Beginner's Guide to Investment Market Research

The work you do before you apply for an investment loan matters more than the loan itself.

If you are looking at rental property in the region, the lending rules that take effect from July next year will change how much income you can shelter and how your capital gain is calculated when you sell. That means the property you choose and the timing of your purchase will determine whether you build wealth or tie up cash for years with no tax relief. Working through the numbers before you commit will show you whether a purchase makes sense under the new framework or whether you are better off waiting or looking elsewhere.

What Changed in May and What Changes in July Next Year

From 1 July 2027, rental losses on residential property purchased after 12 May this year can only be offset against other rental income or carried forward. You cannot use those losses to reduce tax on your wages or business income. Properties bought before that date, or already under contract when the announcement was made, stay under the old rules and you can continue to negatively gear them in the usual way. New builds that add to the housing stock are carved out and remain fully deductible, as are properties held in certain managed trusts.

The capital gains discount also changes from July next year. The 50 per cent discount is replaced with cost base indexation and a minimum 30 per cent tax rate on the indexed gain. Gains that accrued before 1 July 2027 on properties you already own stay under the current rules. For new builds, you can choose between the 50 per cent discount and the indexed method, whichever leaves you better off.

Those changes mean the after-tax return on a property bought this year or next depends entirely on whether it qualifies as a new build and whether you plan to hold it long enough for capital growth to outweigh the loss of deductibility.

How Negative Gearing Worked and Why It Mattered in the Snowy Mountains

Negative gearing let you claim the full interest cost, along with rates, insurance, repairs and other expenses, against your total income. If your rental property ran at a loss, that loss reduced your taxable income and lowered the tax you paid on your salary or business earnings. For buyers in higher tax brackets, the tax refund often covered a large portion of the shortfall between rent and expenses.

In resort towns like Jindabyne and Thredbo, vacancy rates sit higher than the state average because the rental market is driven by seasonal workers and short-term holiday bookings. A property that sits empty for several months each year will usually run at a loss, and under the old rules that loss was fully deductible. Investors accepted the negative cashflow because the tax offset made it manageable and they expected long-term capital growth to deliver the return.

From July next year, a property purchased after 12 May that is not a qualifying new build will not give you that tax offset. You can still claim the loss, but only against future rental income or future capital gains on residential property. If you do not own other rental properties, those quarantined losses just sit on your tax record until you sell or acquire another investment property.

Worked Example: A Two-Bedroom Unit in Jindabyne

Consider a buyer purchasing a two-bedroom unit near the lake in Jindabyne. The property is an established apartment in a small complex with body corporate fees. The buyer borrows 80 per cent and pays interest only for the first five years. At current variable investor rates, annual interest comes to around $24,000. Body corporate fees, council rates, landlord insurance, property management and water charges add another $8,000. Total holding costs sit at $32,000 per year.

The unit rents for $450 per week during ski season and the summer months, but sits vacant for around 16 weeks outside peak periods. Annual rental income comes to roughly $16,000 after vacancies. The property runs at a loss of $16,000 each year before depreciation.

Under the old rules, a buyer on a marginal tax rate of 37 per cent would receive a tax refund of around $6,000, reducing the net cost to $10,000 per year. Under the new rules, if the property was purchased after 12 May and is not a new build, the buyer receives no tax refund. The out-of-pocket cost stays at $16,000 per year until the property is sold or generates a surplus.

That difference in cashflow is $6,000 per year. Over five years, the buyer needs to find an additional $30,000 from their own income to hold the property. Unless capital growth in Jindabyne exceeds what you would earn by putting that money into offset or other investments, the return does not justify the holding cost.

What Qualifies as a New Build and Where to Find Them Locally

A new build that retains full negative gearing must be constructed on previously vacant land or must increase the total number of dwellings on a site. A knock-down rebuild that replaces one house with one house does not qualify. A duplex that replaces a single dwelling does qualify because it adds to the housing stock.

In the Snowy Mountains, most new supply comes from townhouse or unit developments rather than vacant land subdivisions. Cooma has seen some medium-density projects in recent years, and there are small-scale developments in Jindabyne near the town centre. Berridale and Dalgety occasionally have land releases, but the volume is low and most buyers are looking at established homes or older units.

If you want to access the carve-out, you need to buy a property that has never been occupied or has been occupied for less than 12 months since completion. Once a new build has been lived in for more than 12 months and is then sold to a subsequent investor, that next buyer cannot negatively gear it in the usual way. The property is treated as established for tax purposes.

How the Capital Gains Changes Affect Sale Proceeds

Under the new indexed method, your cost base is adjusted each year by inflation and you pay at least 30 per cent tax on the real gain. If you bought a property for $500,000 and sold it ten years later for $700,000, your gain is $200,000. If inflation over that period totalled 30 per cent, your indexed cost base would be $650,000 and your real gain would be $50,000. You would pay 30 per cent tax on $50,000, or $15,000.

Under the 50 per cent discount method, you would pay tax on half of the $200,000 nominal gain at your marginal rate. At a 37 per cent marginal rate, the tax would be $37,000. In this scenario, indexation leaves you better off. In low-inflation periods or where your marginal rate is below 30 per cent, the discount method may still be preferable. For new builds, you can choose whichever method results in the lower tax.

For properties that do not qualify as new builds, you do not have a choice. The indexed method with the 30 per cent floor applies automatically to gains accruing after 1 July 2027. Gains accrued before that date remain under the old discount rules, so the impact depends on how long you hold the property and how much of the gain occurs before or after the transition.

How Lenders Assess Rental Income and What That Means for Borrowing Power

Lenders apply a shading factor to rental income when they calculate serviceability. Most lenders use 80 per cent of the market rent, though some will accept a signed lease at face value if the tenant is already in place. If a property has a high vacancy rate or relies on short-term bookings, the lender may apply a heavier discount or decline the application altogether.

In the Snowy Mountains, where seasonal vacancies are common, you need to show that the property can generate consistent rental income or that you have enough surplus income to cover the shortfall during vacant periods. The serviceability buffer set by APRA is three percentage points above the interest rate, so even if you lock in a fixed rate, the lender will test your ability to repay at a rate three per cent higher than the actual product rate.

If you are borrowing at 80 per cent loan to value, you will also pay Lenders Mortgage Insurance unless you qualify for a waiver through your occupation or other criteria. LMI premiums vary by lender and loan size, but typically add several thousand dollars to the upfront cost. That premium is usually capitalised into the loan, which increases your total debt and reduces your borrowing capacity slightly.

The debt-to-income cap introduced in February means lenders can only write a limited proportion of new investor loans at six times gross income or above. If your total debt across all loans, including the new investment loan, exceeds six times your household income, the lender may need to reduce the loan amount or decline the application to stay within their portfolio cap. This restriction does not apply to new dwelling construction or purchases of newly erected dwellings, which gives another advantage to buyers targeting new builds.

Where to Start Your Research and What to Look For

Before you approach a lender or look at loan products, you need to decide whether the property you are considering will deliver a return under the new framework. Start by estimating the holding cost: interest, rates, insurance, management fees, body corporate if applicable, and repairs. Then estimate the rental income after vacancies. Use 80 per cent of the gross rent as a conservative figure, or less if the property has a known vacancy problem.

If the property runs at a loss and does not qualify as a new build, calculate how much that loss will cost you each year without a tax offset. Multiply that annual cost by the number of years you plan to hold the property. Add the total holding cost to your purchase price and compare it to your expected sale price, remembering that you will pay capital gains tax on the indexed gain at a minimum of 30 per cent. If the numbers do not work, the property is not viable as an investment under the new rules.

For new builds, run the same calculation but include the tax offset from negative gearing and model both the discount and indexed methods for capital gains. In most cases, a new build in the region will still deliver a positive return if you hold it long enough, because you retain the deductibility and you have the flexibility to choose the lower tax treatment on exit.

You should also check whether the property is likely to attract long-term tenants or whether the location and layout make it more suited to short-term holiday rentals. If the latter, you need to factor in the additional management costs, higher vacancy risk, and the possibility that council or state regulations around short-term rentals may change before you sell. Investors who rely solely on holiday bookings in Jindabyne or Thredbo face higher income volatility and may struggle to meet serviceability tests with traditional lenders.

Refinancing an Existing Investment Property and When It Makes Sense

If you already own an investment property in the region, the new rules do not affect you directly. Properties held before 12 May remain fully deductible and any capital gain accrued before 1 July 2027 stays under the 50 per cent discount method. You may still want to review your loan structure to make certain you are not paying more interest than necessary.

Many investors locked in fixed rates during the low-rate period and those fixed terms are now expiring. If your loan has rolled onto a higher variable rate and you have not reviewed your options, you may be paying a rate that is significantly above what is available to new customers. Speaking to a mortgage broker will show you what rate you can access and whether refinancing delivers enough savings to justify the application cost and any discharge fees on your current loan.

If you have built up equity in your existing property, you may be able to use that equity to fund a deposit on a second investment property. Lenders will assess your total debt and serviceability across both properties, and the debt-to-income cap will apply to the combined borrowing. The new negative gearing rules will apply to the second property if it is purchased after 12 May and is not a new build, so you need to make certain the numbers work without relying on a tax offset.

What to Do Before You Apply for an Investment Loan

Gather your last two years of tax returns, recent payslips, and a current rates notice or contract of sale for the property you are looking at. If the property is already tenanted, bring a copy of the lease. If it is vacant, bring a rental appraisal from a local agent. Lenders want to see that you have a deposit of at least 10 per cent genuine savings, or 20 per cent if you want to avoid LMI.

You should also have a clear understanding of your total debt position, including any personal loans, car finance, or credit card limits. Lenders will include all of those commitments when they calculate your borrowing capacity, and unused credit limits are treated as if they were fully drawn. Closing or reducing credit card limits before you apply can increase the amount you are able to borrow.

If you are self-employed or earn commission income, bring your last two years of business financials or your most recent notice of assessment. Lenders treat different income types in different ways, and you may need to show that your income is stable and likely to continue. Farm income in the region can be variable, and if your primary income comes from agriculture, the lender may apply a more conservative assessment or request additional documentation.

Understanding how the policy changes affect your particular situation is something you can work through before you commit to a purchase. The new rules are not optional and they will apply whether you are aware of them or not. Taking the time to check the numbers will either give you confidence to proceed or show you that the property does not make sense at the current price.

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