Rental Income Shading: What Property Investors Often Miss
Many property investors assume that rental income will fully offset the cost of an investment loan. In reality, lenders usually apply a discount to rental income when assessing borrowing capacity. Understanding rental income shading — and what investors often miss — helps explain why borrowing power can fall short of expectations.
What Is Rental Income Shading?
Rental income shading is when lenders only use a percentage of your rental income when calculating serviceability.
This buffer accounts for vacancies, maintenance, and potential fluctuations in rental income.
Why Lenders Don’t Use 100% of Rental Income
Lenders assume that rental properties won’t be occupied 100% of the time and that costs will arise.
This conservative approach reduces lender risk but impacts investor borrowing power.
How Much Rental Income Is Typically Used
The percentage of rental income used varies between lenders.
Some lenders may use a higher proportion, while others apply stricter shading.
The Compounding Effect Across Multiple Properties
As an investor adds more properties, rental income shading compounds.
This means each additional property contributes less usable income than expected.
Rental Yield vs Borrowing Capacity
A property with strong rental yield doesn’t always translate to stronger borrowing capacity.
Assessment rates and shading often outweigh yield benefits.
Why This Matters for Australian Property Investors
Australian lenders apply conservative serviceability models. Investors who don’t factor in rental shading often overestimate how many properties they can afford.
How The Finance Brokers Can Help Property Investors
The Finance Brokers understand how different lenders apply rental income shading. They select lenders strategically and structure loans to minimise the impact on borrowing capacity.
Unsure How Rental Income Affects You?
If you’re relying on rental income to support your next purchase, expert advice can help you understand how lenders will really assess your situation.
Book a strategy session with The Finance Brokers
Final Thoughts
Rental income shading is a key reason investors hit borrowing limits sooner than expected. Understanding how lenders assess rental income helps investors plan more realistic and sustainable growth strategies.
