Smart Ways to Approach Bridging Loans for Investors

Buying an investment property before your current one sells is possible, but the way it is funded needs planning.

Investors sometimes find the right property before their current one has sold. The one you own is not yet sold, and the new one will not wait. This article walks through how lenders look at that gap, what it can cost, and the alternatives worth weighing up.

Can You Use a Bridging Loan to Buy an Investment Property?

Sometimes, but it depends on the lender and how the loan is structured. APRA's formal definition of bridging finance covers owner-occupied lending, where you are moving from one home to another. An investment purchase often sits outside that definition.

Some lenders may allow you to borrow against equity in your existing property, so check the specific lender's policy. You could also look at equity release loans. The trade-off is that you carry more debt than usual until the sale completes, and your repayments rise during that time.

How Do Lenders Assess Buy Before You Sell Finance?

APRA expects lenders to apply a buffer of at least 3 percentage points above the loan rate when they assess whether you can afford repayments. That buffer applies to your new and existing debts.

As an illustration, at an example rate of 6.75% p.a. a lender would test your repayments at 9.75%. Your borrowing capacity is worked out on that higher figure, not the rate you will actually pay.

On the sale side, APRA's guidance says lenders would generally count the sale of a property as part of the assessment only where a signed contract of sale is intended and due to complete within twelve months.

What Does the Bridging Period Cost? A Worked Example

The main cost is interest on the extra debt for as long as you own both properties. Consider an investor who sells one rental and buys another first. They borrow an extra $300,000 against the existing property to cover the purchase.

At an illustrative 6.75% p.a., interest-only, that extra debt costs about $1,687.50 a month ($300,000 x 6.75% / 12). The existing property sells after five months, so the extra interest comes to about $8,437.50. If the sale took eight months, it would be $13,500.

The sale proceeds then pay off the extra debt, and the investor is left with the new property and a loan sized for it. Lender fees, valuation costs and legal costs come on top, and these vary by lender.

The lesson from the example is that each extra month of delay has a known price. Work out what you can carry for six months, then test what happens at nine. If the sale takes longer than planned, you either keep paying or accept a lower price. That is the main risk of this approach.

Why Your Exit Strategy Needs a Settlement Plan

Your exit strategy is the sale of your existing property, and it needs a realistic timeline from exchange contract to settlement. Set the sale price expectation with your agent before you commit to the purchase. Ask whether interest is paid monthly or added to the loan, because added interest grows the balance you owe.

One detail catches sellers out. Australian resident vendors must give the buyer a clearance certificate at or before settlement. Without one, the buyer must withhold up to 15% of the sale price for contracts signed on or after 1 January 2025. That withheld amount would not reach your lender when you need it. The ATO says applications can take up to 28 days and should be lodged at least 28 days before settlement. Lodge yours when you list the property.

Alternatives to Bridging Finance for Investors

The main alternatives are using equity from the existing property, restructuring your loans, or waiting for the sale. Each has a cost.

• Equity release: you borrow against the equity in a property you already own to fund the deposit and costs of the next one. The trade-off is a larger loan secured against the existing property, so the debt stays if the sale falls through.
• Refinancing: a refinance can free up funds or improve your loan structure first. You may face exit fees or setup costs, depending on your lender.
• Selling first: this removes the carrying cost, but you risk missing the property you want.

Our investment loans team can compare these paths against your numbers.

What About Tax When You Own Two Properties?

Tax outcomes depend on how each property is used, so speak with your accountant before you commit. Selling an investment property can trigger capital gains tax, and the deductibility of interest depends on what the borrowed money is used for. The ATO says interest on a loan used to buy a home is not deductible if that home does not produce income, even when a rental property secures the loan.

Land tax is another point to check. The Queensland Revenue Office states that individuals are liable once their total taxable value reaches $600,000. Holding an extra property for a few months could affect your assessment, and the home transitional exemption generally does not suit a property that is rented. Your accountant can confirm how this applies to you.

If you want to see where your existing loans stand before taking on more debt, a loan health check is a sensible first step.

Talk to us before you make an offer or sign a contract. Call one of our Savvy Home Loans team or book an appointment at a time that works for you, and we will map out the numbers with you.

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