Defining Your Investment Goals
A successful investment starts with a question: what do you want this property to do for you? Capital growth, rental income, tax benefits, or all three? The answer determines everything — the location you target, the property type you buy, and how you structure your finance.
Rental income exceeds all outgoings. Generates positive cash flow from day one. Typically requires a large deposit or occurs when rents are high relative to interest rates.
Outgoings exceed rental income. The net loss can offset other taxable income, reducing your tax bill. Relies on long-term capital growth to generate profit on eventual sale.
Capital Gains Tax (CGT)
When you sell an investment property for a profit, CGT applies. The gain is included in your assessable income for that year. If you hold the property for more than 12 months, you may qualify for a 50% CGT discount — effectively halving the taxable gain. Always speak with your accountant about CGT before selling.
Using your existing equity to invest
Most investors fund their first investment by accessing equity built in their home. Equity is the difference between your property's market value and your remaining loan balance. For example: if your home is worth $700,000 and you owe $400,000, you have $300,000 in equity. Subject to LVR limits, you can release usable equity as a deposit on an investment property — without touching your savings.
If your combined LVR stays at or below 80% across both properties, you can typically avoid LMI on the investment loan. Example: home worth $700,000, owing $400,000. Buy an investment property at $400,000 — combined assets $1,100,000, combined loans $800,000 = 72.7% LVR. No LMI payable.
Costs of Property Investment
One-off purchase costs
- Deposit — Typically 10% for investment properties
- Stamp duty — Often higher than on a principal residence; varies by state. Some states charge a surcharge on investment vs owner-occupier.
- LMI — Applies if your LVR exceeds 80% on the investment loan
- Legal and conveyancing fees — Typically $1,500–$3,000
- Government fees — Mortgage registration and title transfer
- Building inspection and pest report — Strongly recommended before purchase
Ongoing costs to factor into your cash flow model
- Council rates (landlord's responsibility)
- Property management fees (typically ~5% of rent collected)
- Building and landlord insurance
- Maintenance and repairs (generally tax-deductible)
- Water and utilities where not separately metered
- Vacancy periods — budget at least 2–4 weeks per year
- Strata levies if applicable (including special levies for capital works)
Interest-only vs principal and interest
Many investors prefer interest-only loans to maximise cash flow and keep deductible interest costs high. Interest-only periods are typically 5 years, extendable to 10–15 years with some lenders. After the interest-only period, the loan reverts to principal and interest — which significantly increases repayments. Ensure your cash flow model accounts for this reversion.
Always seek advice from a qualified accountant regarding the tax implications of your investment strategy. Tax outcomes depend on your individual circumstances. Nuafi brokers provide mortgage advice — not tax advice.
New vs Established
| Factor | New Property | Established Property |
|---|---|---|
| Depreciation deductions | ✓ Maximum — full building and fitout write-off | ✗ Limited — depreciable value is lower |
| Maintenance costs | ✓ Minimal early years; warranties apply | ✗ Can be substantial on older properties |
| Rental history | ✗ None — rental yield is a projection only | ✓ Known rental track record |
| Building defects | ✗ May emerge post-completion | ✓ Issues usually visible at inspection |
| Purchase price premium | ✗ Developer margin and GST built in | ✓ No developer premium |
| Initial rental yield | ✓ Often maximum rent achieved immediately | Variable |