A Complete Guide to Property Investment in Australia

A complete guide to property investment in Australia

If you’re considering becoming a first-time investor in the Australian property market, starting with all the right information and guidance can go a long way. Whether you’re dipping your toe in the waters with one property or looking to work towards an expansive property portfolio, our complete guide to property investment in Australia takes a closer look at your options, as well as some of the pros and cons to getting in on property.

Investing in property is providing more popular than ever, and with Australia continually growing, now is a great time to consider trying it out for yourself. You can ensure you start your investment journey prepared and ready for what lies ahead by doing your research. Read on for our full guide to Australian property investment below:

How is property investment different from buying a house for yourself?

When you buy a house or apartment to live in, your goal with that property is to enjoy the time you spend there. We often purchase personal property based on our heart or gut feeling. But when it comes to investing in property you aren’t going to live in, it’s a case of head over heart. Want to make money in the long-term and achieve all you want with your property portfolio? Then you should look at property investment as a business decision to maximise profit and increase the chances of long-term success.

What are the benefits of property investment in Australia?

If you’re looking at investments in Australia, you may be wondering exactly what the benefit is of opting for property over stocks, shares, or any other type of investment. Here are just some of the reasons many people choose property investment over other methods:

You’re in control

One of the reasons investors love property is that you’re 100% in control. Unlike shares, you can manage every aspect of your rental properties or property flips in minute detail if you want to. From the money you put in to the length of the loan you choose to go for, property investment provides freedom in a way that other investment options can’t meet. If you’re looking for a way to make money while retaining control, property investment is a good bet.

Tangible ownership

Unlike the digital or non-existent nature of other investments, property is something real. You can touch and see it, and you have a real-world, stable asset that can’t just disappear from under you. If you prefer to stay in the ‘real world’ for investments, property is about as real as it gets. That not only works better for you but for the banks too. They have a good understanding of property, and that makes the application process for loans far easier.

Long-term income

Rental income is one of the critical ways that property investors make a profit. While a small minority opt for house flipping, most property investors will make a mostly passive income by renting out their properties. The better the area and the more the community’s growth, the more likely you are to have a consistent rental income over the years to cover your initial investment.

Tax positives

Tax deductibles provide property investors with an effective way to save money on new properties. Anything from accounting to maintenance to property management services can be deductible, overall saving money on your tax bill. If your new property happens to earn less income than your investment in a year – known as negative gearing – you may get a reduction on your income tax too.

Accessible equity

If you’re planning on expanding your property portfolio over time, the equity in your existing properties can help that happen. The equity in a house or apartment can be used to secure a new loan to buy another property, renovate an older property or anything else in-between. If your property is worth $500k and you only owe $200k on your investment loan, that’s $300k of equity that can be put to good use.

Are there any downsides to building a property investment portfolio?

While there are plenty of positives to property investment, it’s also important to be realistic when it comes to anything you’re spending a lot of money on. Here are some of the downsides to property investment you should consider before you leap in:

Up-front costs

Property investment isn’t something you can do with no up-front cash availability. You’ll need to pay your deposit, legal fees, cover the cost of inspections and pay out for stamp duty too. It’s always a good idea to understand just how much you’ll need to pay up-front, so you don’t end up coming up short once you’ve found the perfect property.

No guarantees for income

Depending on the area, there may be a higher chance of your property becoming vacant. While some properties are occupied year-round with very few breaks, some investments may have times where they aren’t bringing in rental income. You can’t guarantee your property will grow and be worth more over time – and that’s a risk you’ll have to take if you want to continue to invest.

Additional costs

While there are plenty of tax positives to property investment, there are also a few costs involved. Capital gains tax is a specific tax you’ll owe on the sale of the property, for example. You’ll also need to factor in typical costs like hiring a property management service and meeting your legal obligations, all of which can eat into your overall profit. If you’re concerned about the costs, it’s never a bad idea to seek additional financial advice.

Long-term property care and renovations

Keeping your properties in good condition may sound like an affordable price when you purchase. But if you’re planning to keep your property for ten years or longer, you’ll need to factor in more costly renovations works. You’ll also need to consider what adds to the value of your property. Investing $10k in extensive landscaping that barely increases the property’s value may not be worth it, for example.

What should you consider when investing in property?

So, what should you be thinking about when you step into the world of property investment for the first time? Here are just a couple of the things you should consider:

The state of your finances

Understanding your budget, your financial limits and where your money is available to spend can help set you up for property investment success. From your credit history to your deposit, knowing what you have and what you need can help you achieve your goal.

The area around your potential property

Is the area one that’s growing, or does it not have great potential? As well as looking at the property itself, it’s always worth researching growth around that house or apartment. A new shopping district, educational facility or town development are all good signs.

Property management requirements

If you don’t want to manage the day-to-day things surrounding property ownership, you’ll want to hire an expert service to do the work for you. Typically, this will cost you between 7-10% of your rental income weekly, so it’s something you need to factor into your budget.

Budgeting for all required expenses

Unexpected fees and costly problems shouldn’t sneak up on you. By budgeting for both the expected (like council rates, strata fees and insurance) as well as the less-regular (maintenance, repairs, and vacancies), you’ll never be left out of pocket with a sudden, expensive bill to pay.

For a more in-depth look at our top tips for property investment, check out our full article here. [LINK TO TOP TIPS]

What are your other options for property purchase?

If you’re looking to get into property investment, but you don’t like the idea of pouring all your money into one property solo, there are plenty of other options to consider. Using the Australian Stock Exchange, or ASX, you can opt to invest in part of a property alongside other investors. You get a slice of the pie without the responsibility of the whole thing. While this is a more volatile option as you don’t own the property itself, it’s a practical alternative for those finding their footing or deciding what works best for them.

Examples of these types of investments include:

  • REITs: Real Estate Investment Trusts are trusts that combine investments to purchase property on behalf of the investors.
  • Home construction: Investing directly into property developers via shares for new complexes or developments.

If your preference is outright ownership, but you don’t have a deposit up-front, using an SMSF, or Self-Managed Superannuation Fund, may be able to give you access to the equity needed. Speaking to a financial adviser before going down this route is the best choice in most cases.

When should I start investing in property?

If you’re fully informed about all the costs, you have a deposit ready, and you’re raring to get started, you can begin research into properties to invest in today. While it’s better not to rush into things, looking around at what’s on offer and what areas are like can help to inform you of the best long-term investments for you.

Whether you’re only looking to invest in one property or you want to continue building your portfolio, starting from a knowledgeable, business-focused standpoint is the best path to long-term investment success.