Finding the right investment property

The right investment property can deliver both a combination of capital growth and regular income via rental payments. And once you retire, this rental income can then help to finance your post-work lifestyle.


Location, location, location

If achieving consistent cash flow is essential for your needs, it’s important that your investment property is occupied by tenants as much as the time as possible: no tenants means no income.

This comes down to buying the type of property that meets the typical needs of potential tenants, including being close to transport, schools and shops.

Finding the right investment property requires plenty of legwork. Fortunately, the internet makes this relatively easy, with online real estate sites enabling you to search for properties around the clock, no matter where you’re based.

So where should you buy? We’ve all heard the “Location, Location, Location” mantra and that’s for a good reason. As a rule, the aim is to buy a quality, well-located investment property, where future tenants want to live.

The best locations are likely to be close to facilities such as schools, universities, hospitals, and transport including buses, railway stations and even airports. The right investment property will also often be in close proximity to shopping precincts, popular entertainment quarters and parks.

The benefits of buying an investment property

History shows that buying a quality, well-located investment property is likely to generate long-term returns and is a great way to help fund a decent lifestyle after you retire.

It stands to reason that as a retiree, a property that can potentially generate plenty of income, as well as some growth to protect your capital against inflation, will make a valuable investment.

In addition to capital growth and rental income, there may also be some tax breaks that assist with the cost of owning and selling an investment property. These breaks include the ability to claim expenses, where eligible, such as property management fees, rates and levies, mortgage interest and legal fees as tax deductions.

When the time comes to sell the property, you could also benefit from a capital gains tax discount ,which could potentially reduce your capital gain before tax by 50%. The 50% discount may apply if you have owned your investment property for at least one year.1 To calculate your capital gain (profit before tax), subtract the sales price from the purchase price, less any incidental costs such as legal fees or stamp duty.

For example, let’s assume you made a capital gain before tax, after costs, of $300,000 from the sale of a property. After the 50% discount is applied, the taxable capital gain is $150,000 and this amount is added to your taxable income. The tax that you’ll pay at the end of the financial year will reflect the capital gain included in your income.

Calculating the impact of the sale of an investment property can be complicated, so it’s important that you seek the advice of your financial adviser early on.

Next: Investing for property profit



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This information is current as at 20/10/2020.

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.

This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice.

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