It’s the start of a new financial year, when many people revisit their goals and consider building wealth. And for a lot of Australians, that means one thing: buying an investment property.
But before you jump into the market, there are some crucial things you need to know. Whether you’re new to investing or ready to expand your portfolio, understanding these five points can save you from costly mistakes and set you up for long-term financial success.
1. Don’t Just Buy: Buy Smart
Location matters. Property type matters. Who you buy from matters.
I’ve seen too many clients lose money because they bought the wrong type of property, often a shiny new unit with high costs and low returns. It’s not just about “getting in the market.” It’s about buying the right asset for rental income and capital growth over time.
Tip: Don’t go it alone. A reputable buyer’s agent can help you do the research and negotiate better deals. And get a mortgage broker early to understand your borrowing power.
2. Negative Gearing Isn’t Everything
Negative gearing is when your rental property makes a loss and you claim that loss as a tax deduction. But let’s be clear: losing money to get a tax refund isn’t smart investing.
You might get a portion of that loss back at tax time, but you’re still out of pocket. Positive cash flow should be your goal. A property that earns more than it costs to hold gives you financial freedom and reduces stress.
3. Ownership Structure Matters
Should you buy in your own name? In your partner’s name? Or through a trust?
There’s no one-size-fits-all answer. It depends on your income, your partner’s income, your long-term goals, and even what state you’re buying in (because land tax rules vary).
Get advice from your accountant before signing anything. The wrong ownership structure could cost you thousands in tax and limit your flexibility later.
4. Know How Income and Expenses Work
When it comes to tax time, not everything is deductible. Your loan repayments aren’t; only the interest is. Significant upfront costs like stamp duty and legal fees aren’t immediately deductible either; they add to your property’s cost base for when you eventually sell.
But the good news? You can still claim ongoing expenses like council rates, insurance, agent fees, and repairs. Plus, with the right property, depreciation can give you even more tax deductions. I often refer clients to companies like Duo Tax for a depreciation schedule.
5. Repairs vs Improvements: Know the Difference
Replacing a single tile on your roof? That’s a repair, and it’s tax-deductible.
Replacing the entire roof? That’s an improvement and must be claimed over time through depreciation.
Understanding the difference can make a significant impact on your cash flow and your tax return.
Final Thoughts
Property can be a powerful wealth-building tool only when you get the basics right. Surround yourself with a good accountant, an innovative mortgage broker, and a buyer’s agent who knows their stuff. That’s your dream team.
And remember, the goal isn’t just to own property. It’s to own the right property, in the right way, for the right reasons.
Thinking about buying an investment property? Let’s talk strategy before you sign anything. I’m here to help you make decisions that serve your future, not someone else’s commission.