How to determine if you can afford an investment property

February 14, 2025 by Shae Aiello

When considering investing in property, it’s important to have a solid understanding of your borrowing capacity, rental income requirements and the ongoing costs you will need to budget for as a landlord.

Buying an investment property is a popular way to grow your wealth. Around 2.2 million Australians (around 20% of the tax-paying population) own at least one investment property.¹

Before you take a step onto the property investment ladder, make sure you have a thorough understanding of what you can afford upfront and how much it will cost you to rent out the property. Keep in mind that the upfront and ongoing costs of a rental property can be substantial, and it will take time to recoup these costs under normal market conditions.

Your borrowing capacity

Danielle Williams, your local Mortgage Choice broker, can help you determine your borrowing capacity so you understand your budget when it's time to start looking for a property.

The discussion with your mortgage broker will include:

whether you will need a cash deposit or if you can use equity from an existing property
your ability to meet your loan repayments and expenses, including in tough times – e.g. if the property isn’t tenanted for weeks or months
how much you can afford to spend on property upgrades such as renovations, repairs and landscaping
how much you will need for upfront costs and ongoing maintenance expenses
what type of loan (e.g. fixed rate loan, interest only line of credit) is right for you.

Once Danielle has a solid understanding of your financial situation and investment goals, she can give you an indication of your borrowing capacity and help you apply for pre-approval for an investment loan. Lenders will assess your borrowing capacity in the same way they do for an owner-occupied loan; however, they’ll also take the potential rent into account as an additional source of income for you.

Budgeting for ongoing costs

As a landlord, you will incur various expenses associated with owning and tenanting your investment property. These include rates and body corporate fees, as well as insurances to protect your asset.

You may be able to claim most of your rental property expenses on your tax return, which makes the bills more manageable (always check with your accountant). These expenses may include:

advertising for tenants
accountant's fees
interest on your investment loan
council rates, body corporate fees, land tax and strata fees
repairs, maintenance, pest control, cleaning and gardening
insurance on your rental property
depreciation on the building and some fixtures and fittings.

While the ongoing costs can be substantial, they’re essential for protecting your investment and keeping the property in good condition. This ensures that the property is appealing to renters and also to potential buyers when you’re ready to sell. It’s better to overestimate how much you may need for these costs so you’re not caught short. Your Mortgage Choice broker Danielle Williams can help you with this.

What is negative gearing?

Negative gearing occurs when the cost of owning a rental property outweighs the income it generates each year. This creates a taxable loss, which can normally be offset against other income including your wage or salary, to provide tax savings.

It is advisable to speak to your tax advisor or accountant for practical advice.

Get in touch

Even if you’re brand new to property investing, many resources are available to equip you with the knowledge and confidence to take that first step on the property investment ladder. And you don’t have to do it alone.

If you’re keen to buy an investment property, contact your local Mortgage Choice broker Danielle Williams on 0433 841 593 or danielle.williams@mortgagechoice.com.au. She would love to help you get started!

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[¹] ATO, Taxation Statistics 2020-21, published 8 June 2023