Buying an investment property is a big step – often one of the biggest investments anyone will ever make – so it’s important to do it carefully. A well-chosen asset can provide many benefits, but before making any commitments, it’s critical to understand exactly how property investment works and whether it’s the right option for you.

The advantages of property investment

Income – getting a tenant into your property means you can earn rental income

Tax – many property expenses can be offset against rental income

Growth – if your property increases in value after you purchase, you’ll receive a capital gain if you decide to sell it

Stability – unlike other investments, like shares, property can be less ‘up and down’.

Physical asset – the tangibility of property gives many people a sense of security

The disadvantages of property investment

Cost – rental income may not cover all mortgage repayments or other property management expenses

Vacancy – gaps between tenants can leave you paying more for the mortgage than you originally planned

Interest – Any rise in interest rates will mean higher mortgage repayments and budget constraints

Loss of value – If the property value goes down you could end up owing more than the property is worth

Inflexible – Once you have invested in the property, your money is not easily accessible in an emergency

What are the costs of investing in property?

The costs associated with buying, managing, maintaining and selling an investment property can add up quickly, impacting your overall return. Here are some of the costs you will need to consider on top of the property purchase price:

Costs during the property purchase process:

• Stamp duty

• Conveyancing fees

• Legal costs

• Pest and building reports

Maintaining your investment property:

• Council and water rates

• Strata fees

• Maintenance and repairs

• Property management fees

• Mortgage repayments between tenants

• Covering mortgages as interest rates fluctuate

• Building and landlord insurance

Selling your investment property:

• Agent’s fees

• Advertising costs

• Legal fees

• Capital gains tax

Important reminders about investment loans.

Most people need to borrow to buy an investment property. Don’t rely on rental income alone to cover your mortgage repayments. There are often gaps between tenants when the property is vacant.

If you choose an interest-only loan, remember that the interest-only period will end after a set period of time. Following this, your repayments will increase to cover the amount borrowed, plus the interest.

How does tax work for investment properties?

You may be able to claim tax deductions on expenses, but you will still have to pay them upfront. For positively geared investments, you may also have to pay tax on your rental income.

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

Before you buy

Deciding on your investment property – where, what, and how much you’d like to invest – is a huge decision. Each factor will impact your return on investment. Make sure you’ve done the research to make the most informed decision possible.

• Choose growth areas with high rental yield and low vacancy rates

• Consider any proposed planning changes in the area that may affect property prices

• Look for properties with access to amenities and transport

• Consider maintenance costs based on the type and age of the property

Buying an investment property is a big step, but having a sound investment strategy in place will set you off on the right foot. If you’re ready to buy and manage your own investment property, AMB offers a range of straightforward, flexible and great-value investment home loans. Talk to one of our specialists on 1300 13 23 28 for some help today.

Lending criteria, terms & conditions, fees & charges apply.

The information and tips provided are general in nature only and do not take into account your individual needs, objectives or financial situation. Consider seeking your own financial and legal advice. Before making a decision if a product is right for you, please read the relevant product information on our website, including Fees and Charges Schedule, Target Market Determination (TMD) and Financial Services Guide (FSG).