GUIDES & RESOURCES

Property Investment

The Australian property market has historically been a strong investment, with healthy occupancy rates*, particularly in metropolitan areas. Here are four things to consider when building your property investment portfolio.
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Four things you need to know about property investment

1. How to make money from an investment property

There are three ways to make money from property investment:

  • Rental income. You lease the property and the rent paid by tenants forms part of your taxable income. This is known as positive gearing.
  • Capital growth. You sell the property for more than you paid for it and make a capital gain. Just remember to factor in capital gains tax when working out your potential return.
  • Negative gearing. The cost of the mortgage on the property is higher than the income you earn on it, so while you’ll assume a loss while renting the property out, the profit comes from the increase in the property value over time.

2. Home loans for property investors

Some lenders offer home loans specifically for property investors, so it's worth researching your options or approaching a qualified mortgage broker to help you tailor your mortgage to suit your specific circumstances.

For example, you may want to consider using the equity you have built up in an existing property you own to buy an investment property, or taking on an interest only loan.

3. Special tax deductions for property investment

An interest only loan may be an attractive option for property investors because, unlike the principal, the interest portion of a loan is tax deductible.

If you rent out the property, expenses related to finding tenants and maintaining the property may also be tax deductible. This can include everything from advertising for tenants and real estate agent fees to strata fees, council rates and repairs. You may even be able to claim the depreciation of certain assets, such as the fittings, stove, carpet and water heater.

Speak to a tax expert for specific information about what you can and can’t claim.

4. Buying an investment property

When purchasing a property for investment you’ll need to do your research.

If you're looking to earn an income from rent, consider which features are likely to appeal to potential tenants in the area. For example, does it have a backyard or balcony? Is it close to schools, universities, parks or public transport?

Property investors whose main game is capital growth may want to look for properties where there is a clear path to increased value, either through savvy renovation or by investing in an up-and-coming neighbourhood.

In both cases, consider any potential future costs – for instance, a rundown property may need updating soon. Would you be able to afford a series of minor repairs to make the place habitable? Factor this against the expected rental income or capital gain to attain a true picture of the return on your investment.

As with any investment, it’s important to consult with your financial adviser to set out clear goals and a financial plan for achieving them. Remember to take into account your personal situation and any tax implications before buying an investment property.

*A healthy occupancy rate defined as a vacancy rate between 2-3%. Data can be found using research conducted by organisations such as the Real Estate Institute of Australia and its state equivalents.

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