7 Critical Questions to Ask Before You Invest in Property

7 Critical Questions to Ask Before You Invest in Property


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7 Critical Questions to Ask Before You Invest in Property

7 Critical Questions to Ask Before You Invest in Property

Our team speaks with new investors everyday and we’ve noticed that there are a few common questions we get asked. 

Investing in property is not a small decision. It’s a complex process that requires a lot of capital and thought. 

If you’re wondering whether you want to invest this year, what you should buy and where, we’ve got the data-backed answers you need to make a decision to move ahead. 


1. Where Should I Invest?

Most common questions:
  • “Which cities or regions offer the best opportunities for property investment?”
  • “Are there specific suburbs that are more favorable for property investment?”
Our response:

There are so many factors involved in answering these questions, and the main reason for this is that everyone’s individual circumstance is unique. 

Firstly, you’ll need to understand your investment goals. Are you trying to generate regular rental income? Or are you happy to wait for long term capital gains? 

Secondly, property affordability is a massive barrier to entry for some aspiring investors. This is mainly the case if you have your hopes set on investing in Sydney and Melbourne. Luckily when it comes to affordability, PropHero is able to scan the entire nation for affordable areas that deliver high growth at lower risk. 

And lastly, it depends if you want to invest in commercial property, a free standing house, townhouse or apartment. All of these factors will really impact where you, as a unique person, should invest. 


2. What are the current trends in the property market in Australia? 

Most common questions:
  • “What is the current state of the property market in Australia?”
  • “Are property prices expected to rise or fall in the near future?”
Our response:

Many factors have changed the property market in Australia, and there’s no point skirting around the big elephant in the room – Covid. 

It’s not all bad though. Remote working conditions have opened up employment opportunities to Australians and have empowered many new people to enter the property market.

That being said, we’re also consistently asked about interest rates and mortgage conditions and this is a very fair question for all new investors. Interest rates have a direct impact on property prices. The two years we’ve seen fluctuations between the two. 

Our biggest recommendation for anyone concerned about this is to not worry so much about prices now and interest rates right now. The results you’ll get from investing in property occur over time. And the sooner you enter the market, the sooner you’ll reap the rewards. 


3. What financing and mortgage options do I have?

Most common questions:
  • “What are the current interest rates for mortgages?”
  • “How much deposit do I need to secure a property?”
Our response:

If you’re looking to invest in property this year, you should be less concerned with interest rates and more concerns with these critical factors:

  • Cash flow analysis
  • If you have pre-approval
  • The loan-to-value ratio (LTV)
  • The sum of your down payment and equity options

As stated above, investing in property is a long term game and the interest rate you borrow with now, will not be the same in five or 10 years. Assess your personal budget and financial situation first and then find a mortgage that suits your situation.


4. What taxes do I need to know about?

Most common questions:
  • “What tax benefits are associated with property investment?”
  • “How does negative gearing work, and is it a viable strategy for me?”
  • “Are there any recent changes in tax laws affecting property investors?”
Our response:

Tax in Australia is a massive topic, and it’s important for you to be familiar with a few terms if you’re looking to invest in property. Below we’ve listed the biggest considerations for you:

Capital Gains Tax (CGT):

  • Capital Gains Tax is applicable when you sell a property for a profit. The capital gain is calculated as the difference between the selling price and the purchase price. However, there are concessions and discounts available, especially for properties held for longer periods.

Negative Gearing:

  • Negative gearing occurs when the costs of owning a property (e.g., mortgage interest, maintenance, and property management fees) exceed the rental income. Investors can deduct these losses from their taxable income, potentially reducing their overall tax liability.

Rental Income:

  • Rental income is generally considered taxable. Investors need to report the rental income they receive and can claim deductions for eligible expenses associated with managing the property.

Stamp Duty:

  • Stamp duty is a state-based tax levied on property transactions. It’s a significant upfront cost that investors need to factor in when purchasing a property.

Land Tax:

  • Land tax is an annual tax levied on the value of land owned by an individual. The rules and thresholds for land tax vary between states and territories.

Goods and Services Tax (GST):

  • Generally, residential properties are exempt from GST. However, commercial properties and new residential properties may be subject to GST. Understanding the GST implications is crucial when buying or selling property.


  • Investors can claim depreciation on the building and fittings of an investment property. This can be a significant tax deduction, but it requires a depreciation schedule prepared by a quantity surveyor.

Home Office Deductions:

  • If a portion of the property is used for business purposes, investors may be eligible for home office deductions. This is applicable to those who operate a business from their investment property.

First Home Buyer Grants:

  • First-time home buyers may be eligible for grants or concessions provided by state or territory governments. These grants can vary, and eligibility criteria apply.

Foreign Investment Rules:

  • Foreign investors should be aware of additional taxes and regulations, including the Foreign Investment Review Board (FIRB) approval process and the Foreign Acquisitions and Takeovers Act.


5. What are the biggest risks of investing in property?

Most common questions:
  • “What are the potential risks associated with property investment?”
  • “How can I mitigate risks in my property investment portfolio?”
Our response:

There are risks to investing in anything in life, but for us we’ve listed two of the ones we think you should be aware of when it comes to real estate investing. 

Vacancy rates

  • It’s critical for any property you invest in to be occupied with tenants. You’ll want to ensure you have a vacancy rate of less the 1% to ensure you’re never left out of pocket

Over leveraging

  • Borrowing too much in the face of fluctuating market conditions can also heighten your risk with property. This is why it’s critical to assess your financial situation before entering the investment market. 


6. What’s a good return on investment?

Most common questions:
  • “What kind of return can I expect on my property investment?”
  • “How do I calculate the potential return on investment for a property?”
Our response:

One again, this really depends on your unique situation and goals. When we get asked this by clients, the first thing we say is that it depends on whether you want capital gains, strong cash flows, or a mixture of both. 

Depending on what you are looking for, our team will work with you to find the right property to meet your goals. 


7. What legal and regulatory factors do I need to be aware of? 

Most common questions:
  • “What legal aspects do I need to be aware of when buying an investment property?”
  • “Are there any zoning or planning regulations I should consider?”
Our response:

The process for purchasing an investment property is the same as purchasing a property you want to live in. If you use PropHero to invest in property, we’ll partner you with the right conveyancer to help you with this process. This is a seamless process that you’ll be guided through every step of the way. 

Still unsure about something? Book in time with our team today and they’ll run you through everything you need to know about investing in property in Australia. 

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