Beautiful modern home at dusk.

Property Investment Guide to Building Wealth

[Updated June 21, 2023]

Investing in real estate presents an opportunity to reap real benefits. It’s an excellent addition to your portfolio and your wealth.

However, like any other type of investment, property investment requires knowledge, patience, and an intelligent strategy to reach your goals.


How Hot is the Australian Property Market?

A quick Google search will show you that property investments can be lucrative in Australia. If you’re looking to grow your capital long term; property can be a great place to put your money. It may not deliver speedy returns like stocks or even crypto, but it’s historically known as more consistent and safer.

Australia is known as the country of homeowners. The estate market is undoubtedly sizzling. However, we’re only talking about homes for sale. What about investors looking to buy a property and earn from it? If you are looking to invest in real estate in Australia, this guide is for you.


Should You Invest?

If there is one thing that’s consistent in our world today, it’s the fact that property values are on the rise. This has been the case for more than a decade now, particularly in Australia. And if you plan to dabble into property investing, you will be glad to know that experts agree the prices do not incline to go down. If earning in the long-term is one of your goals, this is where you may want to be.

Property investments are worth your time, money, and effort.

Here are just some of the reasons why:

  • Steady Growth: Buying properties has always been a popular choice amongst Australian investors. This alone speaks volumes. The country’s market has unfailingly delivered excellent results, and investors have played a significant role just as traditional home buyers.
  • Easier Than You Think: Property investment is generally based on three factors. First is the ability to look for a tenant that can pay the rental income on time. Second is the capacity of the investor to develop property equity, which can then be leveraged over time. The third factor is the chance to utilise the property for managed funds, allowing assets to accumulate for years. When these three are met, the investment can thrive.
  • Less Volatile: The stock market is a popular investment option, but property investment is a surer bet. From an investment point of view, it requires less upfront work, particularly when looking for tenants who deliver yield. There is also less work involved, whether for maintenance or keeping things in order. Once everything is sorted, you have a more secure investment with gains for the long term.

Apart from the mentioned reasons above, most people have an innate understanding of the market. It’s easier for anyone to get involved in compared to crypto and other markets. The potential for capital growth, rental returns, and even tax benefits make the investment efforts well worth it.

Another reason why many people now dip their toes into property investment is that it does not take a long time to see ROI. The property rises in value. If you have an existing property with an increased value, you can use it to help in purchasing another. It also offers positive gearing. Property income can be higher than the expenses on a property, providing you with a good way to earn income.

Australian homes & town houses lined lined together in a new property development.


Earning Money from Property

Speaking of earning, an important question that people want to know about is how they can earn from investing in property.

There are two main ways here:

  1. Capital Growth: This pertains to the rate at which the property’s value is expected to increase. Also known as capital appreciation, we can simply define capital growth as the profit you earn from the asset or investment based on the market value increase over its cost price or your invested amount. The main strategy to take advantage of capital growth is to purchase a property and hold it for a few years before selling when the time (or price) is right. The best places to buy a property for the intention of waiting to earn through capital growth are those near the Central Business District. You may also want to look into properties near water and cities that have seen exponential growth in population.
  2. Rental Income: The amount you gain from the investment will depend on the current state of rental income in the area. It may be consistent for a while, but it can also increase or decrease. The beauty of rental returns is that you don’t have to wait too long compared to capital growth. Buy a property, rent it out to a tenant, and get monthly repayments. You may not see the earnings in total, but you can earn money consistently. Once again, the location of the property is crucial in determining how good your rental returns will be. Services such as Airbnb have also allowed homeowners in popular local vacation destinations to receive higher returns.

You should build your investment strategy on your goal, whether to enjoy capital growth or rental yield. For example, if you plan to focus on property capital growth, your strategy may include searching for properties in a nicer, more central location with good kerb appeal.

It’s best to purchase a home where you would be willing to live yourself. This is a type of investment that typically follows a long-term plan. The strategy involves research and the eagerness to buy in locations where regeneration or growth is expected. For example, a popular tourist spot or huge supermarket will be built in a particular area. You can expect that this particular location will increase employment and perhaps living opportunities. Therefore, capital values will surely surge in the next few years.


Tips for Buying Property

Location, location, location – a tired expression that you will often hear when buying an investment property. However, it is a tried and tested strategy that has worked since the beginning of time. The CBD or near it is an excellent place to start. However, it does not always guarantee good returns because some areas are quite volatile in value.

That’s why we think that you should pick a place that you know by heart when it comes to location. When you are familiar with the area, it’s much easier to understand what people or tenants are searching for. Of course, this does not mean that you do not need to research. No matter how well you know an area, there are still pieces of information you do not get from familiarity. Learn about the market, the projected real estate performance, and the nearby locations that may have similar opportunities.

Buying a property to invest in requires you to be smart. Though tempting, never use your heart. Think critically and leave your emotions behind. Some properties may look attractive for you, but they may not be apt to invest in. Perhaps a close friend is selling a dwelling or land. Don’t let your relationship cloud your judgement. Instead, pick a property to purchase based on relevant data, such as property values and prices, the performance of the real estate market in the area, and the estimated value in the next two years or so.

It also helps to set a budget within your means. You can borrow money but bear in mind that you have to provide a deposit where the minimum is generally around 10 to 20 per cent. You should also have the upfront cash to pay for stamp duty, conveyancing fees, and insurance, among others. Consider these costs, which could quickly impact your investment. If you borrow money, you need to look at your interest rate, loan options, and how the values will fluctuate. A fixed-rate loan will save you from dealing with changing, unpredictable amounts, however.

Aerial view of Australian suburb.


What About Your Mortgage?

We expand more on your loan options in this section. The right investment loan should not just reflect on the rates and fees that come with it. You should also take the time to learn about the type of loan to go for, which should show you the best choice for your needs.

Here are your top selections:

  • Variable Rate: As the name suggests, this loan type will change its rates, which can either be in your favour or not. It depends on the official cash rate in the country, the local and nationwide market conditions, and of course, the decision of the lender. When the rates are low, your repayments reduce, too. So, when they go up, your interest rate will follow suit.
  • Fixed-Rate: This is the exact opposite of the first loan type mentioned in this list. The interest will not change no matter the market conditions. One benefit here is that you know the amount you will need to pay for the whole duration of the loan.
  • Split Rate: This is a combination of variable and fixed types of loans. This gives you a chance to enjoy the benefits of both.
  • Interest-Only Loan: You will only be required to pay for the interest and not the principal amount, unlike other types of loans. At the beginning of the loan term, your repayments are lower, giving you time to save money for the bigger payments. Another benefit here is that it may be tax-deductible. Be aware, however, that you will still have to pay the principal amount. This loan type also costs more over time.
  • Line of Credit: Once you have unlocked equity in your residential home, you can use it to fund your investment property. However, it is not for everyone, particularly those without equity in their own home.

There are pros and cons to each loan type mentioned above. You need to consider them individually before you pick the right option for your needs. It also helps if you can ask for more information from the bank or lender to learn about the loan. Hiring a broker will give you a better view of your options since you can get guidance before you make the decision.


Tax Benefits

We have briefly talked about interest-only loans as being tax-deductible. And here is the good news. Property investing can give you a few tax benefits when done right. With lower taxes and certain exemptions, you get to maximise your returns.

So, let us take a look at how property investment can give you tax benefits:

  • Deductions: Buying and owning investment properties can be costly. You have a ton of expenditures that you need to work on regularly. However, many people do not know that investors can be granted tax deductions, such as when they borrow interest-only loans. But that’s not all. National and state legislation have faced numerous changes over the past several years. Be sure to contact a financial adviser or accountant to get help in determining the savings you are qualified for. These deductions can surely aid in lowering the cost of your investment.
  • Capital Gains Tax: Properties have been increasing in value in Australia. The amount you paid for a particular property may be lower than what you sell it for. This is the capital gain, which the costs of buying and selling are subtracted from. The difference will be added to your annual income, which is taxable. So, how did you gain from the subtracted and taxed amount? A profit is a profit. If you have had the property for more than 12 months, you could claim a 50% discount on the capital gains tax that you are legally required to pay.
  • Negative Gearing: Owning a property can mean that you pay more than what you earn from the rental price. This is negative gearing, which denotes that you are not earning from your investment. The loss is not all that bad because it can be used to offset a portion of your annual income. As a result, you get a reduction on your taxable income, which of course, gives you savings on tax payments.

The descriptions given above are simplified, to say the least. For you to learn more about the tax benefits of property investments, we recommend that you talk to one of the qualified accountants and tax experts at M2 Corporate.


The Role of a Mortgage Broker

If you are a property investor or planning to be one, you should work with a mortgage broker. This professional will be at your side during the home buying process, which is one of the most challenging stages of becoming an investor.

Whilst you may have plenty of real estate options near you, many of these choices may not be worth the investment. A broker will help you find a realtor with whom you can work so you get the listings that are within your budget.

The broker you hire will be in constant communication with a variety of lenders with different loans to offer. With the help of a broker, you do not waste valuable time as you search for the loan program that meets your specific needs. You will be surprised that many loans are not even offered through mainstream lenders and banks. This gives you the upper hand in the market as you are now in a better position in determining the suitable loan and lender for your investment. There are no strenuous payments, unfavourable terms, and unattainable financial criteria, all thanks to the right broker.

Are you still unconvinced?

Here are more reasons why you should have a broker by your side throughout the process:

  • You get the best deal from the loan products and lenders you may not even know of their existence.
  • You have the option to work with more than one lender, which ensures that you can find the most attractive deal.
  • The broker can negotiate with the lender, which means you do not have to do all the work.
  • Since the broker knows the ins and outs of the lending industry, you get a much better outcome than when you do the work on your own.
  • Brokers will only contact you when needed. Don’t worry about unwanted phone calls in the middle of the night or while you are in a meeting.

If it is your first time investing in property, you may not be aware of the fees and the transactions involved. A broker is someone who is well versed in the industry. Thus, you can trust that the professional you hired can guide you through the home purchase procedures. You can quickly plan for certain charges, such as origination fees, appraisal fees, legal fees, and application fees, among many others.


Client at Quantum Finance.


Brokers vs Banks

Shopping for a loan with a bank without the help of a broker means that you will do the legwork to find out if that bank and its products are right for you. Chances are, you will end up with a spreadsheet in front of you or a list of rates, fees, and maybe the pros and cons of borrowing from that bank. That is if you have already narrowed down your options. With so many types of lenders to consider, you might find yourself setting up tons and tons of spreadsheets just to keep up and assess your choices one by one. This is something you do not have to do when you work with a Broker.

A mortgage broker works as an intermediary between you and the bank or any lender. Brokers make it easier to work out what you need based on your budget, goals, and preferences. After discussing your requirements, the broker you have hired will take care of the rest. That includes reaching out to banks and other direct lenders. After that, you will get options of lenders and loan products that fit your criteria. 

** Please Note** The material presented here is for informational use only. It is not intended to be binding financial guidance and should not be used as a replacement for an individual consultation with an experienced professional.


Gavin Harrigan

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With over 18 years in the finance industry, Gavin's wealth of knowledge relating to home loans is matched by few in Australia. This knowledge is reflected in his dozens of awards, including being inducted into the Plan Australia Hall of Fame. His qualifications include a Bachelor of Commerce from Curtin University for Applied Finance and Commercial Law and a Diploma of Finance and Mortgage Broking Management from AAMC Training Group.

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