What to look for in an investment property

1 July 2026 - 5 min read

The main goals of an investment property are usually to grow wealth through an increase in property value and to generate a passive income through rental returns. This means the things to look for in an ideal investment property might be different from those you seek out when buying a house to live in yourself.
 

Property investment has potential benefits, but it’s important to have a strategy and make dispassionate decisions based on what will provide the best returns. Some of the key factors to consider when hunting for an investment property are location, property type, age, features, and the potential for capital growth and rental yield.
 

In this article, we run through these factors and touch on how to fund your purchase.

Key take-outs

• Consider all factors holistically before committing to an investment property purchase
• Always put yourself in the shoes of a prospective tenant
• Plan the financials carefully and ensure you have the right loan for your needs.

1. The best location location location

It’s a real estate cliché for a good reason and it’s just as valid for investors as renters. Consider the needs of tenants and think about what they’ll be looking for in a rental. Proximity to public transport, schools and other amenities that are part of most people’s lifestyles, such as shops and restaurants, could make the property more appealing.

A neighbourhood’s safety and general vibe are both important factors when figuring out its growth potential. For example, if proposed planning suggests the area is likely to undergo development that’ll bring more shops and cafés, this may increase the attractiveness of the property’s location as well as its value. Likewise, if big infrastructure projects are planned that could mean more local jobs or better public transport, property value could grow.

2. The right type of property

While the decision to invest in a unit rather than a house 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, 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 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 and the need to hire a property manager to think about.

3. New property versus old

Age is an important factor that can affect the cost equation. Investment properties typically involve ongoing expenses, so you want to avoid buying a property that's a drain on your finances through maintenance costs.

Older properties might need more work, but much depends on the condition they’re in – so be sure to check everything, from the structure to fittings and fixtures. Consider getting professional building and pest inspections done too.

You may be up for the challenge and cost of renovating a property that needs minor fix-ups. But if it needs major renovations, it might not be a profitable investment.

Another way the age of the property will affect your finances is the property’s depreciation schedule. Depreciation is a calculation of how much the value of the property and its contents – including white goods, carpets etc. – will decrease over time, based on what you may be able to claim as tax deductions.

4. Appealing features

Even though you may not be planning to live in a property, someone will be. So, think about the things people usually look for. Certain features such as a garage, a second bathroom, or a home office space may go a long way to 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 often look for, so you should too, before you buy.

5. Capital growth potential

Capital growth is the increase in value of the property over time. Look into the growth-trend indicators for the property you’re considering by checking out the median sale price for the suburb. Has it increased and by how much over the past few years?

Our property market research tool can give you 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 – how much you gain financially based on the capital growth of the property – may look like over time.

6. High rental demand and rental yield potential

Researching areas with strong rental demand and rental yield is an important part of assessing the financial viability of an investment property and whether it could satisfy your investment goals.

Rental yield is a calculation of how profitable a property could be, based on the expected rental income versus the costs of ownership and maintenance. Property expenses to consider include mortgage repayments, strata fees, council fees, legal fees, maintenance and insurance.

Rental yield can be expressed 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. So, for example, an investment property worth $750,000 with expected rental income of $750 a week ($39,000 a year) gives you a gross rental yield of:

$39,000 / $750,000 = 0.052 x 100 = 5.2%

Net rental yield is slightly more complicated, as it factors in all costs and fees, such as council rates, strata levies, property management fees, depreciation and insurance. Using the same example above, let's assume the total annual ongoing costs to maintain your property are:

• Council rates: $1200
• Strata fees: $2500
• Property rental fee: $720
• Property insurance: $2000

That adds up to $6,420. Therefore, the net rental yield of your property would be:

($39,000 – $6,420) / $750,000 = 0.043 x 100 = 4.3%

Note that these figures don’t include your home loan repayments. Our repayment calculator can help you estimate that component of your expenses.

Also, our example calculations are not based on the actual costs involved in maintaining a property. Costs, calculations and repayments will vary according to your individual circumstances.

How do I fund my investment property purchase?

Westpac offers property investors a choice of loans designed to satisfy a variety of financial goals. For our lowest online variable rate along with other options such as fixed rate loans and variable loans with offset, please visit our Investment property loans and rates page.

When putting together your purchase budget, we can help with how much deposit you need for an investment property. You might want to use equity in your current home to help buy an investment property. Another option may be to buy property through your self-managed super fund, though there are many compliance issues to be aware of.

Don't forget to factor upfront costs into your budget, such as conveyancing fees and stamp duty; and be mindful of how your financial situation may be affected if interest rates rise, you experience high vacancy rates, or you are subject to other factors not necessarily under your control.

In summary

Most of these property-hunting factors relate to each other. For example, the location and age of a property will have an impact on its capital growth potential. So, you should think about all the areas in a holistic way before embarking on the property investment journey.

It's important to seek professional tax advice too, as you’ll be liable for tax on earnings and the way you gear your investment property (negative gearing versus positive gearing) may have tax implications. Plus, there may be other tax impacts such as the need to pay capital gains tax if you sell at a profit.