Australians love putting their money into property. In 2026, the total value of residential dwellings in Australia hit $12.77 billion. It’s a smart investment, as property values tend to increase over time. Now, the average price of a home in Australia is over $1.1 million.
Adding an investment property to your financial portfolio could be a way for you to benefit from the Australian market. It’s part of a strategy to build wealth over time through a combination of rental income and long-term capital growth.
However, to be successful, you need to understand your borrowing power, your deposit or equity position, the ongoing costs you will incur (such as maintenance and insurance), your cash flow, and your long-term strategy.
This guide breaks down exactly how buying an investment property works in Australia so you can decide whether it fits your financial situation and goals. It also explains the steps you’ll need to take next.
Key Takeaways
- Building Wealth: An investment property can be an effective way to build wealth through ongoing income and capital growth.
- Calculating Costs: It’s important to understand the full costs involved with owning and selling an investment property when making your financial calculations.
- Financing Solutions: There are several financing options available for purchasing an investment property; professionals like The Mortgage Agency can help you determine which will work best for your situation.
- Location & Property Selection: Choosing the right location and property type is crucial, as factors like population growth, infrastructure development, rental demand, and future supply directly influence returns.
Why invest in property?
There are two ways people aim to build wealth through investment property: income and growth.
Income, or yield, is the rent you receive from tenants. This could provide a weekly, fortnightly, or monthly income stream.
Growth refers to the increase in value of the property (the building and the land it’s on) between what you paid for it and what it’s worth at any point in the future. This growth is referred to as equity.
8 benefits of investing in property (beyond income and growth)
While income and growth are often the main drivers of the decision to purchase an investment property, they’re not the only ones. Here are eight further reasons why you might consider it:
- Leverage: You can buy a property with borrowed money, such as from an investment loan. This allows you to purchase a larger asset than you could with only your savings.’
- Asset ownership: When you buy a property, you can make decisions about managing it, from selecting tenants to making improvements. Owning shares, by contrast, doesn’t give you the ability to influence how the company you invest in is run.
- Portfolio diversification: Property provides a unique asset that, when combined with a variety of others, such as shares and cash deposits, gives you a balanced portfolio without risking all your funds in one asset class.
- Inflation hedge: Property values and rental yield often rise over time alongside inflation, meaning the value of your asset is more protected.
- Tax advantages: We’ll explain this in more detail later, but you can often use expenses associated with owning an investment property to reduce your taxable income.
- Equity: As your property increases in value, you can use its equity to fund further purchases if you wish.
- Retirement planning: An investment property could be a helpful income stream to fund your retirement, alongside superannuation and a pension.
- Flexibility: Property ownership can provide options later down the line, including selling an asset or downsizing by moving into the property from, say, the family home.
Types of property investment
There are several types of property that you could choose to invest in.
Common types of investment property
| Property type | Growth potential | Income potential | Cash-flow considerations |
| Standalone house | The value of land can provide good long-term growth | Gross yield may be lower due to a higher purchase price | You’re responsible for ongoing costs, like upkeep and repairs |
| Apartment | Lower, as land value isn’t typically included | Stronger rental yield due to lower purchase price | Likely to have strata fees |
| Townhouse | Smaller land value, but a more affordable entry point | Typically, a balance between rental income and growth | Likely to have body corporate levies (although that means you do less upkeep) |
| Commercial | Positive over the long term | It can provide stable long-term income, but that can vary with economic conditions | Typically rented on long leases, so vacancies can have a bigger impact |
Can I afford an investment property?
Whether you can afford to buy an investment property depends on more than just your income. Mortgage lenders look at everything from your earnings, debts, and expenses to your credit history, savings, and equity. They’ll also factor future yield and growth into their calculations.
Another key factor is the size of your deposit. This is the upfront amount of money you contribute to purchase the property.
You may have heard that you need to have at least 20% of the price as a deposit. This amount is simply required to avoid paying Lenders Mortgage Insurance (LMI). LMI is an insurance cost that protects the lender if you borrow a higher percentage of the property’s value. A larger deposit can make securing a mortgage more likely, and often on more favourable terms.
Before buying, it’s also important to be across the full picture of owning an investment property. That means understanding ongoing costs, strategies to cover shortfalls (such as when the property is vacant), and the tax implications, both from one year to the next and when you sell.
The good news is that there are several options for funding your purchase.
How to finance an investment property purchase
Securing the right financing is one of the most important parts of buying an investment property.
Understanding loans
There’s no one-size-fits-all investment property loan. Lenders offer four main types, depending on your goals, income stability, and risk appetite.
The four primary property loans
| Loan | How it works | Benefits | Things to consider |
| Fixed rate | The rate is locked in for a set period | You have predictable repayments | There’s less flexibility, and break costs can apply |
| Variable rate | The rate can move with the market or lender decisions | You can benefit from rate drops | Your repayments can rise if interest rates jump |
| Interest only | You only pay the interest on the loan, usually for a set period | You have lower repayments | The long-term cost is higher |
| Offset account | This is a transaction account linked to your mortgage, where savings reduce the interest | You can reduce interest while keeping funds accessible | Discipline is needed to not spend the savings |
Using equity
Equity is the difference between what your property is worth and what you owe on it. The theory is that as the value of your property rises and your loan balance reduces, your equity grows. This can be a powerful tool. You could use equity from your main home to finance your first investment property or to expand your portfolio, without saving a full deposit again.
In practical terms, lenders may allow you to “release” some of this usable equity through a refinancing arrangement or a line of credit. You can then use this equity as a deposit on an investment property.
Using your superannuation fund
You may be able to make a property investment through your superannuation. However, it’s only possible in certain circumstances.
You can’t, for example, buy an investment property if you have a standard industry or retail fund. You need to set up a Self-Managed Super Fund (SMSF). With an SMSF, you handle all investment decisions, compliance, and retirement savings administration, which means you can choose to invest in property.
There are strict rules for doing so, such as the property must be solely used to provide retirement benefits, and you have to use a Limited Recourse Borrowing Arrangement (LRBA) to secure a loan for the purchase.
Using an SMSF to buy an investment property can offer tax advantages, such as a lower rate on rental income. However, the setup costs can be high, and you must ensure compliance to avoid the risk of penalties.
Here’s more on using your SMSF to buy property:
Costs of owning an investment property in Australia
To understand whether it’s financially viable, it’s important to understand the expenses that come with owning an investment property.
Common costs include:
- Mortgage repayments: This will almost certainly be your biggest ongoing expense.
- Property management fees: If you use an agent to manage tenants, you’ll typically pay a percentage of your rental income to them.
- Maintenance and repairs: These range from upkeep for fair wear and tear to unexpected issues, such as fixing plumbing leaks.
- Insurance: Besides building insurance, you should also take out landlord insurance, which protects you against issues such as tenant damage or rental arrears.
- Council rates and utilities: At least some ongoing property charges remain the owner’s responsibility. For example, while your tenants may pay the water usage charges, you’ll typically be responsible for the access cost.
- Strata fees: If you own an apartment, unit, or a townhouse (sometimes), you’ll often pay strata fees or body corporate levies. These are pooled funds to cover costs relating to shared areas and building maintenance.
- Loan and professional costs: These could include accounting fees, tax advice, and some borrowing-related expenses, such as broker fees.
Remember, most of these costs remain even when you don’t have tenants in the property. So, it’s important to factor in a buffer to cover potential vacant periods when you make your financial calculations.
The good news on costs: Tax deductions
Some costs involved with owning an investment property may be classed as tax-deductible expenses. That can reduce the amount that you’re taxed on at the end of the financial year.
If your property expenses are higher than the rental income you receive, the difference is known as negative gearing. It may be used to offset other taxable income, depending on your circumstances.
For example, if a property earns $30,000 in rent but has $40,000 in eligible expenses, the $10,000 loss may be deductible against other income, such as your salary.
However, negative gearing doesn’t mean an investment property is automatically profitable. You still need to consider the full picture: potential rental growth, capital growth, interest costs, and tax implications.
Do you pay capital gains tax on an investment property?
There are costs associated with an investment property when you sell it, too.
Under Australian law, you can have one property as your main home, which is your primary place of residence (PPOR). Any other properties you buy are investments. These two types of property are treated differently when it comes to capital gains tax (CGT). This is the tax you may pay on the profit when you sell an asset, such as an investment property, for more than you paid for it. Your PPOR is exempt from CGT; investment property isn’t.
For property investors, CGT generally applies to the profit made from the sale after you’ve accounted for eligible costs and adjustments.
Under the current rules, if you hold an investment property for over 12 months, you may be eligible for a 50% CGT discount. That means only half of the capital gain is added to your taxable income. With new tax rules put in place this year, this applies only for new builds for any purchase made after March 2026. Existing properties will not get the 50% CGT instead being adjusted via an indexation system.
However, it’s important to stay across legislative changes. For instance, the Australian Government has proposed changes to the CGT system from 1 July 2027. It’s proposing an inflation-based indexation method, along with a 30% minimum tax rate on net capital gains.
Speaking with a professional can help you understand how the rules apply to your situation.
Where to buy investment property in Australia
There’s no single best suburb to buy an investment property in Australia. The right location depends on a few things, such as your investment strategy, budget, and goals. A suburb that performs well for one investor may not suit another. The key to finding the right investment is research.
The main factors to look into include population growth, employment opportunities, infrastructure investment, rental demand, vacancy rates, affordability, and future development. For instance, if a large business or government department is due to open new premises, demand for rental properties may rise in that location. A new transport link can be a sign of long-term growth potential.
Another important consideration is housing supply. The National Housing Accord aims to support the delivery of 1.2 million new homes by the middle of 2029. For investors, it’s important to consider how new developments may influence local rental markets. It pays to put the time in to understand the area you’re considering buying in.
How to buy an investment property: A step-by-step guide
Here’s the typical process from planning to ongoing management:
1. Define your investment strategy
Decide what you want the investment to achieve. Are you focused on long-term capital growth potential? Rental income? Cash flow? Or building a diversified portfolio? Your strategy will influence the type and location of the property you buy.
2. Determine your borrowing capacity
Understand what you can afford. Lenders will assess your income, expenses, debts, credit history, and how much deposit you can pay. If you can get a pre-approval for a loan, you can move quickly when you find the right property.
A borrowing calculator can be useful for helping you work out your potential loan amount.
3. Understand your deposit options
You don’t always need a 20% cash deposit to buy an investment property. However, the size of your deposit can affect your loan costs and the interest rate you secure, and it will determine whether you need to take out Lenders Mortgage Insurance.
4. Research locations and properties
Choosing where to buy is one of the most important decisions. Look at factors such as infrastructure development, rental demand, and current (and proposed) supply. The cheapest option isn’t always the best if it doesn’t align with your strategy.
5. Calculate the true cost of ownership
Always consider the full financial picture before making an offer. Remember that you’ll need to cover an array of ongoing costs. These can include mortgage repayments, management fees, insurance, council rates, and maintenance costs.
6. Make an offer and complete due diligence
Once you find a suitable property, make an offer. It’s a good idea to make your offer conditional on a building and pest inspection. That way, there are no unpleasant surprises later on.
7. Exchange contracts and arrange settlement
After your offer is accepted, the contract of sale is signed and exchanged. Then the settlement process begins. Your conveyancer or solicitor will handle all legal checks, paperwork, and communication with the lender during the process. On the final settlement date, ownership transfers to you. That’s when you can begin preparing the property for tenants.
8. Find tenants and manage the property
Once you take ownership, you can either engage a professional manager or run a self-managed property. A good property manager can help with the process of selecting a tenant, collecting rent, and dealing with maintenance requests and mandatory safety compliance. Plus, they’ll arrange routine inspections to ensure tenants keep the property in good condition.
How The Mortgage Agency can help
Buying an investment property in Australia can be a powerful way to build wealth through rental income and capital appreciation. However, it’s not a passive or guaranteed strategy. To increase your chances of success, you need to plan carefully, budget realistically, and understand how borrowing, taxation, and ongoing costs work.
At The Mortgage Agency, we specialise in demystifying the process of buying an investment property. From choosing the right repayment structure to understanding market conditions, every decision plays a role in your returns. We’ll help you make the best move based on your goals and circumstances and find the right loan to make your investment happen.
Take the first step towards your property investment goals. Book a free discovery session now.
FAQs
What is an investment property?
An investment property is any property purchased to generate income and/or wealth that doesn’t function as the investor’s main home. In most cases, investors rent out these properties for income. They also aim to benefit from house-price growth over the longer term. Investment properties can include houses, apartments, and townhouses.
Can I live in my investment property?
Yes, you can, but moving into your investment property changes its status, as it becomes your primary place of residence. In short, once you take up residence, it’s no longer classed as an investment property. This can have implications for everything from the deductions you can claim and the insurance required to mortgage arrangements and capital gains tax when you sell it.
Is property the best investment in Australia?
A well-researched investment property can provide both income and capital growth. Plus, an investment loan can make it a viable option for many people. However, whether it’s the “best” investment depends on your goals, timeframe, and finances. Often, a diversified portfolio, with property alongside other investments, such as shares and managed funds, can provide growth with lower risk.
