Investing in Property

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Investing In Property – What You Need to Know

Owning your own home has long been known as the Great Australian Dream, but these days, investing in property seems to come a pretty close second. Over the past 25 years, the median house value in Australia has grown 412%, compared to the ASX, which has grown 261%.[i] So let’s have a look at some of the unique issues and opportunities of investing in property.


Owning property brings with it the responsibility for maintaining a physical asset, so unlike many other investments, there are ongoing variable and often unpredictable costs associated with investing in property.

Although buying and selling shares carries a cost, and there are ongoing management fees related to managed funds and superannuation, these are calculable up front, which is not always the case with property.

That said, many of these costs can be offset in your tax, as you’ll see later.


Despite current trends, investing in property, particularly in Sydney, is generally considered a low-risk investment. However, there are ancillary risks associated with property investment:

  • Poor Tenants – who may be late in paying rent, or damage your property
  • Inability to find suitable tenants – meaning your investment may not always provide you with a return
  • Property Damage – whether accidental or deliberate, including fires and floods as we have seen recently, can mean not only major costs in repairs, especially if you are not properly insured, but an inability to have your property tenanted in the meantime, impacting your income and possibly your ability to meet any loans you may have over the property


There are three key tax implications when you invest in property, which you need to understand to ensure you claim what you’re entitled to, whilst remaining within the letter of the law:[ii]

  • Immediate Deductions
  • Depreciation
  • Capital Gains Tax

Immediate Deductions

Expenses related to the upkeep and management of your property that you can claim in your tax return of the year they were incurred include:

  • Advertising for tenants
  • Body corporate fees and charges
  • Council rates
  • Water rates
  • Cleaning
  • Gardening and lawn mowing
  • Pest control
  • Insurance, including building, contents, public liability, and tenancy/rental loss
  • Interest – on borrowing related to the property
  • Prepaid expenses – such as insurance premiums
  • Property Agents fees and commission
  • Repairs and maintenance
  • Legal expenses

You cannot claim principal loan repayments, personal expenses, or travel to visit the property.


There are expenses related to investment properties, which can be claimed over several financial years as depreciation, generally 2.5% every year for 40 years from the date the improvement was completed. These include:

  • Capital Works – anything that increases the value of your property, like renovating a bathroom or kitchen
  • Borrowing Expenses – such as loan establishment fees, valuation reports, title search fees and lenders mortgage insurance
  • Depreciating Assets – such as carpets, roofing, hot water systems
  • Initial Repairs – expenses incurred to fix existing damage after purchasing your property

You cannot claim depreciation on second hand furniture or existing carpet, and if you rent your own home you cannot claim assets that were already in your home.

Capital Gains Tax

If and when you decide to sell your investment property, you may incur Capital Gains Tax. As such, it’s important to seek professional advice on what that amount may be, and precisely when to sell your property to minimise the impact of CGT on your overall financial position.

Sometimes deferring sale till the next financial year, or bringing it forward into the current financial year, can make a significant difference.

Timing Expenses

Timing when you undertake repairs or maintenance can be important. For expenses that can are classed as immediate deductions, timing them so they fall towards the end of the financial year means you are able to claim them back immediately, which has a positive effect on your cash flow.

Even though capital improvement expenses are claimed over a number of years, if you incur them shortly before the end of the financial year you can start claiming them a lot sooner than if they were completed in the first half of the financial year, for instance.

Making Money

There are essentially two ways to make money in property investment:

  1. Rental Income – if your rental income exceeds your outgoings the surplus provides you with an income. This can be a worthwhile way to generate income during retirement if you have sufficient funds to purchase a property and are prepared for the ongoing costs and management required.
  2. Capital Growth – if you hold your investment property long enough, the growth in its value will provide you with a capital gain. Of course, this needs to be offset against any costs incurred during ownership, and any capital gains tax payable when you sell the property to determine whether there has been a profit.

When To Buy

The purchase of a property should be a strategic decision, based on your overall financial portfolio. While time in the market almost always trumps timing the market, there are a few factors that can impact your decision-making.

Rising interest rates can be a double-edged sword for those looking to purchase. Whilst the increase in rates does mean house prices are dropping, it also means the cost of borrowing is higher and there are fewer properties on the market.

Some sellers are not keen to let their properties go in a falling market. In fact, as at 11 July, the Auction Clearance rate in Sydney was 55%, compared to 73% at the same time last year.[iii]

That said, if you have the funds and are prepared to wait, the next few months could be a good time to pick up a property. Particularly as the rental market is tight, so rental returns will continue to be high.

Professional Advice

Once you have decided you would like to begin investing in property, it can be worthwhile to engage an experienced property manager to rent it out and manage it on your behalf. This takes a lot of the stress out of finding tenants and maintaining your property.

It is also important to find an accountant experienced in property investment to ensure you have the right advice on claimable expenses and deductions.

If you would like to make investing in property part of your financial portfolio, Manly Financial Services have the expertise and resources to help ensure you get the most from your investment. Please give us a call on (02) 9976 3388 to have an initial chat, or contact us via the below link.


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