Five Safety Rules To Follow Before Gearing Into Property

Borrowing to invest in property is only safe if you set hard limits first. Five non‑negotiable safety rules are: keep LVR conservative, hold a real cash buffer, stress‑test rates and vacancies, use clean loan structures, and have a written exit plan. If you can’t tick all five, you’re not ready to gear.

This article is the practical companion to broader risk planning guides like Plain-English Gearing Basics Every Australian Property Investor Must Know and Building Safe Borrowing Plans with Buffers, Risk and a Broker.

Five non-negotiable safety rules should frame every geared property decision.

Rule 1: Cap your leverage before the bank does

1.1 Set your own LVR ceiling

Lenders may happily approve you up to 90–95% LVR with lenders mortgage insurance (LMI). That doesn’t mean it’s safe.

For geared property, a sensible ceiling for most investors is:

• Owner-occupied home: Aim to get under 80% LVR over time.
• Investment properties: Target 70–80% LVR total across the portfolio.

Below 80% LVR you generally avoid LMI, improve rate options and have more room if prices fall.

1.2 Understand how much price fall you can survive

A 20–30% fall in property prices is rare but not impossible. Your safety rule should be: “If prices drop 20%, I still want positive equity and no forced sale.”

Illustrative comparison

Your non‑negotiable rule: never gear so hard that a 20% price drop wipes you out on paper.

Rule 2: Build a real cash and offset buffer

2.1 The minimum buffer for geared investors

From our other guides, a practical minimum is:

• At least 3 months of total home + investment repayments in offset or savings (Fact 17).
• For first‑time geared investors, 3–6 months of total property costs (repayments, rates, insurance, basic maintenance) is safer (Fact 16).

A simple rule of thumb: if losing your tenant for six months would break you, you’re over‑geared.

2.2 Worked example: how much buffer is enough?

Assume:

• Home loan repayments: $3,000 per month.
• Investment loan repayments: $2,000 per month.
• Investment holding costs (rates, insurance, basics): $800 per month.

Total geared property outgoings: $5,800 per month.

• 3‑month buffer: $5,800 × 3 = $17,400.
• 6‑month buffer: $5,800 × 6 = $34,800.

Your non‑negotiable rule: keep at least 3 months in cash/offset before you buy, and plan to reach 6 months within 1–2 years. Use offset accounts rather than redraw to preserve flexibility and cleaner tax tracing.

For a deeper dive into buffer sizing while geared, see How Big Should Your Cash and Offset Buffer Be When You’re Geared? (sibling article in this cluster).