"An investment property can offer a great R.O.I. if you understand what you're doing." - Matt Lapish, Property Analyst.
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.
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.
There are restrictions on buying property through a self-managed super fund (SMSF). See SMSFs and property for more information.
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.
Buying, managing and selling an investment property can be costly and will affect your overall return.
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 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.
Interest-only mortgage calculator
See what an interest-only loan will cost you.
Ongoing costs of investment properties include:
Although you may be able to claim tax deductions on expenses, you'll still have to pay them upfront. 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.
The decision to buy an investment property should be part of your investment plan and take into consideration your goals and risk tolerance.
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 the expenses 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.
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.
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:
Anonymous. (2022). Property investment. Moneysmart.gov.au. https://moneysmart.gov.au/property-investment