than smaller banks or non-bank lenders. Features worth comparing include offset accounts, redraw facilities, the ability to split the loan, and whether extra repayments are allowed without penalty.
An offset account linked to your investment loan reduces the interest you pay without reducing the deductible interest, which matters for tax purposes. Redraw lets you access extra repayments you've made, but some lenders restrict redraw on investment loans or charge fees for each withdrawal.
If you're planning to build a portfolio, look for lenders that allow you to cross-collateralise or keep loans separate depending on your strategy. Some investors prefer to keep each property on its own loan so they can sell or refinance one without affecting the others, while others consolidate to simplify administration and reduce overall interest rates.
Bill Bell Finance works with banks and lenders across Australia to compare investment loan options and find a product that fits your deposit, income, and plans for the property. If you're also considering construction or a first home, we can structure the finance so each loan is optimised for its purpose, for example interest only on the investment and principal and interest on your home.
Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Do I need a bigger deposit to buy an investment unit than an investment house?
Most lenders cap investment unit loans at 90 per cent loan to value ratio, meaning you need at least a 10 per cent deposit plus costs. Some lenders also apply tighter serviceability because of body corporate fees, which reduce your net rental income.
Can I still negatively gear a unit I buy in the Barossa Region?
If you purchase and settle before 1 July 2027, or if your property was under contract by 7:30pm AEST on 12 May 2026, you can negatively gear under existing rules. Units purchased after that date and settled after 1 July 2027 fall under the new quarantine rules unless they qualify as eligible new builds.
Should I choose interest only or principal and interest for an investment unit loan?
Interest only repayments are lower and keep all interest deductible, which suits investors focused on cash flow or portfolio growth. Principal and interest builds equity faster and makes sense if you want to own the property outright or if rental income comfortably covers the higher repayment.
How do body corporate fees affect how much I can borrow?
Lenders deduct body corporate fees, management costs, and an assumed vacancy period from your gross rent before calculating serviceability. Higher body corporate fees can reduce your borrowing capacity by 10 to 15 per cent compared to a house with the same rental return.
Do capital gains tax changes apply to units I already own?
The CGT changes apply only to gains that accrue after 1 July 2027. Gains on properties you already own before that date, or gains that accrued up to that date, continue under the current 50 per cent discount rules.
