Property Investment FAQ

To start property investing in Australia, you typically need at least 20% of the property's value as a deposit to avoid paying Lenders Mortgage Insurance (LMI). For a $500,000 property, that's $100,000.

Beyond the deposit, you'll also need funds for:

• Stamp duty: 3-5% of property value (varies by state)
• Conveyancing fees: $1,500-$3,000
• Building and pest inspections: $500-$1,000
• Loan application fees: $300-$1,000
• Ongoing costs: Insurance, rates, maintenance buffer

For a detailed breakdown of all startup costs, read our comprehensive guide on How Much Money You Need to Start Property Investing. Our Deposit Readiness Calculator can help you determine exactly how much you need for your situation and create a realistic savings timeline.

While the ideal deposit is 20% to avoid LMI, you can purchase investment property with smaller deposits:

• 10-15% deposit: Most lenders accept this but you'll pay LMI (typically $5,000-$20,000+)
• 5% deposit: Possible with a guarantor (usually parents using their property as security)
• No cash deposit: Use equity from existing property if you have sufficient equity built up

Important: Smaller deposits mean higher borrowing costs, LMI premiums, and greater financial risk. Most successful investors aim for the 20% deposit to keep costs manageable. Learn more about deposit strategies in our detailed guide: How Much Money You Need to Start Property Investing.

This depends on your personal circumstances, but here are the key considerations:

Buy your home first if:

• You want housing security and stability
• You can access first home buyer grants and stamp duty concessions
• You're paying high rent that could go towards a mortgage
• You want to build equity for future investments

Buy investment property first if:

• You're comfortable renting where you want to live
• You can access better investment markets than where you live
• You want to start building investment income sooner
• You have strong serviceability for investment loans

Many investors use a "rentvesting" strategy - buying investment property in affordable growth areas while renting in their preferred lifestyle location. For a comprehensive overview of different investment approaches, check out our Property Investment 101 guide.

Getting pre-approved for an investment loan involves these steps:

1. Gather your documents:

• Last 2 years' tax returns and notices of assessment
• Recent payslips (if employed)
• Bank statements (3-6 months)
• Details of assets and liabilities
• Rental income evidence (if applicable)

2. Assess your serviceability: Lenders typically assess investment income at 80% of rental income to account for vacancy periods.

3. Shop around: Different lenders have varying criteria for investment loans. Consider using a mortgage broker who specialises in investment lending.

4. Apply for pre-approval: This gives you a conditional approval subject to property valuation and final checks.

Pre-approval typically lasts 3-6 months and makes your offers more attractive to sellers. For a detailed step-by-step guide, read our comprehensive article: Getting Pre-Approved: Your First Step to Investment Success.

Rental yield shows how much income your property generates as a percentage of its value. There are two types:

Gross Rental Yield Formula:
(Weekly Rent × 52) ÷ Property Value × 100

Example: $600/week rent on $500,000 property
($600 × 52) ÷ $500,000 × 100 = 6.24% gross yield

Net Rental Yield Formula:
(Annual Rent - Annual Expenses) ÷ Property Value × 100

Net yield accounts for expenses like council rates, insurance, property management fees, maintenance, and vacancy periods. It gives a more realistic picture of your actual returns.

Use our Investment Property Calculator to calculate both gross and net yields for any property you're considering. For an in-depth explanation of rental yields and cash flow analysis, read our guide: Understanding Rental Yield and Cash Flow.

Gross Rental Yield is the basic calculation that only considers rental income versus property value. It's useful for quick comparisons but doesn't show your actual returns.

Net Rental Yield deducts all property-related expenses from rental income, giving you the true return on your investment.

Common expenses to deduct include:

• Property management fees (typically 5-8% of rent)
• Council rates and water charges
• Building and contents insurance
• Repairs and maintenance
• Strata fees (for units/townhouses)
• Vacancy periods (budget 2-4 weeks per year)
• Landlord insurance

Rule of thumb: Net yield is typically 1.5-2.5% lower than gross yield. Always base investment decisions on net yield as it reflects your actual cash flow. For a detailed breakdown of all rental yield concepts, read our comprehensive guide: Understanding Rental Yield and Cash Flow.

A good rental yield varies by location and market conditions, but here are current benchmarks:

Gross Rental Yield:

• 4-5% or above: Generally considered good in Australian markets
• 5-6%: Strong yield for capital cities
• 6%+: Excellent yield, often found in regional areas

By Location (2025 averages):

• Sydney: 3-4% (houses), 4-5% (units)
• Melbourne: 3.5-4.5% (houses), 4.5-5.5% (units)
• Brisbane: 4-5% (houses), 4.5-5.5% (units)
• Regional areas: 5-8%+ possible

Remember: Higher yields often come with trade-offs like lower capital growth potential or higher vacancy risks. Focus on finding the right balance for your investment strategy. Learn more about evaluating rental yields in our detailed guide: Understanding Rental Yield and Cash Flow.

Both capital growth and cash flow are important, and the best strategy depends on your investment goals and timeline:

Capital Growth Strategy:

• Focuses on property value increases over time
• Better for long-term wealth building
• Often involves negatively geared properties
• Suits investors with strong incomes who can service debt
• Properties in major cities and growth corridors

Cash Flow Strategy:

• Prioritises immediate rental income
• Provides regular income stream
• Often involves positively geared properties
• Better for retirees or those wanting passive income
• Regional areas and high-yield properties

Best approach: Many successful investors aim for a balanced portfolio with both growth and cash flow properties, starting with capital growth in their early years and shifting towards cash flow as they approach retirement. For detailed analysis of both strategies, read our comprehensive guide: Capital Growth vs Cash Flow: Finding the Right Balance.

Location is crucial for investment success. Look for areas with these characteristics:

Infrastructure & Transport:

• Good public transport links
• Major transport infrastructure projects planned
• Easy access to employment centres
• Quality road networks

Demographics & Demand:

• Growing population and employment
• Strong rental demand indicators
• Diverse industry base (not reliant on single employer)
• Good schools and family amenities

Market Fundamentals:

• Limited supply of new land/housing
• Historical price growth trends
• Low vacancy rates (under 3% is ideal)
• Days on market trending downward

Future Development:

• Planned shopping centres, hospitals, universities
• Government investment in the area
• Gentrification indicators

For detailed methods on researching and identifying growth areas, read our comprehensive guide: Researching Growth Areas and Market Trends.

Each property type has distinct advantages and considerations for investors:

Houses:

• Pros: Better capital growth potential, land ownership, broader tenant appeal, more control over property
• Cons: Higher purchase price, more maintenance responsibility, typically lower yields
• Best for: Long-term capital growth strategies

Units/Apartments:

• Pros: Lower entry cost, higher rental yields, less maintenance, good for city locations
• Cons: Limited capital growth, strata fees, less control, depreciation concerns
• Best for: Cash flow focused strategies, first-time investors

Townhouses:

• Pros: Balance of house and unit benefits, often include land component, family appeal
• Cons: Strata fees, shared walls, variable quality of developments
• Best for: Balanced growth and yield strategies

General rule: Houses typically outperform units for capital growth over 10+ year periods, but units can provide better cash flow in the short term. For a detailed analysis of each property type including pros, cons, and investment strategies, read our comprehensive guide: Property Types: Houses, Units, and Townhouses Compared.

Here's a comprehensive list of upfront costs to budget for:

Property Purchase:

• Deposit: 10-20% of property value
• Stamp duty: 3-5% of property value (varies by state)
• Conveyancing/legal fees: $1,500-$3,000
• Building and pest inspections: $500-$1,000
• Property valuation: $300-$600

Loan Setup:

• Loan application fees: $300-$1,000
• Lenders Mortgage Insurance (LMI): $5,000-$20,000+ (if deposit <20%)
• Mortgage registration fee: $150-$300

Initial Setup:

• Property insurance: $1,000-$2,500 annually
• Landlord insurance: $300-$600 annually
• Property management setup: Usually no upfront cost

Example total: For a $500,000 property with 20% deposit, expect $40,000-$60,000 in additional upfront costs.

For a detailed breakdown of all startup costs and budgeting strategies, read our comprehensive guide: How Much Money You Need to Start Property Investing.

Stamp duty varies significantly by state and property value. Here are approximate rates for a $500,000 investment property (2025):

• NSW: $17,990 (3.6%)
• VIC: $21,970 (4.4%)
• QLD: $8,750 (1.8%) - lowest rates
• WA: $17,765 (3.6%)
• SA: $21,330 (4.3%)
• TAS: $18,247 (3.6%)
• ACT: $8,720 (1.7%) - very competitive
• NT: $23,928 (4.8%) - highest rates

Additional considerations:

• Foreign buyer surcharge: Additional 7-9% in most states if you're not an Australian citizen/resident
• Investment property rates: Some states charge higher rates for investment properties
• Concessions: Limited concessions available for investment properties (mainly for owner-occupiers)

Always use official state revenue office calculators for precise figures, as rates change regularly and have different brackets for different property values.

Investment property offers significant tax deduction opportunities. Here are the main categories:

Immediate Deductions (Full year of purchase):

• Loan interest: Usually your largest deduction
• Property management fees: 5-8% of rental income
• Insurance premiums: Building, contents, landlord insurance
• Council rates and water charges
• Repairs and maintenance: Fixing existing problems
• Advertising for tenants
• Professional fees: Accountant, property advisor fees

Depreciation Deductions:

• Building depreciation: 2.5% per year for properties built after 1987
• Plant and equipment: Appliances, carpets, blinds (rates vary)
• Capital works: Structural improvements depreciated over time

Important: Improvements (adding value) are generally not immediately deductible but may reduce capital gains tax when you sell. Always consult a qualified tax professional or accountant for advice specific to your situation. For detailed strategies and examples, read our comprehensive guide: Maximising Tax Deductions on Your Investment Property.

Negative gearing occurs when your investment property costs more to hold than the rental income it generates. The "loss" can be offset against your other taxable income.

Example:

• Annual rental income: $25,000
• Annual expenses (interest, rates, insurance, etc.): $30,000
• Annual loss: $5,000
• Tax benefit: $5,000 × your marginal tax rate

Benefits of negative gearing:

• Reduces your overall taxable income
• Can make expensive properties more affordable
• Particularly valuable for high-income earners

Considerations:

• You're still out of pocket each month
• Relies on capital growth to be profitable long-term
• Interest rate rises increase your losses
• Government policy could change

Alternative: Positive gearing (rental income exceeds expenses) provides immediate cash flow but you pay tax on the profit. For detailed tax strategies and deduction opportunities, read our guide: Maximising Tax Deductions on Your Investment Property.

Cross-collateralisation involves using multiple properties as security for one loan or using one property as security for multiple loans.

How it works:

Instead of separate loans for each property, the bank uses your existing property equity as security for new purchases, often without requiring additional cash deposits.

Advantages:

• Can purchase additional properties without cash deposits
• May access better interest rates
• Simplified loan management
• Faster property acquisition

Disadvantages:

• All properties at risk if you default
• Difficult to sell individual properties
• Less flexibility with loan structures
• Harder to refinance or switch lenders
• Limited ability to realise gains from individual properties

Expert opinion: Most property investment advisors recommend avoiding cross-collateralisation due to the increased risk and reduced flexibility. Consider standalone loans for each property where possible. For detailed analysis of equity strategies and their risks, read our comprehensive guide: Leveraging Equity and Cross-Collateralisation Strategies.

Using property equity is a common strategy for building an investment portfolio without saving for additional cash deposits.

How equity works:

• Equity = Current property value - Outstanding loan balance
• Usable equity = (Property value × 80%) - Loan balance
• Example: $600K property with $300K loan = $180K usable equity

Ways to access equity:

• Refinance existing loan: Increase loan amount to access equity
• Line of credit: Draw down equity as needed
• Split loan facility: Separate investment and residential portions

Strategy steps:

• Get property revalued (if significant growth occurred)
• Calculate available equity
• Apply for loan increase or new facility
• Use equity as deposit for next property

Important considerations:

• Increases debt and risk
• Must service higher loan amounts
• Property values can fall, reducing equity
• Consider debt-to-income ratios

For detailed strategies and risk management when using equity, read our comprehensive guide: Leveraging Equity and Cross-Collateralisation Strategies.

Deciding when to sell an investment property depends on various factors. Here are key scenarios to consider:

Good reasons to sell:

• Significant capital growth: Property has substantially outperformed expectations
• Portfolio rebalancing: Diversifying into different areas or asset classes
• Poor performance: Property consistently underperforms market or expectations
• Major life changes: Retirement, divorce, health issues requiring capital
• Market peak indicators: Local market showing signs of downturn
• Better opportunities: Identified superior investment alternatives

Tax considerations:

• Capital gains tax: 50% discount if held >12 months
• Depreciation recapture: May need to pay back some depreciation claimed
• Timing: Consider selling in lower income years to reduce CGT

Before selling, consider:

• Are you selling for emotional reasons or sound financial reasons?
• Have you maximised the property's potential through improvements?
• What are the selling costs (agent fees, legal, marketing)?
• Do you have a clear plan for the proceeds?

For detailed guidance on exit timing and capital gains tax strategies, read our comprehensive guide: Exit Strategies and Capital Gains Tax Planning.

Successful property investment requires thorough market research. Here's a systematic approach:

Economic Indicators:

• Population growth: Look for 2%+ annual growth
• Employment growth: Diverse industries and job creation
• Infrastructure investment: Government spending on transport, health, education
• Median income trends: Rising household incomes support property prices

Property Market Data:

• Days on market: Declining trend indicates strong demand
• Vacancy rates: Under 3% is ideal
• Rental growth: Consistent increases indicate strong tenant demand
• Sale volume trends: Steady or increasing transaction volumes

Research Tools & Sources:

• ABS (Australian Bureau of Statistics) data
• CoreLogic and Domain market reports
• Local council development plans
• Infrastructure Australia project listings
• Real estate agent market updates
• On-ground research and local networking

Warning signs to avoid:

• Over-reliance on single industry/employer
• Declining population or employment
• Oversupply of new developments
• Rising vacancy rates
• Limited transport/infrastructure

For step-by-step research methods and tools, read our detailed guide: Researching Growth Areas and Market Trends.