Are you thinking about getting started with property investing but don’t know where to begin? You’re not alone. With so much information online, it’s easy to feel lost. Many first-time investors ask, “Can I afford an investment property?” or “What’s the best place to buy an investment property in Australia?” This guide covers 10 key things you need to know before buying, helping you avoid costly mistakes and make smarter investment choices.
1. How Does Capital Gain Work in Property Investment?
Capital gain happens when a property increases in value beyond what you originally paid, plus what you've spent on improvements and repayments.
For example, if you buy a property for $200,000, spend $40,000 on upgrades, and pay $50,000 in loan repayments, then sell it for $350,000, your gross capital gain is $60,000.
Capital gains matter because they impact your tax obligations and your return on investment. Many investors aim for long-term capital growth, especially in areas with strong demand, infrastructure development, or population growth.
Ask yourself: Is the suburb I’m investing in likely to grow in value over the next 5–10 years?
2. What Is Equity and How Can You Use It to Invest?
Equity is the difference between your property's market value and the amount you still owe on the loan. It's your financial stake in the property.
If you purchase a home for $300,000 and pay a $30,000 deposit, you owe $270,000. That means you start with $30,000 in equity. As your property's value increases or your loan balance decreases, your equity grows.
You can use equity to fund a deposit for another investment property. This is how many investors build portfolios—by leveraging the growth of one asset to fund the next.
Have you checked how much usable equity you already have in your current home or investment?
3. What Is an Investment Property Strategy and Why Do You Need One?
An investment strategy is your plan to achieve your financial goals through real estate. It defines what you want—short-term cash flow, long-term capital growth, or a mix of both.
Some investors buy and flip for quick profits. Others buy and hold for decades to build equity and passive income. Your strategy should align with your risk tolerance, income, and long-term financial goals.
Sit down with your mortgage broker, accountant, or financial adviser to develop a plan that suits your lifestyle and goals.
4. How Do Interest-Only Loans Work for Investment Properties?
An interest-only loan lets you repay only the interest on your mortgage for a set time—usually between 1 to 5 years. After that, you begin paying off the principal and interest.
Investors use this option to reduce repayments early on, improve cash flow, and potentially benefit from tax deductions. It’s popular with those who plan to sell the property soon or who want to keep costs low while renting it out.
Are you trying to maximise your rental return in the early years of owning your property?
5. What Are Honeymoon Rate Loans and Should Investors Use Them?
Introductory or 'honeymoon rate' loans offer a lower interest rate for the first 6–12 months, after which it reverts to the standard rate.
This can be helpful if you're renovating or developing and expect to sell or refinance quickly. But be careful—after the honeymoon period ends, your repayments can jump.
Always check the comparison rate and make sure the long-term cost aligns with your goals.
Would a short-term rate cut help you grow your portfolio faster?
6. What Is a Line of Credit and How Can Investors Use It?
A line of credit is a pre-approved loan amount you can draw from as needed. You pay interest only on what you use.
It’s ideal for experienced investors who want to act quickly on opportunities. If you're always scanning the market for your next purchase, a line of credit gives you the flexibility to move fast.
Do you want the freedom to jump on a great deal without going through a full application each time?
7. What Is a Redraw Facility and When Should You Use It?
A redraw facility lets you make extra loan repayments and then withdraw them later if needed.
It’s a simple way to pay down your loan faster while keeping access to your money. For investors, this adds flexibility—especially when dealing with multiple properties.
Have you made extra repayments you could use to fund a deposit or cover renovation costs?
8. How Do All-in-One Accounts Work for Investment Properties?
An all-in-one account combines your home loan, savings, and everyday transactions into one account.
All your income goes into this account, helping reduce your interest because the loan balance is offset daily. This setup can help you manage cash flow efficiently, but you need strong budgeting habits to make it work.
Are you disciplined enough to treat your loan account like a business tool?
9. What Is an Offset Account and How Can It Save You Money?
An offset account is a savings or transaction account linked to your loan. The money in it offsets your loan balance when interest is calculated.
If you owe $400,000 and have $40,000 in your offset, you’ll only pay interest on $360,000. It’s a great way to reduce interest while keeping your savings accessible.
Would you rather lower your interest than earn minimal savings account interest?
10. How Do Construction Loans and Bridging Finance Work?
A construction loan allows you to borrow in stages as the property is built. You only pay interest on the money drawn down.
This suits investors building new homes, townhouses, or duplexes. It keeps costs low during construction and gives you control over the draw schedule.
Are you working with a builder on a turnkey SMSF property or dual-occupancy project?
Bridging finance lets you buy a new property before selling your existing one. Once your old property sells, the proceeds pay down the bridging loan.
It’s useful when upgrading or relocating but comes with higher risk—especially if your old home doesn’t sell quickly.
Have you got a plan B if your old property takes longer to sell?
Final Thoughts: Can You Afford an Investment Property?
Understanding the language of property investment helps you make confident decisions. Whether you're refinancing an investment property, considering your first purchase, or looking for the best place to buy an investment property, having a solid grasp of the basics is essential.
Speak with a mortgage broker who can help you:
- Assess your borrowing power
- Refinance existing loans
- Unlock equity
- Build a plan around your goals
FAQs
Q: Can I afford an investment property?
A: Start by assessing your income, expenses, and borrowing power. A broker can help you estimate repayments and identify available loan options.
Q: Should I refinance my investment property?
A: Yes, especially if your rate is uncompetitive or your equity has increased. Refinancing can also free up funds for your next investment.
Q: What’s the biggest mistake property investors make?
A: Buying without understanding the numbers—especially the ongoing costs and exit strategy.
Q: Where is the best place to buy an investment property?
A: It depends on whether you’re chasing yield or growth. Talk to a property advisor for tailored insights based on your budget and goals.
Still wondering, "Can I afford an investment property?" or "Am I making a costly mistake when selling my investment property?" Let’s talk.
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Corry Cincotta
Business owner, property investor, passionate about helping others achieve financial goals.
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