Should You Keep Your Old Zetland Unit as an Investment Property?

Keeping your old Zetland unit as an investment is possible, but lenders only support the plan if the numbers work after they shade your rent, tighten valuations and reclassify your first loan as investment debt.

In practice, banks will usually: 1) count only 70–80% of your Zetland rent, 2) load both loans with at least a 3% APRA buffer above the actual rate, and 3) apply stricter LVR caps and valuations to dense postcodes like Green Square and Zetland.

Keeping your Zetland unit as an investment hinges on how lenders see the rent, equity and risk.

Step 1: How lenders treat your current Zetland unit

Your home loan becomes an investment loan

The minute you move out and keep the unit, most lenders will:

• Recode the loan as investment (often with a higher rate).
• Treat the repayments as an ongoing commitment when assessing the new home loan.
• Expect you to switch to P&I if you’re on interest‑only and your term is expiring.

If your current loan is $650,000 at 5.9% P&I over 30 years, real repayments are about $3,850 per month.

For servicing, most banks test this at ~8.9% (5.9% + 3% buffer), which is closer to $5,250 per month on their calculator.

Rental income gets “shaded”

Australian lenders typically shade rental income from investment properties to around 70–80% when testing borrowing power (claims 10 and 13).

Say you expect $850 per week rent on a one‑bed Zetland unit:

• Annual rent: $850 × 52 = $44,200.
• Bank uses 75%: $33,150 as assessable income.

That $11,000+ gap is the bank’s allowance for vacancy, costs and risk.

High‑density postcode rules

In Zetland/Green Square, many lenders add extra rules (claim 12 and [/insights/green-square-property-types-lending-rules]):

• Lower maximum LVR (e.g. 70–80% instead of 90–95%).
• More conservative valuations versus the price you think the unit is worth.
• Tighter policies for small units, mixed‑use buildings or lots of investor stock.

If your unit values at $750,000 but the lender is comfortable only to 80% LVR, your usable equity might be capped at around $50,000–$70,000 once they consider existing debt and buffers.

Step 2: What this does to your upgrade budget

Quick worked example

Assume:

• Zetland unit loan (now investment): $650,000.
• New home you want: $1.4m inner‑ring house.
• Deposit and costs: 20% + stamps ≈ $330,000–$350,000.
• Your combined income: $260,000 salary.
• Expected Zetland rent: $850/week.

On a typical calculator, once the bank:

• Shades rent to ~75%.
• Tests both loans at ~8.5–9%.
• Applies realistic living expenses (HEM) and any other debts.

You’ll often find your borrowing power is 10–25% lower than you assumed.

If you haven’t yet, read [/insights/upgrading-apartment-green-square-zetland-guide] for how this sits alongside selling or bridging.

Equity vs serviceability

Two separate tests must be passed:

1. Equity/LVR test – is your overall LVR under the lender’s cap (often 80%) once both properties are in the picture?
2. Serviceability test – can you support both loans at buffered rates with shaded rent and realistic living costs?

Passing one but failing the other is common.

You might have enough equity in your Zetland unit, but not enough income buffer for two mortgages under today’s assessment rules.