Thinking of buying an investment property but concerned about your borrowing capacity? You’re not the only one. According to the ATO, over 2.2 million Australians own investment properties, but so many more of us are held back by serviceability issues. Around 60% of would-be investors say their biggest hurdle is securing finance or having enough borrowing power to purchase an investment property. It’s a common roadblock – but it’s not impossible to overcome.
We want to let you know how to overcome those hurdles and get investment-ready sooner. At Crown Money, our superpower is helping people increase their borrowing capacity 200% faster than the average Aussie. We can help you go from where you are now to being ‘investment fit’ much quicker than you think.
1. Speed up your Debt Reduction
If you want to enhance your borrowing power for an investment property, one of the fastest ways is to pay down your home loan as quickly as possible. This is because there’s a “borrowing ceiling” – the maximum amount a bank will lend you, generally speaking up to five times your gross salary.
By paying down your “bad debt” home loan, you’re freeing up more borrowing capacity. For example, if you currently have a $500k mortgage and pay it down to $400k, you’ve now freed up $100k+ in additional borrowing power. The quicker you pay down your home loan, the sooner you’ll free up capacity to invest in property.
Unlike your home loan, investment debt is seen as “good debt” since it offers perks like tax deductions on interest, rental income and depreciation. These tax deductions allow you to make your money work harder for you while building wealth over decades through property.
2. Cut up the Cards
As you focus on paying down your home loan, it’s also important to look at other debts that could be holding you back. Even if you pay off your credit card balance every month, the banks don’t care. What they care about is your credit card limit. Even with a $0 balance, having a $10k credit limit could reduce your borrowing capacity by $30k-$40k. So, it’s best to pay it off, cut up the card, and close the account.
Personal loans, car loans, Afterpay, and ZipPay are also significantly impacting your ability to borrow. Even a small personal loan can reduce your borrowing power by up to 20%. Lenders treat buy-now-pay-later services like Afterpay and ZipPay similarly to credit cards, which can heavily restrict how much you’re able to borrow.
For those of you thinking of your Frequent Flyer points, the Bankwest Qantas Transaction Account is a master card debit card that lets you earn Qantas Frequent Flyer points just by spending your own cash. You can earn 3 Qantas Points per eligible purchase using their platinum Debit Mastercard and 0.3 Qantas Points for every $100 in your account balance per day.
3. Lose the Novated Fleece!
Using pre-tax income to pay for a car through salary packaging doesn’t make sense when you’re trying to build wealth. A car is a liability that goes down in value, and a novated lease is still considered debt, which directly reduces your borrowing capacity. The money you’re using to pay off the lease could be better spent on assets that grow in value, like property, shares or investments.
By getting rid of the novated lease, either by paying it off or selling the car, you can significantly improve your serviceability. Paying off or getting rid of that lease and downgrading to a cheaper runaround is about burying your ego and prioritizing your future. While driving a less flashy car might sting initially, the savings and the increase in your serviceability will help you get into your next investment property
much sooner.
4. Get a Pay Rise
If you’re looking to boost your borrowing capacity, one of the most effective ways is by increasing your income. A pay rise, even a small one, can make a significant difference.
Interestingly, a study by SEEK found that while 66% of Australians view salary as the most important reason they work, 75% have never asked for a pay rise. This highlights a major opportunity for many people to increase their borrowing capacity simply by negotiating a higher salary.
Asking for a raise can be daunting and requires the right approach. This is why our salary coaching is so valuable to our clients. We’ll help you build the confidence and skills to ask for that raise at the right time, and negotiate successfully. Even a $5k salary increase can boost your borrowing capacity by as much as $25k.
5. Managing Dependents
Alright parents, when it comes to serviceability, the number of dependents you have can really affect what you can borrow.
One thing many people don’t realise: as your kids get over the age of 18 they may no longer be considered dependents in the eyes of lenders. This means fewer dependents, and more borrowing power.
So while teens might be expensive elsewhere, if they’re earning their own money, they could actually help free up your borrowing capacity.
6. Different Banks, Different Rules
Banks assess borrowing power differently. One might offer $500k, another $600k, even with the same income. This variation comes from how each lender calculates serviceability, factoring in expenses, liabilities, and how they treat income, especially rental income. Some banks “shade” rental income, only counting 70-80%, while others may count more.
Given these differences, it’s worth reviewing your borrowing capacity yearly to track the capacity you’ve generated. Think of it as a target—each time you pay down debt or increase income, you’re building borrowing power. Monitoring this progress can keep you motivated and show how close you are to making that next purchase.
Getting into a position to buy an investment property sooner takes more than just crossing your fingers and hoping for the best. It’s about being proactive, strategically reducing debt, boosting income, and making sure your financial structure supports your goals. Whether it’s accelerating your debt reduction, fine-tuning your serviceability, or simply re-evaluating your borrowing power, each step helps you get closer to that property purchase.
