Should I buy a property or start a business? | Finder

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 updated regularly
$
years
Name Product Interest Rate (p.a.) Comp. Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
Athena Variable Home  Loan
2.54%
2.54%
$0
$0 p.a.
60%
$596.91
Investors with large 40% deposits or equity can get this low variable rate. A competitive option for investors looking to refinance.
UBank UHomeLoan Variable Rate
2.74%
2.74%
$0
$0 p.a.
80%
$612.67
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
Suncorp Home Package Plus Fixed
2.28%
3.15%
$0
$375 p.a.
80%
$576.78
Lock in a low fixed rate loan for three years and get the annual package fee waived in the first year. Available for borrowers with 10% deposits.
homeloans.com.au Low Rate Home Loan with Offset
2.39%
2.41%
$0
$0 p.a.
80%
$585.25
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
2.38%
4.11%
$595
$0 p.a.
90%
$584.48
$2,000 refinance cashback
Competitive fixed rate for home buyers.Available with a 10% deposit.$2,000 cashback for eligible refinancers borrowing $250,000 or more.
loans.com.au Smart Booster Discount Variable Home Loan
1.99%
2.71%
$0
$0 p.a.
80%
$554.81
If you have an owner occupier loan with loans.com.au you can also get this very low rate variable mortgage for your investment property. Principal and interest repayments. Add an offset account for an additional 0.10% on your interest rate.
Athena Variable Home  Loan
2.64%
2.59%
$0
$0 p.a.
80%
$604.76
A competitive investor variable rate that falls as you build equity.
Well Home Loans Balanced Fixed Home Loan
2.29%
2.29%
$250
$0 p.a.
90%
$577.55
A competitive 3 year investor rate with principal and interest repayments. Optional offset account with a $10 monthly fee. Not available for construction purposes.
UBank UHomeLoan Fixed
2.14%
2.71%
$0
$0 p.a.
80%
$566.11
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
ME Flexible Home Loan With Member Package
2.98%
3.43%
$0
$395 p.a.
80%
$631.88
Package loan for investors making principal-and-interest repayments. Low fees and 20% deposit required.
Well Home Loans Balanced Variable
2.24%
2.27%
$250
$0 p.a.
80%
$573.72
If you're an investor with a 20% deposit saved you can get this low rate mortgage. Not available for construction.
Athena Variable Home  Loan
2.59%
2.56%
$0
$0 p.a.
70%
$600.83
Athena's refinance offer for investors and owner occupiers.
IMB Fixed Rate Home Loan
2.49%
3.36%
$449
$6 monthly ($72 p.a.)
90%
$593.01
NSW and ACT customers only. A 3 years fixed rate investor which allows extra repayments to be made.
UBank UHomeLoan Variable Rate
3.14%
3.01%
$0
$0 p.a.
80%
$644.87
Pay interest only repayments with this special offer for investors.
Well Home Loans Balanced Variable
2.87%
2.9%
$250
$0 p.a.
90%
$623.03
Competitive variable investor mortgage to fund your property portfolio. You can add a 100% offset account for just $10 a month.Not available for construction purposes.
ME Basic Home Loan
3.28%
3.3%
$0
$0 p.a.
80%
$656.36
A no frills home loan for investors.
UBank UHomeLoan Fixed
2.29%
2.72%
$0
$0 p.a.
80%
$577.55
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
ME Flexible Home Loan Fixed
2.64%
4.86%
$0
$0 p.a.
80%
$604.76
Lock in the rate on your investment loan with one year. Requires a 20% deposit.
UBank UHomeLoan Fixed
2.49%
2.67%
$0
$0 p.a.
80%
$593.01
Lock in a 5 year fixed rate on your investment loan and pay no ongoing fees.
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