Your guide to property investment in Australia
Property investing is a popular strategy for growing your overall wealth. But there's a lot to learn before you get started.
Key takeaways
- Evaluate property investment benefits like price growth against risks such as illiquidity before committing.
- Develop a clear investment strategy using market data to identify properties with growth potential.
- Prioritise a competitive interest rate for your investment loan as 58% of Australians do.
Finder survey: What factor matters most to Australians when choosing an investment loan?
| Response | |
|---|---|
| Interest rate | 57.95% |
| Interest only repayments | 13.64% |
| Extra repayments | 10.23% |
| Offset account | 9.09% |
| Ability to split loan | 3.41% |
| Fast approval process | 2.27% |
| The lender | 2.27% |
| Other | 1.14% |
Source: Finder survey by Pure Profile of 1112 Australians, December 2023
1. Deciding to invest in property
Property investing can help you build wealth over time, but it carries risk, like any investment.
Before making a property investment purchase, you need to carefully evaluate the benefits and risks to decide whether or not it will be a viable investment for you.
Benefits
- Price growth. A good quality home in a good location is likely to be worth a lot more than you paid for it, 20 years from now.
- Cashflow. The rental return you receive can become a form of secondary income.
- Asset security. People will always need housing, and while trends will come and go, if you buy in a central, well-located suburb, your property should be in demand.
- Tax benefits. There are tax and depreciation advantages, including negative gearing, which can make investing in property more affordable.
Risks
- Property is not a liquid investment. Your money is tied up if you invest in property, meaning you don't have easy access to it if you need money in a hurry.
- Exposed to market interest rates. If interest rates rise, your mortgage repayments will increase.
- Situational change. If your situation changes and you need to sell in a hurry, you could be selling during a 'down' phase, so you risk losing money.
- Poor performance. Although relatively stable overall, not all property markets will grow, so you run the risk of owning a property that doesn't increase in value over time.
How professional advice can boost your chances of success
It's a good idea to consult professionals about your property investing goals. Speak to accountants, property experts, conveyancers, buyer's agents, local real estate agents, financial planners and mortgage brokers to help you decide whether or not the property will represent a valuable investment.
An accountant can help you assess your cashflow and manage the paperwork involved in the property purchase, while a mortgage broker can compare different home loans to ensure that you get a competitive deal to suit your borrowing and investment goals.
2. Doing your research
You can leverage resources such as the Australian Bureau of Statistics (ABS), CoreLogic Data, Residex and many other websites that provide property market data and insights which can form the basis of your research during this initial phase.
Develop a property purchase plan and write down all the key decisions you'll have to make throughout the entire process – from identifying your investment strategy to accessing finance, signing the paperwork and screening potential tenants.
What's your investment strategy?
The most common investment strategies are:
- Buy and hold. Purchase the property, wait for the value to rise and then sell. Income from rent can cover the mortgage repayments until the property is sold.
- Renovate and add value. Purchase the property, renovate it to add value to it, and then sell it at a profit. Buying at a discount is also a strategy to consider.
- Capital growth. Some investors try to zero in on a property and location that, in the current market, will quickly grow in value. These investors may stick to interest-only investment loans in order to reduce their non-tax deductible costs, and then sell the property after just a few years.
Finding the right property
Finding the right property is perhaps the most important step of all. You need to find a property that matches your investment strategy, appeals to renters and will retain value over time. You'll also need to make sure you're paying a fair price for the property and check that the property is structurally sound.
You will need to make decisions on the following questions:
- Property type. Will you invest in a unit, a freestanding house or a townhouse?
- New or established. Some investors prefer buying brand new buildings while others see more value in established dwellings.
- Suburb. Your choice of suburb and location has a big impact on your investment. Be sure to look at suburb level data and hit the streets to see for yourself.
More tips on how to research the property market
3. Capital growth and rental return
Regardless of your strategy, you need to buy a property with some capital growth potential and one that you can rent out. In short, you need to do your numbers to see if the investment actually makes financial sense.
You also have to make sure that the return your property generates is comparable to the return you would have made had you invested in another asset class, like shares.
Capital growth
Capital growth represents the increase in a property's value over a period of time and is why most people invest in property. The property market functions in cycles, with periods of growth, stagnation and decline, but an overall upward trend over time that most properties benefit from.
Considering this, it's clear that investing in property should be done for the long-term, rather than expecting a quick return.
Just how much profit can you expect to make over the long-term? This depends on the size and type of property, the location, and the drivers of growth in the local area.
Rental return
Study the average rental price for similar properties in the area and ask yourself whether the rent you receive will be enough to cover property maintenance costs and still allow you to make a profit.
An important figure is the yield of a property, which you calculate by dividing the rent you receive over a year by the price you paid for the property, which is then multiplied by 100 to get a percentage. For example, if you purchased a property for $500,000 and are renting it out for $500 per week, which is $26,000 per annum, the gross yield would be 5.2% per annum.
This figure can then be compared to the yield you would get from investing in shares, for example.
Keep in mind that when you invest in property, you leverage your deposit. You might start with $50,000, but your return of 5.2% is calculated on $500,000, rather than on $50,000, which is more likely to be the amount you would invest in shares.
4. Getting an investment mortgage
Ready to get started and apply for an investment loan?
It's really important that you set up the right structure to borrow at the beginning of your investment journey. The right structure means getting the right loan, in the right amount, in the right name, to maximise your tax and financial benefits.
Finder's senior editor of money Sarah explains just how crucial this step is. In an article for Property Update, Sarah outlines how an investor missed out on $40,000+ worth of benefits in just 3 years, related to a $300,000 investment property.
Make sure you do the following:
- Work out how much you can borrow: Before you start comparing different home loans, you need to know how much you can afford to borrow. Enter your details into our borrowing power calculator to work out how much you can afford to borrow.
- Compare mortgages: Find a suitable investment mortgage with a competitive interest rate. Watch out for high fees too.
- Get home loan pre-approval: Go to a lender and see if they offer home loan pre-approval, preferably with a credit check so you can shop around. Pre-approval gives you a price range to work with. It's crucial to know how much you can spend before you start looking at different properties and investments.
Final steps
Once you've found a property to purchase and you've started the home loan application you need to take these final steps:
- Prepare mortgage documents: Speak to your lender to finalise the mortgage documents.
- Hire a surveyor: A quantity surveyor can help maximise the tax deduction you get from the property.
- Landlord responsibilities: If you want to put tenants in your investment property, read about your rights and responsibilities as a landlord and how to advertise correctly.
- Appraisal: Get an independent appraisal of the property. Pest and building inspections are also a smart move. A conveyancer should also check the boundaries of the property if the investment is anything larger than an apartment.
5. Minimising your risks
Savvy investors actively take steps to minimise their property investment risk, such as diversifying their property portfolio.
Here are some common ways to reduce your investment risk:
- Cash buffer: Ensure you have a contingency buffer of funds to ensure that you can cover any unforeseen expenses that may arise in future (e.g. during untenanted periods).
- Split or fixed rate loan: You may want to consider splitting your loan or opting for a fixed rate loan, so you have peace of mind in knowing exactly what your repayments will be each month.
- Invest in different areas: As mentioned above, a good way to minimise your investment risk is not to 'put your eggs in one basket.' Invest in different property types in a number of different regions to ensure that if there is an economic downturn in one city, you have other properties that are performing well in different areas.
- Market research: Another way to lessen your investment risk is to undertake extensive market research into the market you're investing in. Consider local supply and demand factors, the average rental return for similar properties.
More helpful guides and tips for investors
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12 Responses
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What are my financing options with a Skilled Migrant Visa? I understand the FIRB stipulation but wonder how to organise a mortgage as a US citizen. I’d like to purchase in QLD since my visa term is 5yrs. I do plan to eventually become an AU citizen. Thanks!! :D
Hi Gen,
Thanks for your question.
The home loan options being offered to temporary Australian residents are typical mortgage packages that would be available to Australian citizens or permanent residents. The main difference being the cap on the amount you are allowed to borrow and the down payment that is required. Depending on your job circumstances you may be able to qualify for up to 90% of the value of the property.
You may compare your home loan options on our website for more details.
Consider as well seeking the help of a mortgage broker. A mortgage broker is a professional who compares and helps you apply for home loans on your behalf. A good mortgage broker will give you personalized service all the way through to settlement.
I hope this helps.
Cheers,
Anndy
Is it possible to buy investment property and lease back to myself
Hi Hil,
Thanks for reaching out.
I’ve sent you an email to follow up with this enquiry.
Thanks,
Belinda
Why are lending institutions reluctant or are outright against lending for properties relating to student accommodation properties when the return is approximately 10% p/a near Bond university? There the students keep their accommodation as they do not have long periods between semesters.
Hi Herman,
thanks for the question.
Unfortunately lenders keep their lending criteria under wraps for the most part, but generally speaking some lenders view student accommodation as more of a risk because of its more limited usage when compared to a regular property. As always there are exceptions to this rule, so it’s always a good idea to speak to a mortgage broker, or at least approach more than one lender to see if you would be eligible for a loan.
I hope this helps,
Marc.
Is it always a bad idea to go with an investment property group to do everything for you?
(eg. IPGA )
Hi Irene,
thanks for the question.
This depends on a range of factors. Using an investment property group which is reputable and proven to deliver results can be a good way to enter in the market if you’re unsure of the process and not confident purchasing a property yourself. I’d recommend contacting a qualified financial advisor before joining any investment property group.
I hope this helps,
Marc.
Hi, can you tell me what is required to add your partner name to a title deed. Thank you Vivien
Hi Vivien,
Thanks for your question.
The process and the documents needed for adding a partner’s name to your property title differs in each state and territory. You can find the relevant government websites and forms from our guide.
You should also consider speaking to a conveyancer who will give expert and practical advice on what to do at every step of the process.
Cheers,
Elizabeth