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Property investment

Buying and managing an investment property

Page reading time: 5 minutes

Houses and units seem easier to understand than many other types of investments.

However, it's important to understand how investing in property works, to decide if it's right for you.

Pros and cons of investing in property

Property investment is often seen as being less risky than other forms of investment. However, while it may seem more straightforward, there are pitfalls to be aware of. Here's what you need to consider about investing in property.

Pros

Cons

There are restrictions on buying property through a self-managed super fund (SMSF). See SMSFs and property for more information.

Diversify your investments

Invest in more than just property so your money isn't all in one market. If you invest in one market, it'll increase your risk and means your portfolio isn't diversified. See choose your investments for how to find other investments to help you reach your goals.

Costs of investing in property

Buying, managing and selling an investment property can be costly and will affect your overall return.

Cost to buy and sell

Some of the costs involved to buy and sell a property include:

If you sell your property, you will have to pay agent's fees, advertising costs and legal fees. You may also have to pay capital gains tax if the property has increased in value.

Borrowing money to buy

If you borrow to invest, you will have to pay the property mortgage. Don't rely on rental income to cover the mortgage – there may be times when your property is empty.

Many people buy investment property with interest-only loans, but remember the interest-only period will end after a certain time. This means your repayments will increase to pay the amount borrowed, plus the interest. See interest-only home loans to find out how they work.

Costs to own an investment property

Ongoing costs of investment properties include:

Tax on your investment property

Although you may be able to claim tax deductions on expenses, you'll still have to pay them up front. For positively geared investments, you may pay tax on your rental income.

Visit the Australian Taxation Office (ATO) for how tax works for investment properties.

What to consider when buying an investment property

Once you have a property in mind, compare the income you expect to your outgoing expenses. If there is a shortfall, consider whether you can cover it long-term. Also, work out whether you could cover all expenses short-term if you had no tenants for a while.

Research the property market to decide how to get an investment property. Where and what you buy will affect your return on investment.

Where to buy

What to buy

How to buy

You may have heard of property investment seminars promising to make you a fortune. These events often use high-pressure sales tactics to rush you into making big property investment decisions. Find out how to spot the warning signs of a dodgy investment seminar.

Overseas property investment

Investing in overseas property is more risky than investing in property in Australia. It's harder to manage a property from afar and there may be costs that you haven't thought of.

Here are some things to consider before you invest:

Couple sitting in front of a laptop, drinking coffee.

Simon and Tiana consider an investment property

Simon and Tiana are considering buying an investment property. They spot a unit that ticks all of their boxes: it's close to a train station and is a 10 minute walk to restaurants and shops.

The property price is $550,000 with buying costs of $23,000. They have a deposit of $150,000 so they will need to borrow $423,000 to complete the purchase. Their monthly income and expenses are expected to be:

Income and expenses

$

Rental income

$2,250

Less loan repayment

-$2,725

Less allowance for expenses

-$225

Less strata fees

-$216

Less allowance for repairs and maintenance

-$500

Monthly shortfall

-$1,416

Simon and Tiana can cover the monthly shortfall with Tiana's salary, which they currently save. They also have an emergency fund they can draw on if they were suddenly without tenants for a while.