Investment Loans & Student Accommodation: What to Know

Student accommodation investment properties require different loan structuring than standard residential property.

Richmond sits close to multiple universities and education providers, which makes purpose-built student accommodation an appealing option for local investors looking to diversify beyond traditional residential rentals. But lenders treat this asset class differently, and the loan structure you choose will determine both your serviceability and your long-term flexibility.

How Lenders Assess Student Accommodation Properties

Lenders typically classify purpose-built student accommodation as commercial or quasi-commercial property, not residential. That classification affects your loan to value ratio, your interest rate, and how rental income is treated during the application. Most lenders will cap your borrowing at 70% to 80% of the property value, which means you'll need a larger deposit than you would for a standard investment property. Rental income is often shaded more heavily during serviceability assessment, sometimes at 80% rather than the usual residential rental treatment, because lenders account for higher vacancy risk and shorter lease terms.

Consider an investor looking at a studio apartment in a managed student accommodation building near the University of Melbourne. The property is tenanted under a management agreement where the operator pays a fixed annual return. Even with a signed agreement in place, the lender may still apply commercial lending criteria and shade that income by 20%, which reduces the borrowing capacity compared to a standard one-bedroom unit in the same suburb.

Investment Loan Deposit and LMI Considerations

Most lenders will not offer Lenders Mortgage Insurance for student accommodation properties. Without LMI, you're restricted to the lender's standard maximum loan to value ratio, which for this asset type is usually between 70% and 80%. That means if you're purchasing a property valued at the current median for a managed studio, you'll need to have at least 20% to 30% of the purchase price available, plus settlement costs including stamp duty and legal fees.

Some lenders will allow you to use equity from an existing property to fund the deposit, which can be structured through an equity release loan. The equity is treated as your deposit contribution, and the new student accommodation property is secured separately. This approach keeps your portfolio separated and allows you to retain interest only repayments on the investment loan while your owner-occupied loan remains on principal and interest.

Interest Only Structuring and Cash Flow Management

Student accommodation properties are often held on interest only loans to maximise cash flow and tax deductions. Because all interest on an investment loan is a claimable expense, keeping the loan on interest only means your annual deductions remain higher, which offsets rental income and reduces your taxable position. The loan amount stays constant, but you're not forced to make principal repayments during the investment phase.

At current variable rates, an interest only investment loan on a student accommodation property will typically sit above standard residential investor rates due to the commercial classification. Some lenders offer rate discounts if you hold multiple investment properties or maintain your owner-occupied loan with the same institution, but those discounts are not universal. It's worth comparing investment loan options from banks and lenders across Australia rather than assuming your current lender offers the most suitable product for this asset class.

Vacancy Rates and Rental Income Treatment

Richmond's proximity to the Melbourne CBD, Swinburne University's Hawthorn campus, and Victoria University's Footscray campus makes it a viable location for student renters, but vacancy rates in purpose-built student accommodation can be higher than traditional residential property. Academic year cycles mean you may have gaps between tenancies, and rental income can fluctuate depending on enrolment numbers and international student visa settings.

Lenders account for this by either shading the rental income during serviceability or requiring a larger cash reserve at settlement. Some will ask for evidence of a management agreement with a licenced operator, while others will assess the property as if it were vacant and rely entirely on your other income to service the loan. If you're planning to use rental income to help service the investment loan, confirm how your lender treats student accommodation income before you make an offer.

Tax Treatment and Negative Gearing Under New Rules

From 1 July 2027, negative gearing on established residential properties purchased after 12 May 2026 will be restricted. Losses can only be offset against other residential property income or capital gains, not against salary or wages. However, student accommodation properties classified as commercial are not subject to these changes. If your loan is structured under a commercial product, the existing negative gearing rules continue to apply, meaning you can still offset losses against your ordinary income.

The Capital Gains Tax changes announced in the Federal Budget also affect how you structure your exit. For properties purchased after 12 May 2026, the 50% CGT discount will be replaced with cost base indexation and a minimum 30% tax on gains from 1 July 2027. If you're purchasing a new-build student accommodation property, you'll be able to choose between the old 50% discount or the new indexed treatment, whichever results in a lower tax outcome. Established properties purchased after Budget night do not have that choice.

Loan Features That Support Portfolio Growth

If you're adding student accommodation to an existing investment property portfolio, the loan features you select now will determine how much flexibility you have later. Look for products that allow additional repayments without penalty, even if you're keeping the loan on interest only. Those additional repayments sit in an offset or redraw facility and can be pulled back out to fund future deposits, which supports portfolio growth without requiring you to refinance.

Some lenders also offer the ability to split your loan between fixed and variable rates, which can be useful if you want certainty on part of your repayment while retaining flexibility on the rest. Variable rate investment loans give you access to offset accounts and unrestricted additional repayments, while a fixed rate portion locks in your interest cost for a set period. The split doesn't need to be 50/50; it can be weighted based on your cash flow and risk tolerance.

Refinancing and Reviewing Your Investment Loan

Once your student accommodation property is settled and tenanted, it's worth reviewing your loan structure annually. Lenders release new investment loan products throughout the year, and the rate you secured at settlement may not remain the most suitable option. If your property has increased in value or your portfolio has grown, you may be able to negotiate a lower interest rate or access additional equity for your next purchase.

Refinancing an investment loan can also allow you to consolidate multiple properties under a single lender if that simplifies your reporting and reduces your overall interest cost. Just make sure any refinance doesn't trigger break costs if you're exiting a fixed rate period early, and confirm that your new lender's serviceability assessment still supports your borrowing.

Richmond's mix of heritage residential streets, modern apartment developments, and proximity to major employment and education precincts makes it a location where both traditional and specialist investment properties can perform well. Student accommodation sits in a different risk and return category to standard residential, and your loan structure should reflect that distinction.

Call one of our team or book an appointment at a time that works for you to discuss how your investment loan can be structured to support student accommodation purchases and long-term portfolio objectives.

Frequently Asked Questions