First time property investor FAQs
Can I use my superannuation to buy my first investment property?
Yes, it is possible to buy your first investment property with your superannuation, however it comes with very strict regulations. For instance:
- You can only purchase a property investment via a self-managed super fund.
- The investment property must meet the ‘sole purpose’ test of providing benefits to the fund member(s).
- It cannot be acquired from a relative.
- It cannot be inhabited by a fund member or any relative of the fund member(s).
- It cannot be rented by a fund member or any relative of the fund member(s).
- If you invest in a commercial property, you can lease it to a fund member, but it must be at the market rate. There are additional rules to adhere to in the case of member rented commercial properties.
Find out about buying an investment property with your super click here
What is rentvesting?
It is a home owning strategy where you rent where you want to live and invest your money in a property you can afford. This strategy enables you to buy a property and rent it out to cover some or all of your ownership costs, while continuing to rent the home where you live. If your investment property is earning you a profit, you could even use that income towards your home rental costs.
To find out if you can afford to buy an investment property click here to use one of our calculators
Can I use my First Home Buyer Grant to buy an investment property?
No. The First Homeowner Grant is only available for an owner-occupied home, not an investment property. However, in NSW, you only need to live in the property for six continuous months before you can rent it out.
Can I use equity in my current home to buy and investment property?
Yes, you may be able to use the equity from you existing home to help pay the deposit to fund the purchase of an investment property.
Your equity - the difference between your home’s market value and the balance of your home loan - is likely to have increased over the years you’ve owned your home.
To find out what your options are here, talk to home loan lender or connect with Shore Financial here.
How can I research the market to find an investment property?
Here are some websites that can provide insight into several market indicators, such as average property prices, trends in capital growth, property market cycles, types of property available in certain areas, suburb or community profiles, rental demand and yields:
CoreLogic
Australian Property Monitors
Australian Bureau of Statistics
SQM Research
Residex
Another invaluable source of information is your local real estate agent who can tell you about local supply and demand, as well as any economic or demographic trends that may influence your decision.
It’s also worth visiting the local council to understand if any planned infrastructure and developments could impact the area and of course visit the suburb to get a feel for the neighbourhood.
What should I look for in an investment property?
There are several key points that any investor should look into carefully before committing to an investment property. Here are the top three:
- Capital growth and rental income
- Aesthetics age and condition
- Location
- Amenities of the building
- Property features
- Any local developments
- Interest in the area including current and predicted future interest
For more detailed insights download our investing guide and of course talk with your financial planner.
How much money do I need to invest in property?
As with most property purchases, you will typically need to have a 20% deposit plus enough to cover the cost of stamp duty, conveyancers, and other associated costs upfront. Anything less will normally mean having to take out Lenders’ Mortgage Insurance, which can be very costly and possible lead to a higher interest rate being charged on your loan.
Find out how much you could potentially borrow here
What are the costs associated with an investment property?
Apart from the upfront costs of taking out a mortgage and purchasing the property, there are several ongoing costs that you need to take into consideration when deciding how to invest in property.
Here are some of the most common expenses associated with owning an investment property:
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home and landlord insurance
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land tax
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council rates
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strata or body corporate fees
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property management fees
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repair and maintenance costs
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advertising fees when looking for tenants
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depreciation (of appliances, carpets, paintwork, and so on)
What taxes will I have to pay on my investment property?
According to the Australian Tax Office, when renting your property, any rental income you receive from a property is taxable at your marginal rate and must be included as income on your tax return.
When selling your property, you will be liable for capital gains tax, provided it sells for more than your original purchase price. Capital gains tax is also included in your income tax return.
What tax deductions can I normally claim on my investment property?
Many of the costs associated with an investment property are tax-deductible. The ATO calls these “investment expenses”, some of them include:
- interest on your loan
- loan establishment fees
- lender’s mortgage insurance
- title search fees
- mortgage broker fees
- stamp duty charged on the mortgage
- advertising to find new tenants
- bank fees and loan charges
- body corporate fees, cleaning costs and council rates
- electricity and gas not paid by the tenant
- home, contents and landlord insurance
- legal expenses and land tax
- property manager fees and commissions
- repairs and maintenance
- costs incurred for the inspection or maintenance
- depreciation on newly purchased items
Every investment is different so make sure you discuss these with your accountant.
What are positive and negative gearing?
Put simply, a property that is positively geared generates more in rental income than it costs in loan repayments and other expenses such as strata fees, property management, and so on. The benefits of positive gearing include lower risk and a steady, predictable income stream.
A negatively geared property, on the other hand, has higher associated expenses than it does rental income. The benefit of this is that any net losses you incur can be offset against other taxable income that you earn in a financial year.
What are strata fees?
When you buy a strata-title property of any sort, you are effectively buying part of a building that you share with other owners and will be required to contribute to the upkeep of any parts of that building that are deemed to be common property, such as the gardens, driveways, stairwells, lifts, exteriors, and so on.
Strata fees vary from building to building and can be divided into three categories:
- administrative funds: for regular expenses such as cleaning, gardening, shared utilities, insurance, or general maintenance.
- sinking funds: for larger planned expenses such as renovations, repointing, and so on.
- special funds: for any other type of repairs, renovations, or maintenance.
How do I calculate gross rental yield?
Your gross rental yield is calculated by multiplying the weekly rent you charge by 52 (weeks/year) and dividing the result by your purchase price, then multiplying the result by 100 to show the yield as a percentage.
For example, let’s say you purchased an apartment for $950,000 and now charge your tenant $600 a week for rent.
$600 x 52 weeks = $31,200 / $950,000 = 0.0328 x 100 = a gross rental yield of 3.28%
How do I calculate net rental yield?
To calculate your net rental yield, which gives you a more accurate financial picture, you’ll also need to consider all the property-related expenses, such as property management fees, repairs or renovations, legal fees, and so on, for the same period. You use the same formula as above, but subtract your annual expenses from the annual rental income before dividing it by the purchase price.
Read our blog on 10 ways to add value to your investment property.
Is it worth having a property manager?
The short answer here is yes, it really is. They play an essential role in making your investment work hard for you and take on the day-to-day running of your property, saving you many a headache and maximising your rental yield.
They:
- Help you find, screen and retain the best tenants
- Manage any repair and maintenance issues
- Provide you with accurate fiscal information
- Deal with rent collection and property inspections
- Organise tenancy agreements
- Deal with problematic tenants
- Provide insights into how to add value to your property
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