8 steps to investment property success

If you’re ready to make an investment to build your family’s financial position, buying a house to rent out is a popular Australian long-term investment.

If you’re keen on a bricks and mortar investment, here are some simple steps to get you on your way.

Step 1: Get smart financial advice

Financial advice is an excellent starting point for such a big decision. Choose a qualified financial advisor who can look at the big picture – your assets, income, what you spend, and the best choices for the term of investment you want to make and how much you have at your disposal. 

Investment is great – but it’s important to have some help doing the math and making sure you won’t be sacrificing your family’s lifestyle and needs for a long-term investment.

The right financial advice is crucial for steps 2 and 3.

Tip: Not everyone buying an investment property already owns a home. Don’t rely on the Queensland First Home Owners' Grant if you don’t intend to live in the property. To be eligible for the grant, you need to move in within 12 months and live there for at least 6 months.

Step 2: Know your tax obligations

Buying an investment property – whether you rent it out or not – can impact your tax. The Australian Taxation Office (ATO) recommends you:

  • keep records from the start so you can see income and expenses – and have records for tax deductible expenses – and don't pay more tax than you need to
  • be aware that capitals gains tax (CGT) may apply when you sell the property
  • making a profit on the property may mean you're liable to pay as you go instalments towards your expected tax liability for an income year.

Tip: Keep costs of repairs or improvements separate from depreciation costs for smooth calculations at tax time or when you sell the property.

Step 3: Get in the right gear

Property investments can be structured in 2 main ways – negatively geared or positively geared.

Negative gearing is where the cost of owning a home is more than any income it produces. The property is costing you money, but the loss is often tax deductible. Tax benefits are the key reason negative gearing is a popular choice for investors, especially if the investment property value is expected to grow.

Positive gearing is the opposite – the income produced by the investment property is more than the costs of owning it.

When you’re choosing an investment structure, remember to consider:

  • if the property is vacant, you’ll be covering the entire repayment
  • interest rates could change and affect your structure – if they go down, you may not be positively geared anymore, if they go up, you may not be negatively geared
  • will you have access to back up funds through a redraw option
  • you might be taxed on any extra income received through the property.

If you’re not sure which structure suits you and your finances, get some financial advice. The best choice will depend on a range of things including the term you intend to keep the property, projected growth, other aspects of your family finance, and how willing or able you are to take a risk on interest rates.

Step 4: Get your loan sorted

Pre-approval for your home loan puts you in a stronger negotiating position when you find the right property. Having your finance ready to go and knowing your borrowing power means you won’t waste time on properties you can’t afford, or lose out on a property while you wait on finance approvals.

Talk to your bank about how much you can borrow, your current assets including equity in your home, and the best type of loan to make the most of your investment and keep repayments manageable.

Tip: Don’t forget when you’re doing the sums on your borrowing power and repayments to consider the extra costs of buying a home. Conveyancing, building and pest inspections, stamp duty, mortgage insurance, repairs and maintenance and building insurance can all eat into your budget.

Step 5: Decide where to buy

Just as with choosing a home for your family, selecting an investment property comes down to location. Get some help from a real estate agent and look into:

  • low vacancy rates (shows rental properties are in demand)
  • high rents compared to property values
  • future growth predictions
  • any planning or development changes that may affect future prices.

Tip: You may want to buy an investment property in a suburb you’re familiar with, so you understand the neighbourhood.

Step 6: Choose the property

Once you’ve narrowed down the area, it’s time to look for the investment property to suit your needs. If you want to rent it out, pay attention to what makes a property desirable for renters – schools, safety, shops and public transport.

Run a free Property Report to access the latest real estate market data, including:

  • property details and estimated value
  • sales and rental history
  • suburb profile and insights
  • other properties for sale in the area.

Tip: When you inspect the property, take some notes on the inside and outside condition of the house and any potential issues. Ask the agent if there are any special conditions on the sale, like an extended settlement period, and clarify what fittings and features are and aren't included.

Step 7: Buying the property

When you’re ready to make an offer on a property, look at it like any other property purchase. Make an offer based on your Property Report and the research you’ve done on the property condition, growth potential and market value. Be ready for the buying process including:

  • valuations
  • building and pest inspections
  • conveyancing and finance.

Tip: Consider getting a professional valuation – real estate agents are not registered valuers.

Step 8: Managing the property

If you’re relying on rental property to fund all or part of the property repayment, make sure you’re ready to move quickly to lease the property. Before you buy, it's wise to have thought about how you'll manage the property – will you rent it out and manage it yourself, dealing with the tenants directly and being across rental tenancy laws? Or have it managed by a real estate agent – they will charge a fee, but it is likely to be less hassle for you, especially if you don’t live nearby.

Tip: There are property management fee rules in Queensland for how real estate agents can charge letting fees and commissions on rental properties. Management fees are tax deductible.

Invest in your future

Talk to QBANK about investment properties. We’re ready to help. Call 13 77 28.

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Investment

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