Buying Investment Property in Australia | 2023 Guide

Property investment in Australia is a popular choice for many people. Investing in property can be a great way to earn money, but it also comes with its own set of risks. Before you decide to invest in property, there are a few things you need to know.

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Discovering Your First Home Buyer Loan

This is a loan that is given to a borrower who has never purchased a property before. This loan is universal as we have all experienced this stage of the finance highway of life.

What is typical when you’re at this stage and looking to get a home loan to buy your first home? As the statistics bear out, only 5% of us in this first home-buyer stage actually have all of the capital required to purchase the property outright. This page is not for you as this applies to the other 95% of us looking to get their first home.

Pros of Buying Investment Property in Australia

If you’re considering buying real estate for investment purposes in Australia, you’ve probably heard a lot about the benefits. Here are some concrete reasons why you might want to dive in:

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1. Low Barrier to Entry

First and foremost, one of the most significant benefits of investing in property in Australia is that it’s a low-barrier industry. Unlike other markets, there are no restrictions on who can invest or how much they can invest. This means that even if you’re just starting out as an investor, it’s easy to get started with one of our properties!

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2. Capital Growth on Property

Another benefit of investing in property in Australia is that it offers significant capital growth potential over time—even if your initial investment isn’t huge! This is because housing prices tend to increase over time as more people move into an area and need housing options. So if you don’t have thousands of dollars to spend on a down payment, don’t worry: even with just a few hundred dollars, you could be well on your way to owning your first home!

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3. Rental Yield

If you’re looking for an investment that will bring you a steady monthly income, then buying real estate might be a good option. The rental yield on properties in Australia is quite high compared to other countries worldwide, such as the U.S., Canada, and New Zealand. Properties have always been popular with tenants because they provide them with shelter while also offering some security over their finances. This means there is always demand for rental properties, and they are likely to command higher prices than other investments like stocks or bonds.

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4. Investment in a Physical Asset

Buying a house or apartment is an excellent way to invest because it’s an investment in something tangible. You can see your investment grow over time, especially if you take good care of it.

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5. Tax Deductions

When you own rental properties, you can deduct expenses related to owning that rental property from your taxable income. The IRS allows you to deduct depreciation expenses as well as interest payments on mortgages and other loans used for the purchase or improvement of real estate properties (up to certain limits). This means that if you own multiple rental properties, you could get quite a significant tax benefit!

Cons of Buying Investment Property in Australia

Despite the benefits, there are also costs involved in buying property and potential downsides to consider before you decide to purchase an investment property:

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1. High Risks & Entry Cost

Unlike stocks, the property market is both expensive to enter and costly to exit. There are many fees associated with real estate, such as stamp duty, legal fees, and real estate agent fees.

You also cannot quickly sell your property if you require cash, as you can with shares.

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2. The Property Market Fluctuates

While the property market is not as volatile as the stock market, its value does fluctuate over time. And, because real estate is a long-term investment, investors can expect to see their property’s value fluctuate.

According to CoreLogic, the average property value in July 2022 was -2.0% lower than the peak in only a few months from April 2022.

In other words, while buying a dip may seem appealing to potential investors, it also carries significant risks, such as higher mortgage rates, higher interest rates, and a lack of competition in the market, which encourages vendors not to sell.

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3. Problems with Tenants & Property Managers

For potential investors, rental yield is a compelling prospect. Still, it comes with its own challenges: finding tenants who will consistently pay. There are also management costs and requirements associated with renting a property. There will be times when the property is vacant, and you will need to find new tenants, which could mean covering the mortgage on your investment entirely on your own.

Some people prefer to manage the rental aspect of their investment property themselves, but it is more common to outsource to a property management company. In doing so, the investor incurs yet another ongoing cost.

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4. Ongoing & Additional Costs

Investment property has ongoing costs such as insurance, council rates, mortgage repayments, maintenance, renovations, and so on. These expenses may be regular or may occur unexpectedly. And if you own a high-growth property, the rental income will likely cover only some of your costs in the early years. While many investors supplement their negative cash flow with savings, astute investors set up cash flow buffers in a line of credit or offset account to cover their negative gearing. This can help with repair and maintenance costs, as well as advertising for new tenants.

Investment Strategy

What Type of Property is a Good Investment?

As an investor, you can choose from various real estate investment types on the market.

One of the most common is the freestanding house, ideal for tenants looking to raise a family.

However, because our changing demographics mean that more families are trading their backyard for a balcony, you could invest in a unit or apartment that best suits their busy lifestyles if you want to target singles, couples, students, young professionals, and retirees.

Which is the Right Property to Buy?

There are several things you should consider when deciding on an investment property:

Both houses and apartments have advantages and disadvantages. Houses also provide more privacy and are closer to schools, whereas apartments are typically built near transportation and shopping. However, being within walking distance of shops and amenities and the lower maintenance required with an apartment will appeal to some.

If the apartments in a block have similar or identical floorplans, it may be difficult for the other owners to receive significantly more if another apartment owner needed to sell their apartment quickly and accepted a low price. Each house will be evaluated on its own merits.

See if the property you plan to invest in is located near schools, shops, and transportation hubs, making it appealing to tenants. The well-established area will also increase the value of your property and potential interest.

It is better to rent out simple properties that don’t require much upkeep. For example, it is better to avoid houses with pools due to high maintenance costs.

Buying a property that doesn’t need much maintenance initially allows the investor to start making money immediately. If it is structurally sound and low maintenance, it becomes more of a “set and forget property,” allowing the owner to raise the rent as and when they can afford to spend money on simple things like replacing carpet or paint or updating a kitchen or bathroom.

There are some additional factors to consider when purchasing an apartment:

Look at the Size

Smaller apartments are usually easier to rent because they are generally located in quieter buildings.

Avoid Off-the-Plan Units in Large Complexes

Off-the-plan units are more difficult to sell. They may also have structural flaws, and costs may escalate over time. Off the plan is not without risk; ensure the developer is well-known and has a long track record.

Think Twice about High-Rise Buildings

A high-rise building has more owners, which increases the risk of people not paying their levies and having problematic people in the building. It is also better to look for a building with mostly owner occupants because they are emotionally invested in the building’s upkeep.

How Much Can I Borrow?

You should speak with your bank to find out how much you can borrow. The bank will determine your borrowing power based on how many people will be on the loan, how many dependents you have, whether you intend to live in the property first or solely as an investment, whether the property is already built, the state you are purchasing in, and your current salary.

It is critical to understand that borrowing money from a bank for investment is “risky business,” according to the Australian government-backed Moneysmart website. Investment loans are also more expensive than owner-occupied home loans.

Property Investment is super simple; if you know what to look for. So why is it that so many people get it so wrong? Because they didn’t have the guidance they needed. To get it right, you need a property coach like Zanda Wealth Mortgage Brokers to make sure you don’t make the same mistakes that many others have made before in property investment. We help you invest in the right property so you can watch the wealth roll in.

Using an Investment Loan Calculator

An investment loan calculator is a vital asset for property investors, offering deep insights into the financial dynamics of a potential investment in the property market. It calculates monthly repayments, total interest, and the overall cost of the loan based on elements such as the loan amount, interest rate, and term duration.

The output from this tool not only aids in shaping your investment strategy but also helps in comparing various home loans available, thus revealing potential risks or lucrative opportunities. This can play a crucial role when you’re considering buying a specific property and need to calculate how much you can comfortably afford.

However, while the calculator is a beneficial tool, it should not replace professional investment advice. Therefore, when making significant decisions related to buying property, be it for a residential investment or as an investment home, consulting with a mortgage broker is a smart move.

The Costs of Investing in Property

Investing in real estate involves many more costs than just the purchase price or mortgage payments. The following sections explain expected investment costs.

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Stamp Duties

Stamp duty, also known as land transfer duty, is the cost of transferring property ownership from one person to another. It is a mandatory, state-imposed tax, so the cost varies from state to state. The time it takes to pay stamp duty also varies depending on the state where you purchased the property.

Stamp duty is calculated based on the dutiable value of a property (generally the purchase price or market value of the property); the date of purchase; whether you are an Australian or international investor; whether the property is a new home, an established home, or vacant land; whether it will be your primary residence; and whether it is your first property purchase.

Each state government provides an online stamp duty calculator to help you figure out how much stamp duty you’ll need to pay.

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Fees for Conveyancing & Searches

Conveyancing is the legal work involved in purchasing a property and transferring ownership from the vendor (or seller) to the buyer. However, conveyancing is not free, and the fees are divided into two categories:

The solicitor charges legal fees. Conveyancing fees typically range from $700 to $2500, according to the Australian Institute of Conveyancers (AIC). However, they can be higher for more complex transactions such as leasehold properties. Even if your purchase fails, you must usually pay conveyancing fees.

Third-party fees are charged for various searches and legal documentation. Certificate of title search, mortgage registration, and inspection fees are a few examples.

It is important to note that each Australian state and territory is governed by its divisions of the Australian Institute of Conveyancers, so pricing costs and agreements may differ.

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Property Inspections

A qualified building inspector must inspect whatever type of property you are purchasing. This will look for minor and significant flaws, as well as construction quality, structural integrity, moisture issues, and the possibility of termites. Investors should expect to pay between $500 and $800, depending on the size of the property and the inspector’s call-out fees.

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Additional Ongoing Expenses

There are also numerous ongoing costs that individuals should be aware of before investing in real estate. Council and water rates; building insurance; landlord insurance; body corporate fees if purchasing an apartment or villa; land tax; property management fees; and maintenance costs.

Is it a Good Time to Buy an Investment Property?

The answer is yes, but only if you know what you’re doing. Property investment has been a great way to grow wealth for hundreds of years. It’s also a prevalent investment option for Australians, who are known as some of the most ambitious property investors in the world.

Whether you’re looking to start with your first home or you want to buy an investment property, there are some things you need to know about how this type of investment works before throwing your money into it.

Is Property a Good Investment in Australia?

The Australian property market is traditionally considered one of the safest investments. It’s also long been seen as a “safe” option for retirees and those looking to increase their wealth. However, recent years have seen property prices fall, so you must be aware of the risks before jumping in.

Common Expenses for Real Estate Investors

Loan repayments are at the top of the list of the most common property expenses for investors, with the amount varying depending on the borrowed amount, loan type, loan term, and loan service fees.

You may be required to pay land tax and council rates as you continue to hold and maintain your investment property, which varies by government area.

Body corporate fees are also paid quarterly for apartments and townhouses to help with maintenance.

Building and landlord insurance are essential for mitigating the financial impact of unforeseen events, such as unexpected damage costs and tenant-related liabilities.

Property management fees, advertising for new tenants, and repair and maintenance costs are also factors to consider.

Looking to Buy Your First Home?

Start Property Investment with Zanda Wealth Mortgage Brokers

Are you considering buying real estate as part of your long-term investment strategy? Remember, over 80% of Australian millionaires have amassed their fortune through savvy property investments. Many individuals often overlook the potential rental income and the value increase of a property over time. Don’t let the process of buying, the costs involved in buying, or the fear of potential property expenses deter you from making a good investment.

With our guide to buying an investment property in Australia, Zanda Wealth Mortgage Brokers can help illuminate the path to successful property investing. We ensure you’re aware of all aspects, from the market value of the property you want to buy to the tax implications of owning an investment property. Don’t simply work for your money, let your money work for you.

Contact Zanda Wealth Mortgage Brokers today and get started on maximising your return on investment.