This is an illustrative example based on common patterns seen in home lending — not a specific individual’s story.
Key takeaway: Lenders don’t count rental income at face value — most apply a “shading” discount, commonly around 20-25%, to account for vacancy periods and costs. An investor who budgets on the full advertised rent can end up with meaningfully less borrowing power than expected.
Consider a client — we’ll call him Grant — buying his first investment property with an advertised rental appraisal of $550 a week. He built his whole budget around that figure covering most of the loan repayment. His lender’s serviceability calculation used a noticeably lower number, and the gap changed what he could actually borrow.
This trips up a lot of first-time investors, because a rental appraisal from an agent feels like a solid, official number — it’s genuinely a reasonable estimate of achievable rent, it’s just not the number a bank uses to assess your capacity to repay.
The Problem Wasn’t the Appraisal — It Was the Shading Applied on Top of It
- Lenders typically only count 70-80% of the appraised weekly rent toward serviceability, treating the rest as a buffer for vacancy periods, management fees, and maintenance costs that reduce the actual cash an investor sees.
- Grant’s $550 a week appraisal was treated closer to $410-440 a week for lending purposes — a difference that flowed directly into a lower borrowing capacity than he’d budgeted for.
- Because he’d built his numbers around the full appraised rent, the gap wasn’t obvious until the lender’s assessment came back, by which point he’d already made an offer contingent on a certain loan amount.
What Typically Changes the Outcome
- Asking a lender upfront what rental shading percentage they apply, since this varies between banks and can materially change the borrowing capacity calculation before an offer is even made
- Budgeting personal cash flow around the shaded rental figure, not the advertised one, so there are no surprises in the actual weekly experience of owning the property
- Factoring the gap into how much deposit or buffer is needed, rather than assuming the full rental appraisal will directly offset the loan repayment
The Realistic Result
In scenarios like this, checking a lender’s specific shading policy before making an offer — and budgeting around that lower number from the start — commonly avoids a late finance surprise and results in a purchase that’s genuinely comfortable to hold, rather than one that only works if every week is fully tenanted.
The Actual Lesson
A rental appraisal is a genuine estimate of what a property could earn, not what a lender will count toward your borrowing power. First-time investors especially benefit from asking about shading percentages early, since the gap between the advertised rent and the assessed rent can be the difference between a comfortable investment and a stretched one.
Written by Michael Wignall, who’s spent 30+ years in banking and home lending across the ACT, Illawarra, and Riverina regions of NSW.
