Property Investment Guide

Property investment is available to anyone - it doesn’t require in-depth market knowledge and is generally less volatile than the share market. It's a very popular way for Australians to build their wealth as you don't need a large upfront capital, and you can insure against most causes of loss.

There are two key reasons to invest in property.

  • Rental income: an investment property may provide you with a steady cash income
  • Capital gain: a property selected in a growth area will increase in value over time when you hold it for the longer term.

To benefit from capital growth, you'll want to plan to own the property for a longer period of time. It's unusual for a property to deliver both strong capital growth and a high rental income during the same period, so depending on your life stage and investment situation, you may have to choose one or the other.

A high rental income may be the right strategy if you're retiring, or if you are making your first investment and you're willing to risk overextending your finances. For example, you might purchase a 1-bedroom unit in the suburbs for $200,000. It's near a university, so you rent it out for $250 a week, giving you an annual return of 6.5%. When you decide to sell the property five years later, you get $220,000 for it. This gives you 10% capital growth - not bad for the suburbs!

A high-capital gain property is usually found in the CBD where property prices rise quickly, but rent follows more slowly. For example, if you bought a comparable one-bedroom apartment in the CBD, it could cost you $400,000. You might rent it for $300 per week, giving you an annual return of 3.9%. In five years you get the property valued because you're planning to use the equity to purchase another investment property. It's now worth $480,000 - giving you 20% capital growth.

You'll aim to invest in an area with a vacancy rate below 3%, a good indicator there's an under supply of rental properties, and will ensure you won't have many or long vacancy periods. It also means you'll be able to charge a higher rent, which could then cover your mortgage repayments and costs.

Planning Your Investment Strategy

Your financial position

Are you in a position to be able to afford a property that will attract quality tenants, and can you afford the repayments and costs of owning a property if you have a vacancy period, or if the rental income doesn't cover your costs?

To work out how much you can borrow, try our borrowing calculator. With this figure in mind, it gives you the ability to research the market without obligation, and work out where you can afford to buy an apartment that will yield a good return on investment.

It's crucial that you're prepared for a period of 'negative gearing' - where your rental income is unlikely to cover the costs of owning the property. This could last for the first few years of owning the investment home. There are tax benefits that can help, but you must be confident that you can meet all expenses.

Using Equity as Loan Security

If you're a home owner and you've built up equity in your home, you may be able to use the equity as security for the loan, so you won't need a cash deposit. This means you'll have more cash available for the costs of buying a property, and also make any improvements such as building a carport or garage, the kinds of improvements that could allow you to charge a higher rent.

Committing to Property Investment

There are two other questions you need to ask yourself before committing to an investment, and these are related to your life stage and plans for the next 5-10 years:

  1. Are you prepared, and will you be able to afford, to hold the property for 3-10 years? The actual length of time to achieve a return on your investment will vary depending on your investment strategy and a range of market variables.
  2. Will you need to access your capital at any time in the near future?

Speaking to a Home Lending Specialist can help you work out what you can afford to spend, and what investment strategy best suits your goals and financial situation. Ask for a loan pre-approval, so you have an exact budget to work within when you start looking. When you find the right property, you're ready to move on it right away.

Your Property Investment Strategy

Choosing the right investment strategy that fits in with your lifestyle and goals is the key to a satisfying investment.

  • Long term capital growth
  • Buying a property and holding it for the long haul is one of the most common property investment strategies used by Australians. Your property could be negatively geared for a while. You'll plan to service the debt, secure in the knowledge that you've selected a low-risk strategy while you wait for the long-term growth potential to be realised.

    This type of investment is suitable for most people, especially anyone looking to build a long-term asset base, or if you have a high income and you're looking for tax offsets.

  • Positive cash flow
  • This strategy is good for a beginner investor or anyone looking for a regular income. The rent charged on the property should cover the costs of ownership most of the time, with a little to spare. This strategy usually yields a smaller capital growth during a set time period and are often located in regional areas. If you are smart about selecting the location and property, it's a low-risk investment.

  • Adding value
  • Renovations can be expensive, and should only be carried out if it will realistically increase the value of the property. If doing up houses is your hobby, then ideally you'll look for a house which is structurally sound but needs some cosmetic work. You'd be looking to fix cupboard doors, a new paint job, perhaps replacing fixtures. Small additions and improvements like this can significantly increase the rental income you'll be able to get, or the resale value.

  • Subdividing
  • This medium-risk investment option requires a bit of research into the local council zoning for the area. You'd be looking for a large vacant block or an old home on a large block. You've got the option of holding the land at reselling when the council zoning changes, or building smaller homes and selling or renting them. In this way, you can manufacture equity on your property by adding the value of newly built townhouses or units.

Investment Property Costs

Just like when you buy an owner-occupied property, you'll have to pay the costs of buying a home. When you rent out your property, you'll have some additional ongoing expenses, which may include the following:

  • Accountant fees
  • Council and water rates
  • Landlord insurance
  • Lease expenses - including legal fees for preparing the lease
  • Land tax
  • Letting and reletting costs - including advertising
  • Loan interest - your repayments could vary if you select a variable interest rate while your rental income will always be the same amount
  • Management fees - it's often easier to pay a real estate agent to look after leasing the property. This usually costs about 7% of the gross rental income
  • Repairs and maintenance, including gardening costs
  • Home Loan Repayments and council fees if the property is vacant at any time

Remember, you're in this for the long term. The initial costs and fees of investing in property are substantial, and it'll take you a little while to recover this outlay, but while you aren't seeing short term gains, in the long term, you're increasing your net worth with a secure investment.


When your investment property is costing you more to own than the income you receive from it, it's negatively geared. This loss of money can be partly recovered through tax offsets - the loss is partly recovered as it reduces the amount of tax payable on your salary.

When you hold an investment property purchased after October 1999 for more than 12 months, you can get a discount on the Capital Gains Tax that you'll pay on your profits from the sale.

While the property is available for rent or currently tenanted, you can claim some of your ongoing costs on your tax. Things you can claim include:

  • Interest payments and loan fees
  • Repairs, maintenance, and pest control
  • Council rates, strata fees, land tax
  • Stationery, telephone and book-keeping fees
  • Accounting fees
  • Advertising and property management fees
  • Insurance premiums

You can claim depreciation on your investment property for the building itself, and for the fittings and fixtures like stoves, light fittings, carpets and hot water service. This can become pretty complicated, so get a tax professional to help you avoid any penalties if you get the calculations wrong.

Get the right Investment Home Loan

An investment home loan is just like a regular home loan. You can choose between a variable interest rate, fixed interest, or a split rate loan. For a discussion on the type of home loan you might choose, there's a description of how each loan works on our Home Loan Comparison page.

One thing to be aware of is that interest rates for an investment home loan are a little higher than for an owner-occupied property, which is due to government legislative changes that occurred in 2014. The Australian Prudential Regulation Authority (APRA) changed regulations to limit the number of investment loans they created. This resulted in lenders changing their policies and prices to reduce the number of investment loans in 2015.

The important thing to remember is that the investment loan market is very competitive, so with an experienced Home Lending Specialist, you'll be able to find the right loan structure and great rates.

As a property investor, there are a few loan features that you'll want to know about:

  1. Fixed rate loan: With a fixed rate, you know exactly how much the interest will be for that year, and you can prepay the interest in advance. This can then be claimed as a tax deduction. Chat with your accountant about whether this is a worthwhile option for you.
  2. Interest only loans: This type of loan allows you to pay the interest on the home loan for a certain period, usually up to 5 years. It's useful if you intend to sell the property rather than own it outright at the end of the home loan term. Your monthly repayments are less than if you were paying back the principal and interest of the loan, and they are tax deductible, as you aren't repaying any capital on the loan. The principle of the loan is repaid upon the sale of the property.
  3. A line of credit: This loan type allows you to withdraw cash up to a certain limit from your loan. There might not be set repayments that you have to make. It's secured against your property. This loan type can be useful, but it's best for experienced investors with the knowledge and discipline to use the loan wisely.

Choosing Your Investment Property

When you choose to buy a property as an investment, all you need to think about is its location, and whether it will appeal to a spectrum of tenants.

Your choice of investment strategy will influence your choice of location. If you're looking for capital growth you'll probably look for locations near the CBD of a capital city, where high demand and limited space for new homes increase property values faster.

For a high rental income, you're looking to appeal to a variety of good tenants. Features that attract tenants include:

  1. Access to public transport
  2. Quiet location
  3. Near employment, or a university
  4. Not under a flight path or adjacent to a train line
  5. Low maintenance (you might consider a unit)
  6. Second bathroom
  7. Lock up garage and/or off-street or undercover parking
  8. Ample storage space - cupboards and built in robes
  9. Security
  10. A pleasant outlook, this could mean looking for a newer home

Make sure it has a good rental history or, if it's a new property, that the area has a low vacancy rate.

Pros and cons of buying a brand new investment property

Existing Property New Property
You can see exactly what you're purchasing. If the home isn't built yet, it can be hard to visualise what the building will look like, inside and outside.
You'll need a professional building and pest inspection to make sure there aren't any structural defects or illegal building work that could cost a lot to repair. A brand new property comes with a builders warranty, its clean and it'll be easier to rent
An established home might need more maintenance over time - adding up to significant costs Depreciation on a new property and the tax benefits that follow are generally higher
Opportunity to renovate an older home and add value There isn't usually room to add much value to the property
True market value of the home is usually pretty settled It's easy for the market value (and the rent charged) to be over or underestimated

How and When to Invest

There's no perfect time to invest - how and when you begin or grow your investment portfolio will depend on what your goals are. There's a variety of ownership options that you can take advantage of to give flexibility and diversity to your investments.

  • Sole purchaser
  • The property is registered in your name. You'll receive the rental income and the expenses will be offset against only your income.

  • Joint tenants
  • Ownership of the property is divided equally between two or more people, as is the income and the expenses. It's best if you have similar incomes projected for a few years to take advantage of any tax benefits.

  • Investing through a company
  • With a large number of co-owners, you reduce the risk and it's easier to sell a share of a property. A company is expensive to set up and maintain, and there are legal requirements that need to be met. This works when the property generates fully taxable profits, but it is not possible to distribute taxable losses amongst shareholders.

  • Using a trust
  • A trust is suitable for an investment making income exceeding the costs. It offers asset protection and a tax effective distribution of income. Speak to your accountant about whether this structure is suitable for achieving your goals.

  • Tenants in common
  • This allows you to split the ownership of the property so that if one party has a higher income, they own a higher proportion of the property. This means that if you own 70% of the property, you'll pay 70% of the repayments, and be responsible for 70% of the losses. You also receive 70% of any income from the property.

Choosing the right structure at the start will save you the hassle and expense of changing title documents down the track. Speaking to an accountant about what you want is essential at this stage. Once you've decided what the right path forwards is, call a Home Lending Specialist to arrange a loan pre-approval and to find out how to choose the correct loan structure to compliment your investment type.

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