Top tips to choose the right investment property type

The property you choose determines not just your rental income and capital growth, but how much lenders will advance, what rate you'll pay, and whether your borrowing capacity stretches to a second or third asset.

How lenders classify investment property types

Lenders classify investment properties into risk categories that directly affect your loan amount, deposit requirement and interest rate. A standalone house in Port Melbourne typically attracts the most favourable lending terms, while a studio apartment, serviced apartment, or property with commercial use will require a larger deposit and may limit your choice of lender. Some lenders cap exposure to higher-density buildings, particularly where one entity owns multiple units or where the body corporate has flagged structural defects.

Consider a scenario where you're assessing a two-bedroom apartment near Station Pier versus a three-bedroom townhouse in Garden City. The townhouse, being a standalone title with broader buyer appeal, will usually support a loan to value ratio up to 90 per cent with lenders mortgage insurance. The apartment, if located in a building with more than 50 units or where short-stay use is common, may be capped at 80 per cent LVR even with LMI, depending on the lender's current appetite. The interest rate on the apartment loan might also sit 10 to 20 basis points higher due to the increased risk weighting under the lender's credit policy.

Apartments and unit types that support or limit borrowing

Apartments above 50 square metres with two or more bedrooms in well-maintained buildings generally support strong borrowing capacity. Smaller studios, or one-bedroom units below 40 square metres, often face LVR restrictions and may be declined by some lenders altogether. Lenders also assess the percentage of investor-owned units in the building, short-term rental activity, and whether the body corporate is well-funded and free of major disputes or levies.

Port Melbourne's Beacon Cove precinct, for instance, includes a mix of low-rise and high-rise developments with varying lender appeal. A two-bedroom, two-bathroom apartment in a boutique block of 20 units will typically support stronger terms than a one-bedroom unit in a 200-apartment tower where 70 per cent of owners are interstate investors and rental vacancy sits above the suburb average. Some lenders require a letter from the body corporate manager confirming no major structural issues or special levies before they'll approve the loan. Where defects are noted or remediation is underway, you may need to provide an engineer's report and evidence the body corporate has funds to cover the works.

Townhouses and terraces as a middle ground

Townhouses and terraces offer a hybrid position between houses and apartments, and most lenders treat them favourably where the property has its own title and no shared common areas beyond a driveway or external wall. These property types often deliver stronger rental yields than standalone houses while avoiding the body corporate complexity and lender restrictions that apply to apartments.

In Port Melbourne, Victorian-era terraces near the Bay Street retail strip are tightly held and attract premium rents from tenants who value the character, space and walkability. A three-bedroom terrace with a courtyard and off-street parking can command weekly rent comparable to a larger house further from the bay, while the purchase price remains lower. From a lending perspective, the property is treated as a house, so you access the same LVR limits, rate discounts and product range as you would for a detached dwelling. The risk weighting under the lender's capital framework is also lower, which can translate to a marginally lower interest rate compared to an apartment of equivalent value.

Houses and land size considerations

Standalone houses on titled land attract the most flexible investment loan terms, but land size and location still matter. A house on a block under 300 square metres may be flagged by some lenders as having limited future buyer appeal, particularly in suburbs where the median block size is larger. Conversely, a house on an oversized block in a well-located pocket may support higher valuations and stronger borrowing capacity due to future subdivision or redevelopment potential.

Lenders also consider flood overlays, bushfire zones, and coastal erosion risk when assessing houses. A weatherboard cottage two blocks from the foreshore in Port Melbourne will usually sail through valuation and credit assessment, but a property in a coastal erosion management area, or one identified on council maps as subject to future inundation risk, may require additional insurance, a higher deposit, or may be declined altogether depending on the lender's risk appetite and the timeframe of the identified risk.

Specialty property types and their lending implications

Serviced apartments, properties with commercial tenancies, boarding houses, and relocatable homes face significant lender restrictions. Most mainstream lenders will decline these outright, and those that do lend typically require a 40 per cent deposit, charge a higher interest rate, and limit the loan term. These properties may deliver strong yields, but the funding structure rarely supports long-term portfolio growth because you can't leverage equity as efficiently.

If you're considering a property with dual zoning or a mixed-use tenancy, expect lenders to assess it as commercial rather than residential. That shifts the loan into a different category with different serviceability tests, often requiring evidence of lease income rather than relying on rental assessment tools. It also removes access to some refinancing options and rate discounts that apply to standard residential investment loans. Where the property is your pathway to passive income and financial freedom, the lower leverage and higher holding costs can delay rather than accelerate your timeline.

Structuring your loan around property type and investment strategy

Your property choice should reflect where you are in your investment journey and what you're trying to achieve. An investor purchasing their first property to build wealth may prioritise a house or townhouse that maximises future borrowing capacity for a second purchase. An investor with multiple properties may accept a smaller apartment at a lower price point to reduce exposure and improve cash flow, particularly if the rental yield offsets the debt servicing cost.

Interest-only loans remain a common feature of investment lending, allowing you to minimise repayments and direct surplus cash toward deposit savings for the next property or offset the cost of holding the asset through periods of lower rental income. Principal and interest loans reduce debt over time and can support stronger serviceability when you apply for subsequent loans, but they require higher repayments and may not suit your cash flow in the early stages of building a portfolio. Choosing between variable rate and fixed rate, or splitting your loan across both, depends on your view of rate movements and whether you value certainty or flexibility. Your property type influences this choice because higher-risk property types often have a narrower range of loan products, and some lenders don't offer fixed rates on apartments in certain buildings or postcodes.

Location and property type working together

Port Melbourne's proximity to the CBD, the light rail connection along Bay Street, and the foreshore amenity make it a strong location for long-term capital growth and rental demand. Within that broader market, property type determines whether you can access that growth with an 80 per cent loan or need to find a 30 per cent deposit, and whether you're limited to two or three lenders or have access to the full panel.

A property near Sandridge Beach or within walking distance of Port Melbourne Primary School will generally attract consistent tenant interest and hold its value through market cycles. A studio apartment in a building dominated by short-stay platforms may sit vacant for longer periods and face valuation challenges when you refinance or sell. Lenders know the difference, and their credit policies reflect it. Where you want the flexibility to access equity for your next purchase, or to refinance into a lower rate without changing property, choosing a property type that remains well-supported across the lending market gives you options rather than locking you in.

Call one of our team or book an appointment at a time that works for you. We'll walk through your investment strategy, identify which property types align with your goals, and structure a loan that supports the portfolio you're building, not just the property you're buying today.

Frequently Asked Questions