A beginner’s guide to property investment

New to property investment? Here’s everything you need to know about investing in Australia. Getting the right property, evaluating potential returns and more.

If you’re a novice in the property market, it’s crucial to be aware of both the benefits and the potential pitfalls of investing. It’s all about making smart investments, and to do that, you need to understand the market, evaluate potential returns, select the right property, and have appropriate risk mitigation strategies in place.
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Understanding the real estate market

The real estate market is heavily influenced by the forces of supply and demand. When demand outstrips supply, as is the case in Australia’s current housing supply crisis, prices can rise significantly.

Factors that influence property demand include:

population growth
interest rates
economic conditions

Australian property prices have a long-term record of capital growth stretching back more than three decades.

Key real estate terms and concepts that you need to understand as a potential investor include:

gross rental yield: this is the annual rental income you receive expressed as a percentage of the property’s value.
capital growth: how much a property increases in value over time (in percentage or dollar terms).
vacancy rate: this is the percentage of investment(rental) properties in the market that are currently vacant. Most areas of Australia currently have record low vacancy rates.
positive gearing: when your rental property income exceeds your property expenses.
negative gearing: when your rental property expenses exceed your tenant income, though this shortfall can be offset by tax benefits and capital growth over time.
rentvesting: an increasingly popular strategy of buying an investment property in a strategic location while still renting where you live.

Evaluating potential returns

When deciding which property to buy, it’s important to compare them and evaluate the potential return that each one will provide. The higher your rental yield, the better.

You should also assess the potential for capital growth by looking at both historical and current market trends in different locations. Some locations will provide you with both better capital growth and rental yield potential than others.

You should also consider the potential tax benefits when evaluating your potential returns. Unlike owner-occupier properties, expenses associated with investment properties are tax deductible and newly built properties will provide higher tax benefits when compared with older homes.
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Tips for selecting the right property

Different types of residential investment properties you can buy in the Australian real estate market include houses, townhouses and apartments. In addition, there are also multi-rental income solutions like dual-income and duplex properties available that can supercharge your investment return.

Ultimately, the right property for you depends on your investment needs and goals, as well as your investment budget. Here are some tips to help you select the right property.
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Tip 1: Identify your property investment goals:

For example, are you looking to maximise your:

capital growth potential
rental income potential
tax benefits, or
a combination of all three?

Some locations will provide you with better capital growth and higher rental yield potential than others.

Tip 2: Work out your budget

This includes determining your borrowing power so you can work out which properties you can afford. Your borrowing power will depend on factors such as your income and the loan repayments you can afford to make. It’s worthwhile speaking to a finance professional.

Tip 3: Research the market

This is the most crucial part, and once again, it’s best to get professional advice on suitable properties and locations to achieve your investment goals.
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Risk mitigation strategies

Risks associated with investing in the property market include:

paying too much to buy or build.
construction delays if you decide to build.
your property being untenanted, or vacant for an extended period, depriving you of rental income and reducing your return on investment (ROI).
lower than expected rental yields.
additional out-of-pocket costs.

However, you can also eliminate all these risks by getting professional advice before you invest.

You should also take the time to educate yourself as much as possible. Make sure you’re up to date with the latest property trends by watching webinars and reading topical articles.

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How we can help

Our expert team at DPN can help you with all aspects of property finance, investment and ongoing management.

Key takeaways

Even if you’re a beginner in the real estate market, you can reap the benefits and avoid the potential pitfalls by:

taking the time to understand the market so you know where to invest.
evaluating and comparing the potential returns of different types of properties.
selecting the right property to achieve your investment goals.
implementing appropriate risk management strategies.

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