Frankston's rental market remains active across everything from beachside apartments near the foreshore to family homes in Karingal and Seaford.
If you're considering buying an investment property in the Frankston area, the rules changed significantly on 12 May 2026. What you can claim and how capital gains are taxed now depends on when you buy and whether the property is established or newly built. Understanding these changes matters before you start looking at properties or speaking to lenders about investment loans.
What Changed for Investment Property Buyers After Budget Night
From 1 July 2027, two major tax settings will work differently for residential investment properties purchased after 12 May 2026. Negative gearing will be limited so that losses can only offset rental income or capital gains from residential property, not your salary or other income. The 50% capital gains tax discount will be replaced with indexation for inflation and a minimum 30% tax on gains. If you bought an established property before Budget night, your existing arrangements continue under the old rules. New builds remain incentivised, with buyers able to choose whichever capital gains treatment works better for them and full negative gearing still available.
How Negative Gearing Works Under the New Rules
Negative gearing allows you to claim the net loss from your rental property as a tax deduction. Until now, that loss could be used to reduce tax on all your income, including wages. For established residential properties purchased after 12 May 2026, losses can only be claimed against rental income or capital gains from residential property from 1 July 2027 onward. Losses you can't use immediately carry forward to future years, so the deduction isn't lost entirely. The change only applies to residential property. If you buy commercial property or invest in shares, the existing rules remain.
Consider a buyer who purchases an established unit in Frankston for rental purposes in late 2026. Their annual rental income is $24,000, but their interest, strata fees, and other costs total $30,000. Under the old rules, that $6,000 loss could reduce tax on their salary. Under the new rules applying from mid-2027, the $6,000 loss can only offset future rental income or a capital gain when they eventually sell. If they're relying on that tax saving to cover holding costs, the numbers work differently now.
Capital Gains Tax: What Inflation Indexation Means
The 50% capital gains discount is being replaced with indexation for inflation, meaning you'll only pay tax on your real gain after accounting for inflation. A minimum 30% tax will apply to capital gains regardless of how long you hold the property. These changes take effect from 1 July 2027 and only apply to gains that arise after that date. If you bought before Budget night, any gain up to 1 July 2027 is still eligible for the 50% discount. New builds give you the option to choose between the old 50% discount or the new indexed method, whichever works better.
In practice, inflation indexation can work in your favour if you hold the property for many years in a high-inflation environment, because your taxable gain is reduced by the cumulative inflation over that period. The minimum 30% tax matters more for properties sold quickly or in low-inflation periods. Speak to an accountant about how this applies to your situation, because the outcome depends on how long you hold the property and what inflation does over that time.
Why New Builds Are Now More Attractive Than Established Properties
New builds are explicitly favoured under the new tax settings. Buyers of new residential property can still access full negative gearing and can choose between the 50% capital gains discount or inflation indexation when they sell. Established properties purchased after Budget night lose both benefits from mid-2027. If you're deciding between an off-the-plan apartment in Seaford and an existing townhouse in Frankston, the tax treatment now differs substantially. The new build offers more flexibility with deductions and a choice of capital gains methods. The established property limits where you can claim losses and removes the 50% discount.
This doesn't mean established properties are no longer viable. Rental yield, capital growth potential, and your overall property investment strategy still matter. But if two properties deliver similar returns on paper, the new build now has a structural tax advantage that didn't exist before Budget night.
Loan Structures That Work for Investment Property
Most investors choose between interest-only and principal-and-interest repayments. Interest-only loans keep your repayments lower during the loan term, which improves cash flow and maximises your tax-deductible interest. Principal-and-interest loans reduce your debt over time and can be useful if you're planning to pay down the loan or want to avoid a large balance at the end of the interest-only period. Some investors split their loan, taking part on interest-only and part on principal-and-interest, or split between variable and fixed rates. Your loan structure should match your cash flow, tax position, and how long you plan to hold the property.
Interest-only terms are typically approved for five years initially, with the option to extend depending on your equity position and the lender's criteria. After the interest-only period ends, the loan reverts to principal-and-interest unless you refinance or negotiate an extension. Many lenders will assess your application based on principal-and-interest repayments even if you're applying for interest-only, so your borrowing capacity reflects the higher repayment amount.
Deposit Requirements and Lenders Mortgage Insurance
Most lenders require a minimum 10% deposit for investment property, though some will lend at 90% loan-to-value ratio with Lenders Mortgage Insurance. If you're buying with less than 20% deposit, you'll pay LMI, which is a one-off premium that protects the lender if you default. LMI can add several thousand dollars to your upfront costs, and it's usually capitalised into the loan rather than paid separately. The premium increases as your deposit gets smaller, so a 10% deposit will cost more in LMI than a 15% deposit. If you have equity in your home or another property, you may be able to use that equity as your deposit rather than saving cash, which can help you move faster or avoid LMI if your combined loan-to-value ratio stays under 80%.
Rental income is used to service the loan, but lenders typically only count 80% of the projected rent to account for vacancy periods and maintenance costs. If the property rents for $500 per week, the lender will assess it as $400 per week. You'll still need to demonstrate that your income can cover any shortfall between the rent and the loan repayments, especially if you're applying under the new tax rules where losses can't offset your salary.
What Frankston Investors Should Consider Right Now
Frankston's proximity to the beach, the train line to Melbourne, and ongoing infrastructure work around the CBD and hospital precinct make it a location where both renters and buyers continue to show interest. Vacancy rates in the area have historically been low, which matters when you're relying on consistent rental income to service the loan. Demand comes from a mix of young families, professionals commuting to the city, and downsizers looking for coastal access without the Mornington Peninsula price tag.
If you're weighing up whether to buy now or wait, the key question is whether you're comfortable with the new tax settings. Properties purchased before Budget night retain the old rules. Properties purchased from 13 May 2026 onward will be subject to the new arrangements from mid-2027. If you're looking at new builds, the tax treatment is more favourable than it is for established homes. If you're planning to use negative gearing to offset your salary, that option is no longer available for established residential properties bought after Budget night. Your decision should be based on the numbers in your specific situation, not on general sentiment about the market.
How to Compare Investment Loan Options Across Lenders
Not all lenders price investment loans the same way. Some apply a margin above their standard variable rate for investment purposes, while others offer the same rate as owner-occupiers. Fixed rates, offset accounts, and redraw facilities also vary. Some lenders allow full offset on investment loans, while others restrict it or don't offer it at all. If you're splitting your loan between fixed and variable, or between interest-only and principal-and-interest, you'll want a lender that supports those structures without excessive fees.
Working with a broker gives you visibility across lenders rather than approaching one bank directly. A broker can show you which lenders will count rental income more favourably, which ones allow higher loan-to-value ratios without onerous conditions, and where you'll get better serviceability treatment if you already own property. The differences in rate, fees, and features can add up to thousands of dollars over the life of the loan, and they're not always obvious from a lender's advertised rates.
If you're ready to explore your options or want to understand how the recent tax changes affect your borrowing position, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Can I still negatively gear an investment property bought after Budget night?
Yes, but from 1 July 2027, losses from established residential properties purchased after 12 May 2026 can only be claimed against rental income or capital gains from residential property, not against your salary. New builds still allow full negative gearing against all income.
Do I need a bigger deposit for an investment loan than a home loan?
Most lenders require at least 10% deposit for investment property, compared to 5% for owner-occupiers in some cases. If you borrow above 80% loan-to-value ratio, you'll pay Lenders Mortgage Insurance.
What happens to the 50% capital gains discount under the new rules?
For established residential properties bought after 12 May 2026, the 50% discount is replaced with inflation indexation and a minimum 30% tax on gains from 1 July 2027. New builds let you choose between the old discount or the new indexed method.
Should I choose interest-only or principal-and-interest for an investment loan?
Interest-only loans keep repayments lower and maximise your tax-deductible interest, which suits most investors focused on cash flow. Principal-and-interest loans reduce your debt over time and may suit investors planning to pay down the loan or hold long-term.
How do lenders assess rental income when calculating borrowing capacity?
Lenders typically count only 80% of the projected rental income to account for vacancies and maintenance. You'll need to show that your income can cover any gap between the rent received and the loan repayments.
