Investing in Property in Australia: Building Wealth Through Real Estate

By Deltos Finance on September 30, 2023
real estate investing

Property ownership has long been referred to as the Great Australian Dream, but in today’s world, it’s more than just about buying your dream home. Many investors use real estate investments as a pathway to building wealth. But how do you exactly carve your path to wealth through real estate? Today, we’ll explore the pros and cons of investing in property in Australia, the types of properties that make excellent investments, the upfront costs you should be aware of and the strategies for gauging your borrowing capacity for investment loans. We’ll also touch on Deltos Finance’s critical role in making your property investment venture smooth and cost-effective.

The Pros of Investing in Property in Australia

Investing in property in Australia may offer multiple advantages. Weighing up the benefits versus the risks, along with understanding how property investment works, is crucial for making investment decisions. Let’s explore the potential advantages in more detail:

Steady Capital Growth

While there are peaks and troughs in the value of property, historically, Australian property has shown consistent capital growth over the long term. This means a property investment has the potential to appreciate, if held as part of a long term investment strategy. For example, let’s consider a scenario where you invest $400,000 in a property. Over the years, due to capital growth, the property’s value may increase to $650,000, resulting in a $250,000 profit if you decide to sell.

Rental Income

Real estate investing can provide a regular stream of rental income, which may be used to help cover the mortgage or provide passive income if the rental income is higher than the expenses and mortgage repayments. 

Tax Benefits

There are taxation strategies and deductions that may be utilised by property investors, including negative gearing and deductions for depreciation expenses. Negative gearing is a strategy that allows the property investor to offset losses from the investment property against taxable income, potentially reducing the overall tax liability. Depreciation expenses may enable the investor to claim deductions for the wear and tear of assets within the property, such as fixtures and fittings. 

Tangible Asset

Unlike other forms of investment, real estate is a tangible asset you can see and touch, giving investors a sense of security. You can physically inspect your property, make improvements and control its management. Having a tangible asset is more of a perceived benefit, rather than an actual benefit when it comes to investment types. However, you may reap benefits by actually utilising the home for holiday purposes etc. 

Now, Let’s Talk about the Drawbacks

While there are potential benefits of investing in property, it’s still essential to be aware of the potential drawbacks to ensure you’re making informed decisions:

High Upfront Costs

Acquiring an investment property involves substantial upfront costs, including stamp duty, conveyancing fees, and inspection costs. For example, if you purchase a property valued at $500,000, you may incur around $20,000 in stamp duty fees.

Market Risks

Like any investment venture, real estate carries market risks. Market conditions can fluctuate, affecting property values and rental income. It’s a good idea to look at investment property portfolio diversification methods to mitigate this risk. For instance, purchasing different property types in various locations may help reduce market risk. Please seek professional financial advice to ensure your investments are properly diversified. 

Ongoing Expenses

Property ownership comes with ongoing expenses, such as maintenance costs, insurance premiums and property management fees. It’s important to budget for these expenses to keep your real estate investment financially viable.

Illiquidity

Real estate is relatively illiquid compared to other forms of assets, for example cash in a savings account or shares that can be converted to cash on the stock market. After all, selling a retail space or condo unit can take time and may not be possible during a market downturn. If cash flow and liquidity is a concern, it’s important to seek financial advice for a strategy to navigate potential liquidity challenges. 

Investing in Property in Australia

What Type of Property Makes a Good Investment?

Selecting a good investment property essentially depends on your goals and budget. But to give you more idea on how to invest in real estate effectively, here are some property types that have proven to be lucrative investments in Australia:

  • Residential Apartments and Condos: These are often favoured by investors for their potential for capital growth and rental income. Consider factors like location, demand and amenities when selecting residential properties.
  • Commercial Buildings: Commercial properties may offer stable rental income and longer lease terms since you’re dealing with businesses. Look for properties in areas with vigorous economic activity and low vacancy rates.
  • NDIS/SDA Properties: Investing in National Disability Insurance Scheme (NDIS) or Specialist Disability Accommodation (SDA) properties may provide long-term rental income with additional SDA payments through the tenants NDIS plan. NDIS/SDA properties are designed to accommodate people with disability.

The Upfront Costs of Property Investments

No matter where you invest, it’s going to be a numbers game. You have to understand the upfront costs before you invest in real estate. These may include:

  • Stamp Duty: As mentioned, this state-based tax can be a significant upfront expense when purchasing an investment property. The exact amount varies depending on the property’s value and location.
  • Conveyancing Fees: Keep in mind that legal and conveyancing fees are incurred during the property purchase process. It’s advisable to obtain quotes from different conveyancers to ensure competitive pricing.
  • Property Inspection and Valuation Costs: Building inspections and property valuation costs are essential for accurately assessing the property’s condition and market value.

Now, How Much Can You Borrow?

Planning to apply for property investment loans to fund your real estate investments? It’s important to understand your borrowing capacity for investment loans, which may be based on the following factors:

Income and Expenses

Your income and existing financial commitments play a crucial role in how much you can borrow from a bank or lender. It’s essential to have a clear picture of your financial situation, including your salary, rental income and expenses. Talking to an experienced mortgage broker can help you look at these financial matters better. 

Credit Score

A strong credit score can improve your borrowing capacity and access to better investment property loan terms. So, even before you decide to purchase a condo unit or commercial space to rent out, ensure your credit history is in good shape by paying bills on time and managing your credit card and personal debts responsibly.

Property Value

Of course, the value of the property you intend to buy as an investment also affects your borrowing capacity. It’s important to conduct thorough research and property assessments to ensure you invest in properties with growth potential.

Loan Term and Interest Rate

The loan term and interest rate on your property investment loan are crucial factors that can impact your borrowing power. Remember, longer loan terms may result in lower monthly repayments, but it also extends the time it takes to repay the loan, meaning you’ll be charged interest over a longer period. Consider how that period affects your long-term investment goals. 

Let Deltos Finance Help You

At Deltos Finance, we understand that property investment is a significant decision, and we’re here to assist you every step of the way. Our team of local mortgage professionals can provide expert guidance, compare loan products from multiple lenders, and help secure the most suitable and competitive loan for your investment needs.

With our assistance, you can navigate the complex world of property investment effortlessly, making the most of the opportunities available in the Australian real estate market. We take pride in being Hobart’s best mortgage broker, with one of the highest loan approval rates across mortgage brokers in Australia.

Ready to begin your property investment journey? Contact Deltos Finance today to get started!

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