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Should I invest in property or start a business?

It’s a choice many Australians face: should you invest in business or property? We look at the potential returns and risks of each.

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Should you buy an investment property or start a business? It's a tough question. Property investment is relatively low-risk and stable, but requires a significant amount of capital upfront. Investing in business is riskier and requires a lot more work. But it could lead to significant reward for the right investor.

Let's look at the risks and benefits of both options to help you make a better decision.

Pros and cons of investing in a business

Pros

  • Potential for higher returns. Businesses generally offer a greater potential for return on investment than residential property.
  • Serious effort. Starting a business is a serious undertaking. There are no get rich quick approaches.
  • Personal fulfilment. Starting a business may allow you to pursue your goals and creative interests, leading to fulfilment and satisfaction on a personal level.
  • Options. With a business you can start small, with an online business or service in your neighbourhood. This kind of flexibility is harder with property.

Cons

  • More expertise required. Running a business will most likely require more knowledge, expertise and training.
  • Disruption factor. You may have to leave your current job in order to give your business the attention it deserves.
  • Risk of failure. Many new businesses fail, so make sure you're aware of all the risks before investing in business.

Pros and cons of investing in property

Pros

  • Higher LVRs. Lenders offer higher LVRs on residential loans than commercial loans.
  • Simpler. Investing in property requires less time, effort and stress than investing in business. Being a landlord is still a role that requires you to do some work, but it isn't as demanding as running your own business.
  • No specialist expertise required. You don't need specialist knowledge or training to invest in property (although doing plenty of research does help).
  • Easier to obtain finance. An investment mortgage is secured by the value of the property. If you can't repay the loan then your lender can sell the property and recover their costs. This makes getting a loan a bit easier than if you were applying for a business loan.

Cons

  • Upfront costs. The deposit required to purchase an investment property can be 10% or 20% of the property's value. This is quite a lot of money.
  • Passive. The passive nature of investing in property can be a drawback for those who prefer hands-on investments.
  • Keep your job. Most property investors work full-time and treat their investment as a secondary income source.
  • Lower returns. Businesses generally offer the chance for higher returns than residential property. However, if you buy the right property in a booming market your capital growth could be significant.

Property investor? Protect against the worst with landlord insurance

Investing in property vs investing in business

Investing in property can offer a more passive approach than investing in a business. Property can help you build a passive income, which supplements (or even replaces) your job income via a property portfolio. The property portfolio would run as a business with the intent to grow asset value and give you returns.

Buying a property is something available to anyone showing the capacity to repay a home loan.

On the flipside, a well-run business has the potential to deliver greater dividends than a property investment. Businesses also offer a chance to explore a creative outlet and achieve fulfilment on a personal level. If you have a true passion or a great idea you want to share with the world, a business can let you do just that.

The decision ultimately depends on your own goals, ability and financial situation.

Questions to ask yourself

Still having trouble deciding which investment route to take? Ask yourself some of these questions:

  • Do I have a set of skills or knowledge I can turn into a business?
  • Do I have the cash available to fund an investment property purchase?
  • Can I put in the hours and time to run my own business?
  • What level of risk am I comfortable with? Can I handle the risk if my investment doesn't work out?

More helpful resources

Compare your options for investment property loans

Data indicated here is updated regularly
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Loan purpose
Offset account
Loan type
Repayment type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
UBank UHomeLoan Variable Rate - Discount Offer for Investor Variable P&I Rate
2.89%
2.89%
$0
$0 p.a.
80%
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
Athena Liberate Home Loan - 70% to 80% LVR Investor, P&I
2.79%
2.74%
$0
$0 p.a.
80%
A competitive investor variable rate that falls as you build equity.
homeloans.com.au Low Rate Home Loan with Offset - LVR 60% to 80% (Investment, P&I)
2.69%
2.71%
$0
$0 p.a.
80%
This investment loan keeps fees low, has a sharp interest rate and comes with a 100% offset account. This loan is not available for construction.
Newcastle Permanent Building Society Fixed Rate Home Loan - 1 Year Fixed (Owner Occupier, P&I)
2.49%
4.12%
$595
$0 p.a.
90%
$2,000 refinance cashback
Investors can take advantage of a short term fixed rate with no ongoing fees. $2,000 cashback for eligible refinancers borrowing $250,000 or more.
CUA Fixed Rate Home Loan - 3 Year Fixed (Investor, P&I)
2.69%
4.44%
$600
$0 p.a.
90%
Available with a 10% deposit
Competitive rates for fixed for 3 years with redraw facility. Available with a 10% deposit.
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Credit services for Aussie Select, Aussie Activate and Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 (“Aussie”) and its appointed credit representatives, Australian Credit Licence 246786. Credit for Aussie Select products is provided by Residential Mortgage Group Pty Ltd ACN 152 378 133, Australian Credit Licence 414133 (“RMG”). RMG is a wholly-owned subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian Credit Licence 234945. Credit for Aussie Activate products is provided by Pepper Finance Corporation Limited ACN 094 317 647 (“Pepper”). Pepper Group Limited ACN 094 317 665, Australian Credit Licence 286655 acts on behalf of Pepper. Credit services for Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 Australian Credit Licence 246786 (“Aussie”) and its appointed credit representatives. Aussie is a trade mark of AHL Investments Pty Ltd ABN 27 105 265 861. Credit and any applicable offset accounts for Aussie Elevate are issued by Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFSL / Australian Credit Licence 237879.

Aussie is a trade mark of AHL Investments Pty Ltd. Aussie is a subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124. ©2020 AHL Investments Pty Ltd ABN 27 105 265 861 Australian Credit Licence 246786.

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