Top Strategies to Finance Your Investment Unit

Buying an investment unit in Wellington means working with deposit requirements that sit higher than owner-occupier lending and lenders who calculate rental income differently to how you might expect.

Most lenders require at least 30% deposit for an investment property loan, though some will lend at 70% LVR if your overall borrowing position is strong. The rental income from the unit is typically assessed at around 70% to 80% of market rent when calculating serviceability, which means the property needs to generate enough income to support most or all of the mortgage payment before your personal income is even considered.

Why Investment Unit Lending Works Differently

Lenders treat rental property finance as higher risk than a standard home loan. You need a larger deposit, the interest rate is often slightly higher on investment mortgages, and the income calculation is more conservative. If you're purchasing in Wellington's apartment market, where body corporate fees can run between $3,000 and $8,000 annually depending on the building, those costs also affect how much you can borrow.

Consider someone purchasing a two-bedroom unit in Mount Victoria at the current median for apartments in the suburb. With a 30% deposit, they're borrowing the remaining amount on an interest-only loan fixed for two years. The rental appraisal shows the unit could achieve $650 per week, but the lender assesses serviceability at 75% of that figure, or roughly $487 per week. After body corporate fees, rates, insurance, and property management at around 8% of rent, the cashflow sits slightly negative even on an interest-only structure. That shortfall needs to be covered by the borrower's personal income, and the lender will test whether they can service that gap plus their existing commitments.

Deposit Sources and Low Equity Margins

You can use equity from your existing home to fund the deposit on an investment unit, but if your total borrowing across all properties exceeds 80% LVR, a low equity margin applies. That margin is typically an additional 0.25% to 0.75% on the interest rate and varies by lender. Some lenders won't offer investment lending above 70% LVR at all, which narrows your options if you're trying to leverage equity without selling down other assets.

If you're buying your second property and already have a mortgage on your own home, the combined loan-to-value ratio matters more than the LVR on the investment unit alone. A lender will look at total debt against total security value across your entire portfolio, not just the new purchase.

Interest-Only Versus Principal and Interest

Most investors in Wellington choose interest-only loans for rental properties because the repayment is lower and the interest portion is tax-deductible. Principal repayments are not deductible, so paying down the loan doesn't deliver the same tax benefit as it would on your own home. An interest-only structure also improves cashflow, which matters when rental yield on Wellington units often sits between 4% and 5.5% gross before expenses.

You can typically fix an interest-only loan for up to five years, though one-year and two-year fixed terms are more common because they offer a balance between rate certainty and flexibility if you want to sell or refinance. After the interest-only period ends, the loan reverts to principal and interest unless you negotiate a new interest-only term. Not all lenders will extend interest-only indefinitely, so it's worth confirming the policy upfront if you're planning a longer hold period.

How Rental Income Is Assessed

Lenders don't use the actual rent you're receiving or even the figure on a signed tenancy agreement in most cases. They order their own rental appraisal or apply a percentage reduction to the market rent figure you provide. If the appraisal comes back lower than expected, your borrowing capacity drops accordingly.

In a scenario where you're purchasing a one-bedroom unit in Te Aro, the tenancy agreement might show $550 per week, but the lender's appraisal lists market rent at $520. The lender then applies a 75% shading, so the assessed income for serviceability is $390 per week. If the mortgage repayment on an interest-only basis is $450 per week and you're also covering outgoings, the property runs at a weekly loss. That loss reduces how much you can borrow unless your personal income is high enough to absorb it.

Fixed Rate or Floating for Investment Property

Floating rates give you the flexibility to make lump sum repayments or sell without break costs, but they sit higher than fixed rates in most market conditions. A fixed rate locks in your repayment for the term you choose, which makes budgeting simpler and protects you if rates rise. The downside is that breaking a fixed-rate investment mortgage early can trigger costs that run into the thousands, especially if rates have fallen since you fixed.

Some investors split their loan between fixed and floating, which gives partial rate protection while keeping a portion available for early repayment. A 50/50 split is common, though the exact structure depends on whether you expect to sell, refinance, or expand your portfolio during the fixed period.

Healthy Homes Standards and Lender Requirements

Wellington rental properties must meet healthy homes standards, which include insulation, heating, ventilation, moisture control, and draught stopping. Most newer apartment buildings already comply, but if you're buying an older unit, you may need to budget for upgrades before settlement or shortly after. Some lenders will factor those costs into the loan if the work is required for compliance, but they won't lend above the property's current value, so you may need to cover the difference from your own funds.

If the unit doesn't meet the standards and can't be tenanted legally, the lender may decline the application or reduce the assessed rental income to zero until compliance is confirmed. That significantly affects serviceability, so it's worth checking the building's compliance status and getting a pre-purchase report that covers healthy homes requirements.

Structuring Loans Across Multiple Properties

Once you own more than one investment property, loan structure becomes more important. Some investors keep each property on a separate loan facility so they can sell one without affecting the others. Others consolidate borrowing under a single facility with multiple splits, which can simplify administration but creates cross-securitisation between properties.

If you're planning portfolio expansion, keeping your lending flexible matters. A lender who offers 70% LVR on investment property and allows you to capitalise costs or redraw against equity will give you more options than one who caps lending at 60% LVR and restricts further borrowing once you hit a certain number of properties. Not all lenders have the same appetite for investors with multiple properties, and some will decline applications once you reach three or four rentals regardless of your income or equity position.

Tax Deductions and Structuring for IRD

Interest on an investment mortgage is tax-deductible, as are property management fees, insurance, rates, body corporate levies, repairs, and maintenance. Depreciation on chattels and fit-out can also be claimed, though the building itself is no longer depreciable for residential investment properties. Your accountant will calculate the deductible portion based on your tax return and rental income records, but the loan structure can affect how much interest you're paying and therefore how much you can claim.

If you've used equity from your family home to fund the deposit, only the interest on the portion borrowed for investment purposes is deductible. Splitting your lending correctly from the outset makes it simpler to demonstrate to IRD which borrowings relate to which property, especially if you're holding multiple rentals or planning to sell and reinvest.

Call one of our team or book an appointment at a time that works for you. We'll walk through your borrowing position, compare lenders who are actively writing investment loans in Wellington, and structure the finance to suit your property strategy and cashflow needs.

Frequently Asked Questions