Your guide to property investment

A long form guide with a lot of practical information on what to consider if you are thinking to buy an investment property

Why you should buy an investment property

So you’re looking to buy property? As Australians, it’s part of the dream – as well as high up there on the dinner party conversation list. The property sector is one we love to hate: the value of the national property market in Australia is $6.7 trillion, according to CoreLogic, well above our investment in shares or superannuation. With housing prices growing 41.8% nationally in the past 10 years, it’s also no wonder buying an investment property has become a goal for many Australians as they seek to benefit from capital growth and/or the added rental income that property management can beget. Certainly, not all investors are property developers, with a profile of the average Australian property developer looking more like a white, 40-something male who’s married and, having bought his own home to live in, has decided to make a second purchase as an investment. Okay that doesn’t sound that different to a property developer… In 2016, CoreLogic estimated there were 2.6 million investor-owned dwellings across Australia, worth a whopping $1.37 trillion. That’s more than the GDP of Nigeria, Austria and Norway combined. As for loans, according to the Australian Prudential Regulation Authority, approximately 35% of residential loans taken out in Australia in September last year were for investment properties, a huge figure given the buy-to-let mortgage market in the UK only represents 14% of new lending. Australians are big investors. So, what are you waiting for? Let’s get ready to invest. If you would like to speak about your home loan objectives book a call with our customer care team today

Need to know:


An investment property is any real estate property that has been purchased with the intention of gaining a return (profit) on the investment, according to Investopedia. This might be through rental income in the short term or resale of the property in the long term – or both.

Is a second home considered an investment property?

If you purchase a second home and choose not to live in it, then yes, you can likely claim it as an investment property. If you’re intention is to earn a return on investment – either through rental return or resale of the property following an increase in house prices – then it’s an investment property. When it’s not an investment property is when you choose to live in it as then it becomes an owner-occupier property and you cannot claim any capital gains on it. How do you buy an investment property?

Buying an investment property is that not different to buying a property to live in. Check online and local real estate listings for the area in which you want to buy, or speak to a real estate agent about what they have up for sale in the areas you’re looking at. One difference you may find between purchasing an owner-occupied property and an investment property is when it comes to getting approval from your bank. Lenders tend to be more strict with their criteria when it comes to giving out investment loans. Investors are also usually charged a higher interest rate, both for principle and interest loans and interest only loans. Before you buy an investment property, you’ll also want to consider the area you buy in and the type of property you’re purchasing, to ensure it will get good rental return or good rental yield – or both. How much money do you have to put down on an investment property?

For a first time investor, you’ll need at least a 5% deposit (possibly more, depending on the lender) plus extra money for fees and costs such as stamp duty.Investors who already have a property or two in their portfolio tend to extract a 20% deposit from the equity they’ve accrued in one of their existing properties, to use as the deposit for the next one. This means they can avoid paying Lenders Mortgage Insurance (LMI). LMI is insurance lenders take out to protect themselves in case the borrower defaults on the loan. Lenders usually charge the borrower a one-off fee to cover this insurance if the amount borrowed is more than 80% of the value of the mortgaged property. Can you live in your investment property?

If you live in your investment property then it becomes your principle place of residence and is no longer an investment property. Even if you do so for a short period of time, you will need to declare it to the tax office as any expenses (see below) you spend on the property will no longer be tax deductible. Is an investment property tax deductible?

You can claim all sorts of tax deductions on an investment property, which are outlined below. What can you claim on your investment property?

Property investors can claim a number of expenses on their property, according to the ATO, including: Management and maintenance costs, such as:

  • Advertising for tenants
  • Body corporate fees and charges
  • Council rates
  • Water charges
  • Land tax
  • Cleaning
  • Gardening and lawn mowing
  • Pest control
  • Insurance (building, contents, public liability)
  • Property agent’s fees and commission
  • Repairs and maintenance
  • Legal expenses such as the cost of evicting a non-paying tenant and expenses incurred in taking court action for loss of rental income. Interest expenses, which includes the interest charged on the loan you used to:
  • Purchase a rental property
  • Purchase a depreciating asset for the rental property (for example, to purchase an air conditioner for the rental property)
  • Make repairs to the rental property (for example, roof repairs due to storm damage)
  • Finance renovations on the rental property, which is currently rented out, or which you intend to rent out (for example, to add a deck to the rear of the rental property)
  • Purchase land on which to build a rental property. Can I claim renovations on an investment property?

People who buy properties with the sole intention to renovate them and resell them, are known as property flippers. If you do this, you can report in your income tax return your net profit or loss from the renovation, which is the proceeds from the sale of the property less the purchase and other costs associated with buying, holding, renovating and selling it, according to the ATO. You can also do this if you purchase a property for investment and some years later decide to renovate it and sell it. If you’re considered a property investor for tax purposes, your net gain or loss from any renovations you undertake on the property is treated as a capital gain or capital loss respectively. What can’t you claim on your investment property?

Travel

Since July 1, 2017, travel expenses relating to a residential investment property are no longer deductible. This means if you own property in Hobart but live in Sydney and fly down to repair a broken window, you can no longer claim part of your flights (you can claim the cost of the broken window, however). Where you still can claim travel expenses is when you own a property investing business, or are considered an excluded entity such as a corporate tax entity or superannuation plan that is not a self-managed superannuation fund. The travel expenditure can also not be included in the cost base for calculating your capital gain or capital loss when you sell the property.

Legal

You cannot claim the following legal costs as income tax deductions:

  • Solicitor’s fees for the purchase of the property (these are a capital expense)
  • Solicitor’s fees for the preparation of loan documents (these can be claimed as borrowing expenses)
  • Legal costs associated with resisting land resumption (these are a capital expense)
  • Legal costs associated with defending your title to the property (for example, defending an action by the mortgagee to take possession of the property where you have defaulted under the loan – these are a capital expense). Can you claim stamp duty on an investment property?

You can claim stamp duty charged on the mortgage as a borrowing expense however you are unable to claim stamp duty charged by your state/territory government on the transfer (purchase) of the property title. You also cannot claim the stamp duty you incur when you acquire a leasehold interest in property such as an Australian Capital Territory 99-year crown lease (you may be able to claim this as a lease document expense). However, stamp duty may be included in calculating the ‘cost base’ of the property for capital gains tax (CGT) purposes as it is considered a capital expense. See the ATO website for more information How does negative gearing work?

Negative gearing refers to when the running costs of your investment and any interest you’re paying, surpasses the income you’re making on your investment. For example, if you’re charging $500 a week to your tenant in rent, but paying $600 on the mortgage repayments, you’re losing $100 a week. The reason negative gearing is an attractive option for investors is because the net loss can be used as a tax deduction. You can also bank on the property increasing in value over time, meaning the loss in rental income will be cancelled out. If your property is positively geared (where you’re making more in rental return that you are making in repayments, for example) then you’ll be taxed on that gain. How much can I borrow?

As an investor, you can usually borrow up to 95% of the purchase price. This means you will need a deposit that is 5% of the purchase price. The less you borrow, the less risk you pose to the lender and the more likely you are to get approval. How much can I borrow?How does Capital Gains Tax work?

Capital Gains Tax (CGT) is a tax charged on any capital gain – or profit – made on the sale of an asset such as property or shares. Each time you sell an investment property you must pay CGT on the transaction. Individuals can generally discount a capital gain by 50% if they hold the asset for more than one year. It’s important to keep records of all your expenses, including stamp duty paid on the asset, fees for professional advice on its purchase and sale, repairs and renovations, so you can use them to offset your tax liability. What sort of home loan can I get as a property investor?

UNO will help you identify the best deal for your circumstances from a large panel of lenders, so you don’t pay any more than you should to borrow funds for an investment property. We help property investors by ensuring your loans are structured in the best way for you and will even liaise with your financial adviser if requested. The amount you can borrow can differ by lender. It is dependent on a range of factors. A UNO mortgage broker knows what each lender is looking for and will work with you to find the best lender for your borrowing capacity. We talk to lenders daily and will use our knowledge to present the right loan options for you. Plus, when you search for home loan rates online with UNO, our technology actually shows you which lenders are more likely to eligible for based on the loan size you are looking at. You can get started in searching for home loans and comparing lender borrowing power. UNO works with major lenders CBA, National Australia Bank (NAB), St George Bank, Westpac and ANZ. We also work with a bunch of smaller lenders, including Adelaide Bank, AMP Bank, Bank of South Australia, Bankwest, MAS Home Loans, Macquarie Bank, ING Direct, Me Bank, Pepper Home Loans, Qudos CU, Redzed and Suncorp. But that’s just the beginning – check out the UNO platform to see all your options from our growing list of lenders.

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Scott Wilkinson did a great job as my broker. He was very patient and always happy to answer my numerous questions throughout the considerable period of time that it took to secure a suitable property. Would certainly recommend Scott and the team at UNO for anyone seeking a broker.
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Andrew is the best broker I have worked with and one of the few people who understands the investment journey from both a personal and professional standpoint. Andrew is an asset to anyone from a first home buyer to a seasoned investor.
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March 7, 2024
Scott Wilkinson was my broker last year when I sought finance for a new property investment and refinance for my property port folio. He was an absolute delight to work with. He was always professional, on time and always available to talk at a moment's notice to discuss my credit options and give well considered advice; usually this was very much after-hours due to my work commitments during the day. He was always happy to talk. I had not used a mortgage broker in a long time opting to do the re-financing myself. This was primarily due to disappointing experiences I'd had with mortgage brokers in the past. However with the increasing complex nature of dealing with credit providers, I could see that I needed a good advocate to act on my behalf for this particular refinance. In all honesty I did not hold much hope that in the current credit environment I would be able to secure the finance I required for the new property investment I was wishing to secure. Scott found a way however and was able to secure the finance along with the refinance of my portfolio. I have since referred friends to Scott and I know they have been very happy with his work. He is ideal for property investors who have busy day-jobs and need someone who understands property investment strategy and is able to tailor credit advice and options to their needs. Scott provides this advice and information in a way that is clear and concise. He kept me up to date continually during the application process. He made what could have been a very stressful and frustrating process easy and straightforward. I could not recommend Scott and the team at UNO Home Loans more highly. They are all a delight.
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