Are you a landlord or investor looking to build wealth through property in Australia? The constantly changing landscape of the Australian property market presents potential opportunities for strategic investors.
Best of all, with the right strategies and knowledge, property investment can be a great way to secure your financial future. In this ultimate guide, we will discuss the key principles of smart property investment and provide you with practical advice on growing your portfolio.
Why Enter the Property Investment Space?
Home buyers and property investors have long found property to be a popular investment choice in Australia, and for good reason. Historically, property has delivered strong long-term capital growth, with houses doubling in value every 10 years.
Besides capital growth:
- Rental income is a steady cash flow
- You can gear your investment with a mortgage to increase returns
- There are tax benefits like negative gearing and depreciation deductions
An Easy Smart Property Investment Strategy
Before entering the property market, create an investment strategy that matches your financial objectives and risk tolerance as a potential landlord.
Consider:
- Property type: are you thinking of investing in residential, commercial or other types of properties?
- Capital growth vs. cash flow: Do you want properties with high growth potential or those that have cash flow from day one?
- Target tenant demographic: Who is your ideal tenant, and what property type will they have high on their wishlist?
- Management approach: Will you self-manage or use a professional property manager?
- Insurance needs: What kind of landlord insurance will you need to protect your asset?
Finding the Right Property
Now you have your investment strategy in place, it’s time to start looking for the right property for your portfolio. Here are some things to consider:
- Location: Research areas with growth, good infrastructure, and high rental demand. Look for suburbs with a mix of owner-occupiers and renters to ensure a stable market. Places like Sydney or Melbourne’s blue-chip suburbs can be good high-end investment opportunities, where buyers are willing to pay premium prices.
- Value add: Properties with scope for renovation or development can offer higher growth. Investing in semi-vacant land in prestigious areas can also provide significant potential for value addition.
- Budget and yield: Stick to your budget and aim for properties with a yield that matches your financial goals. Also weigh up whether lots of maintenance will be needed to keep the property up to scratch.
- Due diligence: Before you make an offer, always do your due diligence and get a professional building and pest inspection. You might also want to get a property valuation done to assess your potential asset.
Financing Your Investment Property
Getting the right finance is one of the biggest hurdles you’ll face when it comes to kicking off your smart property investment journey.
Here are some things to consider:
- Work out your borrowing power based on your income, expenses and existing debts. Most lenders require a 20% deposit to avoid Lenders Mortgage Insurance (LMI).
- Compare interest rates and loan features across multiple lenders to get the best deal. Consider using a mortgage broker to help you through the lending process.
- If you have equity in existing properties you may be able to use that as a deposit for your next investment and grow your portfolio faster.
- Always have a buffer for unexpected costs like damage, repairs or vacancy periods.
| Metric | Houses | Units |
| Gross rental yield | 3.5% | 4.1% |
| Median price | $998,000 | $786,000 |
| Annual growth | 23.8% | 14.6% |
Note that these figures are subject to change according to the latest trends and data. The data in this table is accurate as of the time of publication. More information can also be found on Canstar’s yields guide.
Managing Your Smart Investment Property
Good property management is key to attracting and retaining good tenants and getting the best rental returns. Here are some tips:
- Screen tenants with reference checks, employment verification and rental history
- Have a detailed lease agreement that outlines tenant responsibilities and expectations
- Inspect the property regularly (at least twice a year) to pick up on maintenance issues and ensure the property is being looked after
- Respond to tenant requests and maintenance needs to keep your tenants happy and minimise vacancy periods
- Consider getting landlord insurance to cover risks like tenant damage, rent default or legal liability
Tax for Property Investors
As a property investor you need to understand your tax obligations and utilise the deductions available to you to get the best returns. Here are some tax things to consider:
- Keep records of all income and expenses related to your investment property, including interest payments, management fees, repairs and maintenance and depreciation
- Claim depreciation on the wear and tear of the property and its fixtures and fittings. A quantity surveyor can prepare a depreciation schedule to get you the most deductions
- Understand negative gearing: if your property expenses are more than your rental income you may be able to offset the loss against your other taxable income and reduce your tax liability
- When you sell your investment property, be aware of Capital Gains Tax (CGT) obligations. CGT is payable on the profit you make from the sale, but there are strategies like the six-year rule and the 50% CGT discount that can help reduce your tax bill
- Use a property specialist accountant to make sure you’re claiming all the deductions you’re entitled to and structuring your investments tax effectively
Key Takeaways
- Have a clear investment strategy that aligns with your financial goals and risk profile
- Research areas with growth, good infrastructure and high rental demand
- Get financed with a deposit and buffer for unexpected costs
- Manage the property professionally to attract and retain good tenants
- Claim all your tax deductions and understand your CGT
- Continuously educate yourself and adjust your strategy as the market changes
- Assess your property portfolio and ensure it is optimised for financial year-end activities
With the right mindset, strategy and support, property investing can be a powerful way to build long-term wealth and achieve your financial goals. So get started in property investing today and take control of your financial future!
Disclaimer: This article is for general information only and does not constitute professional advice. Always seek independent financial and legal advice before making any investment decisions.