Property investing | Build wealth long term - NAB

Property investing: what to know before you decide

  • Property investing usually aims to generate rental income, capital growth, or a mix of both.
  • It can offer long-term potential, but it can also involve upfront costs, ongoing expenses, vacancy periods and interest rate risk.
  • Tax may form part of the picture, but the rules can vary depending on the property, the expense and your circumstances.

How property investing works

Property investing means buying a property mainly to earn a financial return, rather than to live in yourself.

It works like this:

  • You buy a property (usually with a deposit and home loan)
  • You rent it out to tenants and collect regular rental income.
  • Over time, the property’s value may increase.
  • You might refinance or sell to unlock the profit.

Unlike buying a home to live in, an investment property is usually part of a broader financial plan. That means it’s important to think about how it fits with your cash flow, timeframe and comfort with risk.

How to make money through property

Here are two main ways property investment can deliver returns:

Rental income

Tenants pay rent, which helps cover your mortgage and expenses. Ideally, you make a small profit or at least break even while the property continues to grow in value.

Capital growth

This is the increase in the value of your property’s market value over time. When you sell for more than you paid, you earn a capital gain.

Returns aren’t guaranteed, and they can change over time. Rental demand, property values, interest rates and ongoing expenses can all affect how an investment performs. Some investors also look at tax outcomes, but tax treatment can vary and should usually be considered alongside cash flow, risk and long-term goals.

Pros and cons of property investment

Here’s a side by side look at the upsides and downsides.

Advantages

  • Potential rental income: Rent from tenants may help cover loan repayments and other property costs.

  • Potential long-term capital growth: If the property increases in value over time, you may benefit when you refinance or sell.

  • Equity-building potential: As you pay down your loan, or if the property value rises, you may build equity in the property.

  • A physical asset you can manage: Property is a tangible asset, and some investors value being able to make decisions about how it’s maintained or managed.

  • Can support long-term financial goals: For some people, an investment property may form part of a broader plan to build wealth over time.

Disadvantages

  • High upfront and ongoing costs: Buying and holding an investment property can involve upfront and ongoing costs, like deposit, loan repayments, rates, insurance, maintenance and other expenses.

  • Less access to your money: Property can take time to sell, so it may not suit people who need quick access to cash.

  • Changes in repayments or rental income: Interest rate changes, vacancy periods or changes in market rent can affect your cash flow.

  • Vacancy risk: There may be times when the property is empty and not earning rent, while ownership costs still need to be paid.

  • Ongoing responsibilities: You may need to manage tenants, repairs, maintenance and other property-related issues, even if you use a property manager.

Questions to ask before investing in property

Before buying an investment property, it can help to step back and test whether it fits your broader plans.

Ask yourself:

  • What role would this property play in my overall financial goals?
  • Am I prepared to hold the property for the long term?
  • How would I manage if my income or expenses changed?
  • Do I have enough of a buffer for unexpected costs?
  • Would I manage the property myself or use a property manager?
  • Have I spoken to the right experts before making a decision?

Tax considerations

If you own an investment property, there may be tax consequences. Depending on your circumstances, you may be able to claim certain property-related expenses or access certain concessions.

Common areas investors often need to understand include rental income and expenses, depreciating assets or capital works and capital gains tax if the property is sold.

The right tax treatment can depend on the type of expense, how the property is used and your individual circumstances. Because tax rules can change, it’s a good idea to keep clear records, check current ATO guidance or speak with a registered tax adviser if you’re unsure.

Support at different stages of the journey

Different experts can help with different parts of the property investment process.

A home loan expert can help you understand borrowing options, repayments and how an investment loan may work. A registered tax adviser can help with tax treatment, record-keeping and how current rules may apply to your circumstances.

You may also want to speak with a financial planner and a legal professional before buying, so you understand the purchase process and any responsibilities that come with owning the property.

Estimate the value of your property

Unlock valuable insights with NAB instant property reports, including an estimated rental yield.

Download a free property report

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Terms and Conditions

The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.

Target Market Determinations for these products are available at nab.com.au/TMD.