Buying an investment property: 6 steps

At a glance

1. Know what you could afford
2. Know your expenses
3. Your investment strategy
4. Research the market
5. Choose your property
6. Settle and plan ahead

Step 1. Know what you could afford 

Before you start searching for property, get a clear picture of your financial situation. That means: 

• Getting your deposit together. 
• Reviewing your income, expenses and debts. 
• Checking your credit score. 
• Estimating how much lenders might lend you. Our borrowing power calculator offers two tabs: affordability and maximum loan.
• Factoring in upfront and ongoing costs like stamp duty, legal fees, council rates, and landlord insurance.

Already own an existing home? Check out our home equity calculator, as you may be able to use the equity in your own home to help fund your investment property purchase.

Tip: Get pre-approval for a home loan so you know what you can afford – and can move quickly when you find the right property.

Understanding home loans for investors

Investor loans tend to have the same features as Owner Occupier loans. But there are some differences, like a higher interest rate. At Westpac, you can apply for up to 15 years of Interest Only repayments. And you could opt for an extra fixed rate discount by paying 12 months’ Interest Only in Advance on a Fixed Rate Investment home loan. Certain terms, conditions and credit criteria may apply.

Step 2. Understand all your expenses and budget

Beyond the purchase price, there are other costs to plan for which may include: 

• Mortgage repayments and interest
• Property management fees
• Maintenance costs and repairs
• Strata fees
• Insurance (including landlord insurance) 
• Tax advice and accounting fees 

Rental income can help cover these, but it’s smart to budget for times when the property may be vacant. A good property manager could help you find reliable tenants and manage all your expenses.

Don’t forget to factor in exit costs, like agent fees and legal charges if you decide to sell, which could affect your overall profit.

Managing ongoing costs

If you want your investment property to stay profitable, carefully manage what you spend. Remember to factor in costs like mortgage payments, property management fees, fixing things that break, insurance, finding a new tenant, council fees, and any strata fees. This will help you manage cash flow and avoid surprise bills. 

Even though your rental income helps pay for these costs, it’s worth planning for times when no one’s renting it. A good property manager can help you maximise returns and minimise risks.

Step 3. Set your investment strategy

What’s your plan? Are you chasing long-term capital growth, strong rental yield, or a mix of both?

Think about:

• How hands-on you want to be (DIY or use a property manager?)
• Your risk appetite
• Whether you’re planning to sell in the short or long term (and the exit costs involved)

Having a clear idea helps you to stay focused and choose an investment property that suits your plan. For example, if you switch to interest-only repayments, know that your repayments could rise once the term ends, which could impact your cash flow. 

Choosing your investment property team

Property investing is about who you know and what you know. So it’s helpful to surround yourself with professionals to access tax advice, knowledge, property research and off-market viewings. Check out our investment property team guide.

How to calculate rental yield

This tells you how profitable a property could be, based on the income you expect to receive from rent against the costs of owning and maintaining it.

Gross rental yield is the property’s total value divided by the expected annual rent, multiplied by 100 to get a percentage. Let’s say you have investment property worth $500,000 with expected weekly rent of $500. The gross rental yield is: 

$26,000 ($500 x 52) / $500,000 = 0.052 x 100 = 5.2% 

Net rental yield includes all your property investment costs and fees. Let's say the total annual costs to maintain that property are:

• $1200 council rates ($300 per quarter * 4) 
• $2000 strata ($500 per quarter * 4) 
• $520 property management fee 
• $1200 property insurance
  (total of $4,920) 

The property’s net rental yield would be: 

$26,000 ($500 x52) – $4,920 / $500,000 = 0.042 x 100 = 4.2%

This calculation is just an example and not based on actual costs to maintain a property. Costs and calculations may vary depending on your personal circumstances. As net rental yield is used to compare property performance, it doesn’t include home loan repayments, because that depends on personal situation. To estimate yours use our repayment calculator.

Your Risk Management Plan

Property markets shift, so plan for things like market changes , tenant issues, interest rate rises, an empty property and legal costs. Then, look at how likely each risk is, and ways to reduce the risks with things like insurance, legal guardrails and having a savings buffer.

Choosing the right ownership structure

Our guide to structuring ownership helps you explore the pros and cons of owning property by yourself, with someone else, in a group or a family trust. It’s a good idea to talk to a tax adviser and lawyer before you decide.

Step 4. Research the property market

This is where you dig into the details. When buying an investment property look at:

• Suburb trends and vacancy rates
• Expected rental income and rental yield
• Property value growth and capital gains potential
• The property's location – is it close to public transport, schools, shops, and other amenities?

Use tools to compare rental income, property increases, and rental yield across different areas. Low vacancy rates and higher rents can be signs of strong demand. Search an address or suburb.

Step 5. Choose the right investment property

When buying an investment, think like a tenant. Look for: 

• Practical layouts and natural light
• Features like a garage, extra bathroom, or home office
• Properties that are low-maintenance and in good condition.

Older homes might need more maintenance, so factor in the maintenance costs. Always get a building and pest inspection before you buy. Check out our guide to investment property types.

Step 6. Finalise settlement and plan ahead

Once you’ve found the right investment property and your offer is accepted, you’ll go through the settlement process. This includes: 

• Finalising your home loan
• Signing the contract
• Paying stamp duty and legal fees
• Transferring ownership

After settlement, you’ll need to set up how you’ll manage the property, review your lease agreement, and prepare for tax time. The Australian Taxation Office has rules around claiming investment property cost deductions, so again, it’s worth getting professional tax advice.

Ready to take the next step?

Investing in property is a big decision – but with the right planning, it could be a smart way to grow your wealth. Use our tools to estimate your borrowing power, compare home loan options, and calculate rental yield.

Here are some key factors that could help ensure your investment proves to be a good one.

Capital growth

Capital growth is basically the increase in the value of the property over time. Look into the growth-trend indicators for the property you’re thinking of investing in – what’s the median sale price for the suburb? Has it increased over the past few years? 

Our property market research tool is a good way to get a sense of capital growth in areas you’re looking at. It provides a comprehensive overview of properties and suburb trends across Australia, including past sales in the area, demographic information, nearby schools and median rental income.

This information could help you build a picture of what your capital gains (ie: how much you gain financially based on the capital growth of the property) may look like over time.

Rental demand and yield

Investors often plan on renting out their property to generate income and help cover costs. Researching areas with strong rental demand and yield is an important part of assessing the financial viability of an investment property.

Rental yield is a calculation of how profitable a property can be, based on the expected rental income balanced against the costs of owning and maintaining the property. These include mortgage repayments, strata fees, council fees, maintenance and insurance. Ideally, you should have a steady, reliable rental income that goes some way towards covering these costs.

Looking into the performance history of other similar properties, including vacancy rates, average rental yield, median weekly rent and its potential growth rate, plus what types of property are in demand with tenants, may help with these calculations. 

Rental yield can be calculated in gross and net terms. Gross rental yield is the total value of the property divided by the expected annual rent, multiplied by 100 to get a percentage.

For example, an investment property worth $500,000 with expected rental income of $500 per week gives you the gross rental yield of:

$26,000 ($500 x 52) / $500,000 = 0.052 x 100 = 5.2%

Net rental yield is slightly more complex, as it factors in all your costs and fees, such as council rates, strata levies, property management fees, depreciation and insurance. 

Using the same example above, assume the total annual costs to maintain the property are:

• $1200 council ($300 per quarter * 4)
• $2000 strata ($500 per quarter * 4)
• $520 property rental fee 
• $1200 property insurance
  (total of $4,920)

The net rental yield of the property would be:

$26,000 ($500 x52) – $4,920 / $500,000 = 0.042 x 100 = 4.2%

It’s worth noting that this figure doesn’t include your home loan repayments, as that depends on individual situations (our repayment calculator can help you estimate this). Also the above calculation is just an example and not based on actual costs to maintain a property. Costs and calculations may vary depending on your personal circumstances.

Location

Location, location, location – it’s a real estate cliché for a reason and it’s just as valid for investors as the people who live in the property. Put yourself in a prospective tenant’s shoes and think about what they will be looking for in a rental. Proximity and convenient access to public transport, schools and other amenities that are part of most people’s lifestyles, such as shops and restaurants, will make the property more appealing to a tenant.

In more general terms, a neighbourhood’s safety and general vibe are both important factors when figuring out its growth potential. For example, if the area is likely to undergo development that will bring more shops and cafes or there are big infrastructure projects that could mean more local jobs, these things may increase the attractiveness of the property’s location as well as its value.

Type of property

While the decision on whether to invest in a house or a unit will be largely determined by your budget, you should think about the type of property in the context of location too. 

For example, a house with a backyard will likely be more appealing to tenants in a family-friendly suburb, rather than a compact apartment. Similarly, a modern apartment may see higher rental demand in areas near universities, where there’s usually a high volume of students looking to rent. It’s really important to understand the demographics of the area and choose accordingly. 

Houses are generally more expensive to buy and insure, and can require more maintenance, but equally, they can fetch higher rents on average and have higher capital growth. On the flip side, units generally start at a lower price point and require less maintenance, but there can be other costs such as strata fees to think about.

In fact, strata fees are just one of a list of ongoing maintenance costs, which you also need to think about when it comes to deciding whether to invest in a house or apartment.

Age of the property

This is an important factor that can have an effect on the cost equation. Investment properties typically involve ongoing expenses, so you want to make sure you don’t buy a property that is a drain on your finances through maintenance costs.

Older properties might need more maintenance, but it all depends on the condition they’re in – be sure to check everything, from the structure to fittings and fixtures. Make sure you get professional building and pest inspections done before you commit to a contract of sale.

You may be up for the challenge of renovating a property that needs minor fix-ups, if you’ve factored that into your budget. But if it needs major renovations, then it might not end up being a profitable investment.

Another way in which the age of the property will affect your finances is the property’s depreciation schedule.

Depreciation on investment property is a calculation of how much the value of the property and its contents - including white goods, carpet etc. – will decrease over time, based on which you may be able to claim as tax deductions¹.

Property features

Even though you may not be planning to live in this property, someone will be. So think about the things that people usually look for. Features like a garage, additional bathrooms, or a home office space will go a long way in increasing the property’s rental value. The layout and design of the property make a difference too. Is it designed with practical everyday living in mind? Does it have natural light? These are all things tenants are often looking for, so you should too, before you buy.

As you may be able to tell, most of these factors relate to each other – the location and age of the property will have an effect on its capital growth, for instance – so you should think about all of these factors in a holistic way before making a decision.

Do your research and once you are ready to become an investor, find out more about our current investor home loan rates and request a call back to talk to your own dedicated Home Finance Manager.