January 13, 2025 by Lisa Elliott
Investing in property can be a powerful step toward building wealth, but before diving in, it’s crucial to understand your budget and the ongoing costs involved. Around 2.2 million Australians own at least one investment property1, but only a well-prepared few truly benefit from the investment. Here’s how to set yourself up for success.
Step 1: Understand Your Borrowing Capacity
A solid understanding of your borrowing capacity is essential. This includes not only how much you can borrow but also what you can realistically afford in both the best and worst-case scenarios. Lisa Elliott can help you evaluate:
- Whether you need a cash deposit or if existing property equity can be leveraged.
- How comfortable you’ll be meeting loan repayments during vacancy periods.
- Your budget for property upgrades, repairs, and landscaping.
- How much to set aside for upfront and ongoing maintenance costs.
- The type of loan structure that’s best suited for your needs, such as fixed-rate or interest-only loans.
Once I have a solid understanding of your financial situation and investment goals I can give you a clear picture of your borrowing capacity and help you apply for pre-approval before you start searching. Much the same as when applying for an owner occupy loan, lenders assess your borrowing capacity based on your financial position but will add in the investment property’s potential rental income.
Step 2: Budget for Ongoing Property Expenses
Being a landlord comes with a range of costs beyond the mortgage. This includes council rates, body corporate fees, and insurances, which help maintain and protect your asset. Common ongoing expenses may include:
- Advertising for tenants
- Property Management fees
- Accountant fees and loan interest
- Council rates, strata fees, and land tax
- Repairs, maintenance, pest control, and gardening
- Property insurance, and depreciation on fixtures and fittings
A budget that accounts for these expenses helps keep your property in good condition and appealing to tenants, and maintains its value when you’re ready to sell. Many expenses can be claimed on your tax return, so check with your accountant for specifics on rental property deductions.
Step 3: Know the Basics of Negative Gearing
Negative gearing is when the costs of owning your rental property exceed the income it generates, creating a taxable loss. This can sometimes be offset against other income, like your salary, resulting in tax savings. Your tax advisor or accountant can offer insights tailored to your financial goals.
Get Support in Your Property Investment Journey
There’s plenty to learn as a new property investor, and having a professional to guide you can make the journey easier. Reach out to discuss your investment plans and get tailored guidance on how to afford an investment property with confidence.
[1] ATO, Taxation Statistics 2020-21, published 8 June 2023
