The definitive guide to buying an investment property


Investing in property is arguably the most widely accessible form of investment. That’s why real estate investing is as popular as it is in Australia. 

According to the Australian Taxation Office (ATO), around 20% of Aussies owned an investment property through 2017 and 2018. The likelihood is that a similar number hold investment properties today. 

Given the consistent gains you can make, it’s not hard to see why so many are in the property game. If you’re interested in becoming one of them, check out the following top tips for buying an investment property. 

This article has all the information you need to make informed decisions throughout the buying process. So, let’s get to the most commonly asked questions:

  • What is an investment property?
  • What are the different types of investment property?
  • What are the advantages of investing in property?
  • What are the disadvantages of investing in property?
  • Can I claim a tax deduction for an investment property? 
  • What tax deductions can’t I claim for an investment property?
  • Do I need investment property insurance?
  • What does investment property insurance cover?
  • Should I buy or finance an investment property?
  • How does equity work when buying a second home?
  • Can I use my super for a house deposit?

Q1. What is an investment property? 

An investment property is a property purchased with the intent to make a return on that investment. That could involve buying real estate to rent it out and earn a rental income.. Or to sit on it until the value increases before selling it at a profit. 

Some investors buy property both to stimulate their cash flow through rental payments and to sell it later. Either way, owning an investment property can be a real boon to your bank account. 

Q2. What are the different types of investment property? 

There are several different types of investment properties you need to know. 

Residential property

Many investors opt to invest in rental property, which involves purchasing a residential property such as an apartment, house, or unit and renting it out to tenants. It’s a great way to supplement income because most tenants pay their rent monthly. 

Commercial property

Some investors choose to buy properties that they then rent out to businesses. These are known as commercial properties and generally, entail higher rent payments. However, keep in mind that the upfront and maintenance costs are also typically higher. 

Mixed-use property

Mixed-use properties are used simultaneously for residential and commercial purposes. They include, for example, ground-floor shops and restaurants that have apartments on upper levels. 

Note: For more information on the various types of investment properties, speak to a financial advisor. They can advise you on the type that will best suit your current circumstances, and they can also fill you in on average rent, property value, and more. 

Q3. What are the advantages of investing in property?

If you can afford to invest in property, you could reap plenty of benefits. A few of the most attractive advantages include the following:


Investing in property can supplement income. To maximise the rent you can charge, look to invest in an area with a higher rental yield. 

Important: If you play your cards right, you could end up with a positively geared investment, which means that the income you make from the investment works out higher than its cost. 


Hopefully, your investment property will increase in value. When that happens, you will benefit from something called capital growth. Also known as capital gain, this means that you’ll make a profit when you eventually sell the asset. 

Note: You can stimulate capital growth by renovating a property and driving up its value. Otherwise, you’ll be reliant on market forces. 

A safer investment 

There’s no guaranteeing how the market will perform once you’ve made your investment. Generally speaking, though, a property’s value is far less volatile than other investments. So, it is considered a much safer investment. 

Investors also don’t have to have specialist knowledge of the property market. Unlike stocks, bonds, and cryptocurrency, property investment isn’t overly complex. 

Q4. What are the disadvantages of investing in property? 

Despite the advantages, there are still reasons to be cautious when you invest in property. After all, there is no such thing as a completely reliable investment. 

For one thing, there’s always the possibility that your property could go down in value. For another, the rental income you earn might not be enough to cover your mortgage. Or, if it does, there may not be enough left over to pay for essential expenses like property managers. 

You should also be aware of the different types of tax you’ll have to pay. These include stamp duty, capital gains tax, income tax, and land tax. 

Q5. Can I claim tax deduction for investment property? 

Thankfully, you can offset the relatively high amount of property taxes you’ll have to pay through deductions come tax time, including land tax deductions. 

You can also claim deductions against your income for management and maintenance expenses. Depreciation, repairs, and pest control are all included. 

The home loan interest repayments are also tax-deductible. Even though you can’t claim the initial amount borrowed, you can claim interest on the loan repayment. 

That’s why interest-only loans are so popular with property investors. That way, they can temporarily deduct their total repayments. 

Note: To find the best loan interest rates for you, look at home loan calculators and online comparison tools. 

Other tax deductions for property investors include:

  • Advertising costs. 
  • Council rates. 
  • Legal expenses. 
  • Letting fees. 
  • Property agent fees. 
  • Surveyor fees. 

You can also visit the ATO’s website to find out more information on property tax deductions claims. 

Q6. What tax deductions can’t I claim for an investment property? 

You can claim deductions for home loan interest rates and other outgoings. However, a person who invests in real estate can't claim tax deductions for all expenses. 

For starters, you can only claim expenses on properties used for investment purposes. You won't be able to claim expenses if you live on the property. 

You also can't claim any expenses that the tenant pays for, such as rent and utility bills. 

Additionally, you cannot claim taxes like stamp duty and capital gains tax, the property's purchase price, or property inspection fees. 

Q7. Do I need investment property insurance? 

When you invest in a rental property, you should consider taking out property investment insurance. Also known as rental property insurance or landlord insurance, it protects you from a variety of risks. More on this shortly. 

Like with life insurance and lenders mortgage insurance, each individual must decide whether investment property insurance is worthwhile. 

Some may not see the value in taking on another expense to cover eventualities that might not occur. However, if something goes wrong, having insurance can help investors avoid financial hardship. 

Q8. What does investment property insurance cover? 

Investment property insurance coverage will vary between providers. But, generally speaking, it will cover risks relating to the tenants, the property’s contents, and the building itself. 

Some examples of the sort of coverage you can include: 

  • Damage or theft. 
  • Fire. 
  • Legal expenses if you need to take a tenant to court. 
  • Rent default. 
  • Storm, water, and flood damage. 
  • Vandalism. 
  • Vehicle collisions. 

There are other, less familiar examples of coverage that some insurance providers offer, such as lock replacements and lightning strikes. 

Important: Homebuyers must research if they plan to ensure their rental property, which will ensure they find the most appropriate coverage at the best price. 

Q9. Should I buy or finance an investment property?

An important question aspiring investors must ask is whether to buy or finance their investment property. There are, of course, pros and cons to each. So, you will need to evaluate your investment goals and consult your budget planner to decide which option is right for you. 

The significant advantage of paying cash for an investment property is that you won’t have a mortgage to pay off. So, you will earn more each month.

But, if you finance your property, the return on your investment will be higher. So, even though your loan repayments will take away from the rental income you get, you’ll earn more for the money you paid. 

Note: If you’re unsure what direction to go in, consider speaking to a financial advisor. They will help you to assess your financial situation and determine the best course of action. 

Q10. How does equity work when buying a second home?

If you have equity in your existing home loan, you could put that towards the deposit for an investment property. You may even have enough equity to buy your new property in cash. 

To release equity, you have to take out an additional loan on your current property. The amount you can release will, however, depend on several factors. These include how much of your existing loan you’ve already paid off, the amount you have owing on your existing loan, and your property’s value. 

To determine if you qualify for equity release, speak to your mortgage brokers or a mortgage adviser. 

Q11. Can I use my super for a house deposit? 

Another option available to investors is to use their superannuation to fund a house deposit. However, to do so, you will need to set up a self-managed super fund. Other types of super funds will not allow you to purchase an investment property. 

Self-managed super funds (SMSF) or super funds have specific rules when it comes to investing in property. It’s essential to keep these in mind. 

For example, a self-managed super fund must meet the so-called sole purpose test, which means that you must use the property you purchase exclusively to provide retirement benefits to the fund’s members. 

The property also cannot be purchased from another fund member. Further, other fund members cannot live in or rent the property. For more information on the rules and restrictions, visit the ATO website

In summary

Before you buy your first investment property, you need to know all the ins and outs. While becoming a property investor can be lucrative, it isn’t all plain sailing. 

There’s a lot to think about, from pros and cons to financing options. So, keep this guide by your side while you navigate the process. 

Lastly, don't forget to check out the WeMoney website, where you'll find helpful tips for buying property, home loan calculators, home loan comparisons, and practical advice. We have everything you need to make an informed decision on property investment all in one place. 

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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs, or financial situation.

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