1. Your choice of loan can be just as important
as the property you select
Investing in property?
David Scouller
Ph: 02 9660 2271
david.scouller@mortgagechoice.com.au

2. With the right loan in place, a property investment can
help you build wealth and financial security...
The property you select isn’t the only aspect that will
shape your success as an investor. Your investment
loan can also have a big influence on your cash flow
and long term returns.
Over the last 22 years, Mortgage Choice has helped
thousands of people, just like you, achieve their goal of
becoming a property investor.
People invest in property for many different reasons. We
take the time to understand your reasons so we can
recommend the loan options that suit you.
Mortgage Choice makes the loan process easy. We can
show you how much you can borrow, letting you
narrow down your property search. We’ll also explain
your likely loan repayments, giving you an opportunity
to compare rent returns.
We will also explain how different loan features and
options can be especially useful for investors, such as
interest-only payments or fixed versus variable rate
loans.
1 Investor Guide

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Contents
Build your wealth...with bricks and mortar
Develop a plan and reap the rewards
Sorting out the money side
Crunch the numbers
Take advantage of tax concessions
The right loan is important
Shopping for your investment property
Ownership options (how to invest)
Making the most of your asset
Jargon explained
2 Investor Guide

4. Build your wealth with bricks and mortar...
Australians are big fans of investing in residential
property. Generations of singles, couples and families
have built their wealth on bricks and mortar, secure in
the knowledge that while sharemarkets rise and fall,
and resource booms come and go, residential real estate
continues to deliver regular, tax-friendly rent returns
and long term capital growth.
In fact, one in five Australians own an investment
1
property , and there are good reasons why a well-
located, well-managed rental property is such a popular
choice.
The potential to earn healthy long term capital gains
Over time the value of residential property typically
Rises, although not always in a steady path. Like all
asset classes, property values can experience short term
dips as well as steep climbs, but the general trend is
upwards as shown in Fig 1 below.
Short term dips in market values make it essential to
regard residential property as a long term investment,
and you should be prepared to hold onto your rental
property for at least five to seven years. This will
smooth out the returns on your asset and help to
maximise capital growth.
1
ABS Cat: 4102.0 - Australian Social Trends, Dec 2011,
(http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/4102.0Main+Features10Dec+2011)
2
Rolling annual dwelling values, combined capitals cities, RPData chart pack, August 2014
3 Investor Guide
Figure 1: Phases of house price growth rate
2
Source RPData

5. A regular stream of rental income
One of the really appealing aspects of investing in
property is the ability to earn a regular stream of rental
income. Unlike other investments like a term deposit or
shares, you can expect to receive rent payments weekly,
fortnightly or monthly rather than having to wait for six
to 12 months or a far longer period to see some cash
flowing your way. Property has the potential to deliver
a return from day one.
The rental income helps with your personal cash flow,
and even better, it is fixed for the term of the lease.
Residential tenants typically sign leases for terms of six
to 12 months, so you know how much rent you will
receive and this makes personal budgeting easier. Even
when the lease expires, many tenants continue to pay
week-to-week rent until a new lease is signed.
Generous tax benefits
Tax is an important consideration for any investment,
and a rental property can deliver generous tax benefits.
It means more of the returns stay in your pocket rather
than being paid to the tax man.
As a landlord you are able to claim a tax deduction for a
wide variety of expenses associated with owning a
rental property - including interest on the loan used to
fund the purchase. You may also be able to claim a
deduction for depreciation, which is especially useful as
it doesn’t involve an outflow of cash by you.
Then, when you go to sell the property, if you have held
it for 12 months or more, only half of the profit you
make is subject to tax – that’s a saving of 50%. For more
on the tax benefits of owning a rental property take a
look at page 11.
Scarcity plus ongoing demand
By its nature, land is in limited supply and this helps to
underpin long term growth in the value of residential
real estate. In Australia there is a well-documented
undersupply of homes meaning we aren’t building
enough new dwellings to satisfy demand. Government
figures suggest this shortfall could reach as many as
3
640,000 homes by 2030 , and this should add further
support to long term gains for property owners.
A diverse market - a diverse investment
Building a diverse portfolio of assets plays a key role in
growing and protecting personal wealth. Australia offers
a very diverse property market that offers choices
between different states and territories; apartments
versus freestanding houses; and regional or capital city
locations.
So even if you already have an interest in the property
market via your own home, it is very easy to diversify
your bricks and mortar portfolio across other property
markets.
4 Investor Guide
3
National Housing Supply Council (NHSC) State of Supply Report 2011
Aim for low vacancy rates
Aim to invest in an area with a low vacancy rate (local
real estate agents should be able to provide this
figure). A vacancy rate below 3% indicates an
undersupply of rental properties, which means you
can afford to charge a decent rent and experience
fewer periods of vacancy.

6. Successful investing calls for one key ingredient –
planning. A rental property is a substantial financial
commitment and the best results come to landlords
who take the time to get good advice and plan carefully
before they act.
Long before you start checking out ‘Open Home’
inspections, it’s worth considering several important
factors:
Your current financial position
Ÿ How well placed are you to afford an investment
property particularly during the inevitable periods of
vacancy?
Ÿ Can you afford a quality property that will attract
decent tenants and deliver healthy long term price
appreciation?
Where are you heading?
Ÿ Are you prepared, and can afford, to hold onto your
investment for the long term?
Ÿ Will you need access to your capital (money
invested) at some point in the near future?
How much money will you need?
Ÿ As with your home, the purchase of an investment
property can involve significant upfront costs and
ongoing maintenance expenses.
For a detailed rundown of likely costs associated
with your rental property take a look at page 9 – and
check that you can meet these.
How much can you afford to borrow?
Ÿ Getting an indicative idea of your borrowing capacity
is a useful starting point in knowing the type of
property and location you can afford to buy (see
page 7).
Do you need a cash deposit?
Ÿ If you own your home did you know you may be
able to use home equity in lieu of a cash deposit?
(see page 7)
Key criteria - affordability and tenant appeal
Your investment property will ideally meet two key
criteria – being affordable for you, and holding appeal to
a broad spectrum of tenants.
Affordability
It is likely that in the first few years of being a landlord
your property will be negatively geared (for more on
this see page 11). Put simply this means it costs more to
own the property than it earns in rental income. While
this can offer tax savings you still need to be confident
that your household budget can cope with the outflow
of expenses particularly the loan repayments.
Develop a plan and reap the rewards...
5 Investor Guide

7. With this in mind, it can be worth focusing your
property search on more affordable properties
especially if you are a novice investor. This will give you
the reassurance of a more manageable mortgage, which
may not leave you as exposed to interest rate
movements as a more expensive property. It’s a
strategy that could also mean there is sufficient cash in
the kitty to undertake simple improvements that will
add value to your investment.
Even the best properties experience some periods of
vacancy, and as it is impossible to sell only part of the
place to tide you over through tough times, it makes
sense to have a buffer of spare cash. This will cover your
loan repayments and other expenses when the property
is not generating income.
Tenant appeal
This is an extremely important aspect of any property
you invest in.
No matter how affordable a property is for you, it will
not be a successful investment if it doesn’t attract
quality tenants.
Several factors can enhance tenant appeal including a
location with good transport links, plenty of local
amenities like shops, schools and entertainment
facilities and proximity to employment opportunities.
The type of property you invest in is also important.
Look for good security, a pleasant outlook, low
maintenance gardens and off-street parking, which is
often highly sought after by tenants.
Consider properties objectively and think about
whether you would be happy to live there. If you’re not
sure, chances are prospective tenants will think twice
too.
Once you have a clear picture of your current position,
your personal goals and your ability to afford an
investment property, you are ready to start creating - or
adding to - your investment property portfolio. A very
exciting time indeed!
6 Investor Guide
Home Loan Repayments calculator
Take a look at the Home Loan Repayments Calculator
on the Mortgage Choice website
(www.mortgagechoice.com.au/home-
loans/calculators/how-much-can-i-borrow.aspx) to see
how much your investment property will cost in
monthly repayments. Remember, the loan interest can
be claimed as a tax deduction.

8. Looking for the right property is the fun part of the
investment process but first you need to have the
financial side of things sewn up. The starting point is
knowing what you can afford to buy based on how
much you can borrow.
Your borrowing capacity
If you currently own your home you will be familiar
with the process lenders use to determine your
‘borrowing capacity’. It works in a similar way for
investment mortgages with one major difference -
along with your regular income (wage or salary) lenders
will also consider the potential rental income you will
receive.
This increases your income and also your borrowing
capacity.
The rent earned by a property can make it more
affordable for first time buyers to own an investment
property rather than buying as owner occupiers. It may
mean missing out on the government’s First Home
Owner Grant (FHOG) but crunch the numbers - or ask
your broker to do the sums for you, and you could
discover the tax savings and long term returns on a
rental property put you in front financially.
If you are already a home owner, you may not need a
cash deposit to fund an investment property.
If you have built up some home equity (the difference
between your home’s market value and the balance of
your loan) it may be possible to use this equity in lieu of
a cash deposit.
Here’s how it works. Let’s say your home is worth
$800,000, and the balance of your mortgage is
$300,000.
The difference of $500,000 represents your equity.
Assuming you satisfy other lending criteria (such as
earning sufficient income), many lenders will let you
use up to 80% of that equity as a deposit for the
investment property. Use the How much can I borrow?
calculator (www.mortgagechoice.com.au/home-
loans/calculators/how-much-can-i-borrow.aspx) on the
Mortgage Choice website to discover your borrowing
capacity.
Secure pre-approval
Seeking written pre-approval for a loan makes good
sense. It sets a clear limit on the price you can afford to
pay, which will narrow down your property search, and
lets selling agents know you are in a position to buy
today. This leaves you better placed to enter serious
price negotiations.
Pre-approval also means that you can negotiate with
confidence - or bid at auction with the certainty of
knowing you have finance in place. Once you select an
investment property, your loan approval process will be
quick and simple.
Do note, pre-approvals typically last for a specific period
and only remain valid if your financial circumstances
remain the same.
Select your strategy – rental yields vs capital growth
There is more to investing in property than choosing the
place that seems right for you. Experienced investors
tailor a strategy to suit their budget, goals and needs.
As noted earlier, your investment property will deliver a
combination of two types of returns – regular rental
income plus capital growth.
Sorting out the money side...
7 Investor Guide
Be prepared
Ask the listing agent of any property you are serious
about investing in for a written opinion of the rental
income the property can command.
Lenders will often ask for this as part of their loan
appraisal.

9. The rent return is often referred to as ‘yield’, and it is
calculated by dividing the annual rent through the
value of the property. For instance, a property with a
market value of $500,000 that can be rented for $485
weekly - or about $25,220 annually, would have a gross
(before expenses) rental yield of around 5% ($25,000
divided through $500,000, then multiplied by 100). It is
useful to know a property’s yield as it lets you compare
the rent return between properties, and against other
types of investments.
Yield focused strategy
A focus on yield can be useful if you don’t want to
borrow heavily, or if you are seeking a source of
additional income to live on. In some regional areas,
rental yields can be as high as 10%, which is an
exceptional return. On the flipside the long term price
appreciation is unlikely to be as strong as a
metropolitan property.
It is even possible to find ‘positively geared’ properties
where the rent covers all the expenses of the property
with some extra income left over for you. (For more on
‘gearing’ refer to page 11).
By contrast metropolitan areas, especially state and
territory capitals, tend to earn a rental yield in the order
of 4% to 5%. This compares favourably with many cash-
based investments, but remember you will also get the
benefit of long term capital growth that adds to your
total returns on the property.
Aiming for capital growth
The right property, in the right location at the right price
has the potential to deliver very rewarding rates of
capital growth over time.
If you are aiming for capital growth it is vital that you
can afford to hold onto the property until you see a
substantial rise in the investment's value. For some
investors this is not a problem because of the tax relief
that comes with negative gearing but do the sums to
see if this applies to you.
8 Investor Guide

10. An investment property involves two main sets of costs
– upfront purchase expenses, and the ongoing costs
required to own and maintain the property. Your
budget needs to be able to handle both.
Upfront purchase costs
Some upfront costs can be claimed as an ongoing tax
deduction – certain borrowing costs for instance can be
deducted over a period of five years. Most other
purchase costs like legal fees are added to the cost base
of the property when it comes to calculating capital
gains on the sale of the property (for more details refer
to page 12).
The key upfront costs to budget for include:
Pre-purchase inspections
A pre-purchase pest and building inspection is essential
to avoid any nasty surprises like building defects, illegal
work or pest issues – problems that could be expensive
to fix. Allow around $400 for an inspection by a
reputable firm.
Strata search
If you are investing in a unit, apartment or another
building that is comprised of separately owned units
plus common property (and this can include
townhouses), a strata search is essential.
It will identify a range of potential problems such as
whether there are existing disputes within the building;
if there are large outstanding bills for repairs to the
property or if the quality of repairs has been sub-
standard. A strata search can cost around $250.
Stamp duty
Stamp duty is a state government tax based on the price
paid for the property. The cost of stamp duty is added to
the capital value of your property, so it will reduce any
capital gains tax that may apply when you sell your
investment.
For details of stamp duty rates in your area visit
www.necs.gov.au/Revenue-Offices/default.aspx.
Borrowing costs:
These may comprise:
Ÿ Loan application fee – allow up to $700
Ÿ Lender’s valuation fee – approximately $300
Ÿ Lenders Mortgage Insurance (LMI) – this involves a
single premium based on the amount you borrow
relative to the property’s value. It only applies if you
borrow 80% or more of the purchase price.
Crunch the numbers...
9 Investor Guide
Useful links
Check out the LMI calculator on the website
www.genworth.com.au. Some lenders will let you add
the cost of LMI onto the loan though this adds to the
cost as you’ll pay interest on the premium over time.
Have a look at the LMI factsheet on the Mortgage
Choice website (www.mortgagechoice.com.au/home-
loans/home-buying-advice/tips-and-tools.aspx)

11. 10 Investor Guide
Legal fees
Also known as ‘conveyancing’ fees, these cover the cost
of having the property transferred out of the vendor’s
name and into yours, which is normally completed by
your solicitor. The cost is usually upwards of $1,000
depending on who you use to do the conveyancing and
the complexity of the transaction.
Ongoing costs
As a landlord you will incur a variety of expenses
associated with owning and tenanting your investment
property. Most of these costs can be claimed on tax
(always check with your accountant), which makes the
bills more manageable.
Typical ongoing costs include:
Ÿ Accountant/ tax agent fees
Ÿ Body corporate fees
Ÿ Council and water rates
Ÿ Insurances – building insurance may cover the value
of a structure, however landlord insurance offers a
more comprehensive level of protection for
investors. It generally provides protection against
damage done by tenants as well as legal liability
cover if a tenant injures themselves.
Ÿ Lost rental income if your tenant moves out
unexpectedly may also be included. Building
insurance is usually incorporated in the premium.
Landlord insurance does not cover a tenant’s
personal property. Make sure tenants are aware of
their personal insurance obligation.
Ÿ Lease expenses – including legal fees for drafting
leases.
Ÿ Land tax.
Ÿ Letting and re-letting costs – including advertising
costs.
Ÿ Loan interest - factor the possibility of higher
repayments into your budget if you use a variable
rate loan.
Ÿ Management fees paid to real estate agents – expect
to pay around 7% of the gross rental if the property is
professionally managed. You can cut this cost by
managing the property yourself however there can
be major pitfalls (refer page 21).
Ÿ Repairs and maintenance including cleaning or
gardening costs.
Remember, your investment property should be
regarded as a long term asset. The upfront costs of a
rental property can be substantial and it will take time
to recoup these costs under normal market conditions.
It can also take many years to pay off the loan based on
rent returns. Bear in mind, while you may not see the
gains in your hand for some time, your investment is
continually working behind the scenes to build your
wealth.
Worth Knowing...
Reduce the chance of loss or the cost of making an
insurance claim on your rental property by:
ŸInstalling deadlocks on doors and windows
(which can also provide savings on premiums).
ŸInstalling smoke alarms
(a legal requirement in some states).
ŸProviding a security system.
ŸFollowing a regular maintenance program to reduce
fire hazards such as leaves in gutters.
Find out more
For more information on the costs associated with a
property purchase take a look at the factsheet
(www.mortgagechoice.com.au/home-loans/home-
buying-advice/tips-and-tools.aspx) on the Mortgage
Choice website.

12. Rental properties enjoy generous tax concessions that can
put it ahead of other asset classes and this is one of the
reasons why residential property is highly favoured by
Australian investors.
As with all matters related to tax, it is important to get
professional tax advice tailored to your circumstances as
mistakes could mean losing concessions or bring you
under Tax Office scrutiny. The cost of having your tax
return professionally prepared is tax deductible.
A sensible golden rule is to keep good records for your
investment property. Keep expenses for your home
entirely separate from those relating to the rental
property, and hold onto the receipts for any expenses you
claim on tax. These will be needed to prove your
deductions if you are ever subject to a Tax Office audit.
Gearing
When it comes to investing, the term ‘gearing’ refers to
borrowing to buy an asset. Most investors use some
gearing – in the form of their mortgage, to fund their
rental property. The loan interest is often a major expense
associated with owning the property but it can be
claimed as a tax deduction when the property is tenanted
or available to let, and this can significantly reduce the
cost of the loan.
Negative gearing – claim the cost of your property on tax
Negative gearing occurs when the cost of owning a rental
property outweighs the income it generates each year.
This creates a taxable loss, which can normally be offset
against other income including your wage or salary, to
provide tax savings.
Let’s say for example that Bill owns a rental property
generating $25,000 in rent each year. The costs of holding
the property, including mortgage interest, come to
$30,000. This gives Bill a taxable loss of $5,000, which he
can use to reduce the tax payable on his salary.
If you know in advance that your investment will record a
loss over the financial year, you can apply to the Tax Office
to reduce the amount of tax taken out of your salary. This
is called PAYG Withholding Variation and it can provide a
real boost to your personal cash flow. Speak to your tax
advisor or accountant for more details.
That said, a loss is still a loss, and the whole point of
investing is to make money at some stage. This can
happen when the loan is finally paid off and the rent
returns are no longer reduced by loan repayments, or
when you sell the property, hopefully at a profit.
Positive gearing - it can be done
An investment is positively geared if it earns more in
rental income each year than it costs to own the property.
For example, a landlord may receive $20,000 in annual
rent but only spend $15,000 on the property including
mortgage interest. In this instance, the difference of
$5,000 represents profit – and additional income, to the
landlord. As this profit is taxable, landlords of positively
geared properties need to set funds aside to cover the tax
they will pay on their investment each year.
Take advantage of tax concessions...
11 Investor Guide

13. Ongoing costs that can be claimed on tax
Whether your investment property is negatively or
positively geared, a variety of property-related costs can
be claimed as a tax deduction as long as the property is
tenanted or available for rent. If the property is taken off
the market for a period, for example, to undertake
renovations, you won’t be able to claim the costs that
relate to this time span.
Most of the above expenses are normally deductible
immediately in the year they are paid, while others such
as borrowing costs must be claimed over a period of
years.
Costs associated with the purchase of your property
including legal fees and stamp duty can only be claimed
when you determine any capital gains on sale of the
property. Always seek tailored advice from a qualified
accountant or tax agent when making a claim for rental
property costs.
Capital gains tax
Capital gains tax (CGT) is levied on the profit you make
when you sell a property. It is based on the difference
between the selling price and the purchase price, which
can include the sum paid for the property plus legal fees,
stamp duty and other upfront costs as well as the value
of any capital improvements (renovations) completed
by you.
CGT only applies to properties purchased after September
1985. For properties purchased after October 1999, a
discount of up to 50% may be available on the capital gain
calculated for tax purposes (eligibility is dependent on the
ownership structure of the investment – see your tax
accountant for more information).
When it comes to calculating capital gains tax, the tax
office will regard the date you entered the contract to buy
the property as the date of purchase - not the settlement
date. Check the calendar before you sell – the discount
only applies if you have owned the property for a
minimum of 12 months. Capital gains tax can be complex,
so be sure to get good advice from your accountant when
selling your investment.
Depreciation
Depreciation is a valuable tax advantage of property
investment. Unlike many of the costs relating to your
rental property, which require you to spend cash to
secure a deduction, depreciation can be claimed with no
cash outlay.
Two main types of depreciation can be claimed. The first
applies to fittings and fixtures like stoves, hot water
heaters, light fittings and carpets. The second relates to
depreciation of the building itself. If your property was
constructed between 1985 and 1987 the building cost can
be depreciated by 4% annually. Those built after 1987 can
be depreciated at 2.5% each year. Have a look at
www.ato.gov.au for a list of rates and effective life of
depreciable items.
Depreciation is an area where it pays to get professional
assistance. A quantity surveyor can inspect your rental
property and draft a complete depreciation schedule that
ensures you are neither missing out on depreciation
deductions nor overstating your claim (which could result
in tax penalties). Trying to estimate your own depreciation
charge could leave you facing tax penalties if you get the
figures wrong.
Worth Knowing...
The following expenses can normally be claimed on
tax:
Ÿ Advertising for tenants, property management fees
Ÿ Accounting fees
Ÿ Borrowing costs like valuation fees, loan
establishment/ registration fees or LMI premium
(these may need to be claimed over a period of five
years)
Ÿ Interest payments and ongoing loan fees
Ÿ Council rates, body corporate fees, land tax and
strata fees
Ÿ Repairs, maintenance, pest control, cleaning and
gardening
Ÿ Electricity, gas and water (part of these costs may
be paid by the tenant in which case they cannot be
claimed by you, the landlord)
Ÿ Insurance premiums for building, contents, public
liability and landlord insurance
Ÿ Stationery, phone costs, book keeping fees and any
travel relating to the property
Ÿ Depreciation of items such as stoves, fridges and
furniture plus the building
12 Investor Guide

14. Choosing the right loan to fund your investment is
essential because a flexible, well-featured mortgage can
be a useful financial tool. So, just as it is important to
research the market for the ideal investment property, it
makes sense to shop around for a loan that offers
competitive rates and fees while still providing the
flexibility you need to make the most of your
investment.
Investment mortgages may come with a slightly higher
interest rate though this will depend on the lender, the
area in which you buy and the type of property you
select. Broadly speaking however your investment loan
will work in much the same way as a home loan – as a
rule, you will be required to make repayments based on
the loan principal, interest rate and term.
Options of particular interest to investors
Like an owner occupier, you can choose to use a basic
or more featured standard variable rate loan to fund an
investment property. However there are certain loan
options that can offer particular benefits to landlords.
Fixed rate loan
Many investors choose to fix their mortgage interest
rate, and there are good reasons to this.
With a fixed rate loan, the annual interest charge for
each year is known upfront. This means landlords can
prepay up to 12 months of interest each year - a cost
that may be claimed as a tax deduction. This can be a
way of evening out your tax bill in years when income
from other sources (such as wage and salary payments)
is higher than normal.
The success of this strategy hinges on having sufficient
cash to prepay interest, and it is always sensible to
speak with your tax advisor to ensure you can claim the
full interest charge as an expense in the current tax year.
The right loan is important...
13 Investor Guide

15. Interest only loans
Unlike most other loan types, Interest only loans
involve payments that solely include loan interest –
there is no repayment of the principal. The principal is
repaid when the property is sold.
As some investors aim to make a profit on the sale of
the property rather than eventually owning it outright,
an interest only loan can be appealing for landlords.
This type of loan offers two key advantages – first, the
monthly repayments are less than for a principal +
interest loan. Secondly, all your repayments are tax
deductible as they don’t involve capital repayments of
the loan.
Most loans permit interest only payments for a limited
period, generally up to five years. After this you will
need to renegotiate the loan payments with your
lender.
Line of credit
A line of credit loan allows borrowers to withdraw cash
from their loan up to a certain limit as and when they
choose. Each month the loan balance is reduced by the
amount of cash coming in and increased by the amount
paid for drawings, direct debits or cash withdrawals.
There are usually no set repayments, so this loan is best
suited to experienced investors with the discipline to
manage the loan carefully.
For more information have a look at the Home loan
features factsheet
(www.mortgagechoice.com.au/home-loans/home-
buying-advice/tips-and-tools.aspx) on the Mortgage
Choice website. Or, for more tailored advice, speak to
your broker, who can suggest the type of loan best
suited to your individual situation, goals and budget.
14 Investor Guide

16. Use your head not your heart
By this stage, you know how much you can afford to
spend on a property and you have worked out your
investment strategy. Now comes the exciting part –
choosing the property that is right for you as a landlord.
Buying a rental property calls for quite a different
approach to selecting your own home.
As an owner-occupier you need to find a home that
meets personal requirements such as proximity to
work, kids schools or friends and family. As an investor
you need to find a property that will suit a broad range
of tenants. Of course you have the freedom to buy in
any state or territory though buying in a suburb near
home gives you the benefit of local knowledge.
The key is to research locations carefully, looking at
important factors like population growth, tenant
demand, local price growth and any developments
planned for the area. It is also critical to consider the
type of property best suited to fulfilling your goals.
Think about whether you prefer an existing or new
dwelling, and the sort of features that you believe are
desirable.
The internet is a very useful source of information so
browse reputable websites, blogs, social media and
forums, and talk with other investors. First and
foremost, make a decision based on fact not emotion -
after all, as an investment your property needs to make
money for you.
Location - the key driver of property
Location is probably the single biggest factor that will
impact the future value of your investment. So
irrespective of the type of property you’re thinking
about, aim for the best location you can afford –
preferably one offering good transport links, proximity
to lifestyle features like shops, restaurants and parks,
plus public amenities like schools and hospitals.
A good location will maximise rent and capital growth
while minimising rental vacancies.
Around 90% of Australia’s population live within 80kms
of the ocean. This gives coastal areas, in particular
metropolitan centres, the weight of numbers. Properties
do cost more here but as a landlord you will have a
broader pool of tenants to draw on and greater
potential for capital growth.
Outer suburbs and regional areas are more affordable –
and the rental yields are typically strong, but for rents
and values to rise, an area must experience growing
demand, and this relies on population growth. Check
that any regional location you are considering is
supported by a range of industries and business
activities that provide a robust local economy that
provides jobs and supports rental growth.
Shopping for your investment property...
15 Investor Guide
Worth Knowing...
Indicators for potential property growth:
Ÿ Property demand exceeds supply – homes are sold
quickly rather than languishing on the market.
Ÿ Prices are expected to rise in the near future.
Ÿ Neighbouring suburbs are experiencing good
capital growth.
Ÿ Local developments are underway or planned for
the area, which will have a positive impact on
prices.
Ÿ The area is home to thriving local businesses/
industries.

17. Research...
When you’ve narrowed down the locations you’re
interested in, research the state of the market in those
areas. Keep an eye on vacancy rates, sales prices and
rent returns as well as projected population growth.
There are plenty of websites offering useful property
market statistics, have a look at www.rpdata.com or
www.sqmresearch.com.au.
Choosing the type of property
A good rule of thumb is to buy the highest quality
property you can afford – bearing in mind that it should
appeal to a wide range of tenants. Different properties
however tend to attract different types of tenants and
come with their own types of ongoing costs. Have a
look at the following points to help you decide.
Ÿ You can see exactly what you are buying in terms
of size, aspect, outlook, finish and the
surrounding neighbourhood.
Ÿ Established homes can show the result of years
of wear and tear – or worse, have significant
defects. Be sure to arrange a professional pest
and building inspection prior to purchase as this
will highlight any defects or illegal building work
that can be costly to repair.
Ÿ Older homes will require more maintenance over
time. This can impact your ongoing returns.
Ÿ The property may have a known rent history or
may even be sold with tenants in place.
Ÿ Appliances or fixtures may be due for
replacement or repairs.
Ÿ Established homes can provide good
opportunities to add value by renovating,
subdivision, development or extensions.
Ÿ The true market value of established homes can
be determined based on more comparable sales.
Ÿ It can be very difficult to picture how an off the
plan or partially constructed building will look
on completion. Landscaping and gardens take
time to mature and artist’s impressions can paint
an overly flattering picture of what you are really
buying. Visit mock-up units or display homes
and study floor plans closely giving special
attention to the dimensions of rooms and
outdoor areas.
Ÿ A new property is likely to be clean, fresh and
modern – and hopefully defect-free. This can
make the property more appealing to tenants
and therefore easier to rent.
Ÿ A new home can offer greater depreciation
benefits than an older property and repair and
maintenance costs should be lower – at least in
the first few years of owning the property.
Ÿ You may be able to charge a premium rent for an
‘as new’ property though until the property’s
rent is tested in the market it is easier to over or
underestimate the rent it will command.
Ÿ Appliances are likely to be covered by
manufacturers’ warranties and builders’
insurance.
Ÿ There is usually not much room to add value by
renovating.
Ÿ It is easier to overestimate or underestimate the
market value of new homes.
Existing New
16 Investor Guide
Ÿ The land component of the property can
enhance the potential for capital growth.
Ÿ Houses generally cost more to maintain though
they also offer greater scope to add value
through renovations.
Ÿ Houses are more likely to offer the ‘scarcity’
factor which can underpin long term capital
gains and could mean fewer periods of vacancy.
Apartment House
Ÿ Can be more affordable and produce
higher yields.
Ÿ Easier to maintain though strata levies typically
apply to cover the cost of maintenance and
repairs to common areas.
Ÿ Depreciation deductions can be greater for
apartments as you may be able to claim a
proportionate share of depreciation on
commonly owned facilities such as lifts and
security systems.

18. Buying at auction vs private treaty
There are lots of places where you can find properties
listed for sale - from local real estate agents and
newspapers through to online sites like
www.realestate.com.au and www.domain.com.au and
sale-by-owner sites.
Security – whether it is a safe, quiet street with good
lighting or a home security system, tenants like to feel
safe, just as landlords do.
Storage – ample storage is a plus for tenants who may
otherwise have to pay for off-site storage of personal
belongings.
Low maintenance – many tenants prefer low
maintenance homes that will not require a significant
investment of their time for upkeep. Unless you are
willing to pay for a gardener to maintain gardens, pools,
spas and other features, stick to properties that can be
easily and cheaply maintained.
Parking – off street or undercover parking will add value
to your property and attract a greater range of tenants.
A pleasant outlook – You’re likely to pay more for a
property with views or a pleasant outlook but it will be
easier to tenant and command a higher rent.
Think about the features that will appeal to the sort of
tenant most likely to be interested in your type of
property. A house in the suburbs for instance may be
easier to rent if it has three bedrooms rather than two,
while an inner city apartment will be more appealing if
it features a generous balcony.
Be a tough negotiator
(it will mean more profit for you)
There are many factors that prompt someone to sell a
property, and it is in your interest to have a clear
understanding about the reasons behind a property
being placed on the market. These can be useful when it
comes to negotiating the price.
Dodgy neighbours; flooding from a creek running
behind the property; or just a change in an area’s
demographic make-up can all be reasons why a
property is on the market. Local shops are usually a
great source of handy information. Take the time to go
and chat. Enquire at the local council if there are any
development applications in the area or environmental
issues that could affect the property. Check local crime
statistics too.
Never make an offer on a property until you have taken
steps to determine its true market value, and how
viable it is as a rental investment. Research recent sales
values and current weekly rents in the area, and make
enquiries about the tenant history of the property you
are interested in.
If you are satisfied that everything stacks up, you can
start your negotiations with an offer that is 10% below
the asking price. However in a sluggish market it can be
worth pitching your first offer at 15% below the listed
price.
17 Investor Guide
Find out what that
property is really worth
Talk to your Mortgage Choice broker for a free,
property report and find out about the property’s sales
history, recent comparable sales or median sales
prices in your suburb of choice.

19. Buying at auction v private treaty
There are lots of places where you can find properties
listed for sale - from local real estate agents and
newspapers through to online sites like
www.realestate.com.au and www.domain.com.au.
Despite all this choice, residential real estate is sold
through one of two means – by private treaty or at
auction.
A private treaty sale is where the seller (or ‘vendor’) sets
a price and the buyer enters into private negotiations.
These negotiations are usually handled by the listing
estate agent.
Once a price is agreed upon, the buyer typically pays a
deposit worth 10% of the agreed sale price, and
depending on the state the property is located in there
may be a cooling off period in which the buyer can back
out of the purchase.
While a sale by private treaty can take days or even
weeks as negotiations are ironed out, buying at auction
tends to be a very rapid, adrenaline charged process.
The whole sale process can take a matter of minutes,
and once the auctioneer's hammer falls the sale is final
with no cooling off period for the buyer. If a property
you are interested in is for sale by auction, it can be
worth appointing someone to bid on your behalf. This
prevents you being swept up in the hype of the auction
and bidding beyond your budget. At the very least,
attend a few other auctions first to see firsthand what
the process involves.
There is no ‘perfect’ time to invest – it all depends on
what you are aiming to achieve. Some factors to
consider include:
Ÿ The health of the overall economy – including the
employment market.
Ÿ The state of the property market – are prices rising
or falling? Is there an under/oversupply of homes?
Ÿ Current vacancy rates.
Ÿ The level of inflation – rising inflation could boost
capital gains.
18 Investor Guide
Worth Knowing...

20. Ownership options...
How to invest
Real estate can be held through a variety of titles –
owned in your name; through a trust; a company; or a
self-managed super fund. It is important to get the
ownership structure right at the time of purchase as it
can be costly to alter title deeds later on.
Investing as joint tenants
Ownership of the property is split equally between two
or more people, with income and expenses divided the
same way. The arrangement usually works best if all
owners expect to receive similar annual taxable
incomes for the foreseeable future otherwise the tax
benefits of negative gearing can be diluted.
Investing as a sole (private) purchaser
Here the property is registered in one name only. Under
this arrangement, rental income is received by you only,
and expenses relating to the property can only be offset
against your income.
Investing through a company
There can be advantages to using a company structure
for a rental property especially if there is a large number
of co-owners – and the property will generate fully
taxable profits. It is easy to sell shares if one owner
wants to exit the arrangement and the company tax rate
is lower than the top personal tax rate. However,
companies are very costly to set up and maintain, and
they must be run in accordance with strict legal
requirements.
Note too, it is not usually possible to distribute taxable
losses among shareholders. That makes it worth
speaking to your accountant if you are thinking of using
a company structure for your rental property.
19 Investor Guide

21. Investing through a trust
A trust may be a suitable ownership structure for a
positively geared property as trusts can be useful for
distributing income in a tax effective manner as well as
offering asset protection. However trusts can be
complicated to establish and maintain, and it is critical
to speak with your accountant for tailored advice on
whether a trust could work for your property
investment.
Investing as tenants in common
Here the ownership is divided into units, with the level
of ownership defined differently for each party. For
example, if one of the parties is on a higher income,
ownership of the property can be divided in the
proportion 75/25. This way, three quarters of the losses
can be allocated to the higher income earner. Of course,
the same ratio would apply to income generated.
WorthKnowing...
Worth Knowing...
Take a look at our checklist to see if you are ready to
take the plunge as a property investor:
Ÿ You have prepared a purchase budget and are
confident you can afford the ongoing costs of a
property.
Ÿ You have drafted a personal balance sheet showing
what you owe and what you own, and are
confident an investment property will fit into this
balance sheet.
Ÿ You have researched the market and different
suburbs, and you have a clear idea about the type
of property you want and can afford.
Ÿ You have gathered adequate information for your
loan application:
* Pay slips (or 3 years of tax returns if
self-employed)
* 100 points of identity
* Letter from real estate agent stating likely rental
income the property will earn.
Ÿ You have chosen a conveyancer/solicitor.
Ÿ You have nominated a property manager.
20 Investor Guide

22. Unlike other types of investments such as a term
deposit or shares, a rental property requires ongoing
management. Some landlords choose to look after the
property themselves while others appoint a
professional property manager.
Taking a do-it-yourself approach will save money but
there are many pitfalls involved in meeting the legal
obligations of a landlord, and it can take time and
money to deal with tenants, property inspections and
co-ordinate property repairs.
Most landlords choose a property manager, and you can
expect to pay fees averaging around 7% of the rental
income for this service though this may be negotiable.
A good property manager should take the effort out of
owning an investment property by:
Ÿ Guiding you on the market rent your property
should be able to fetch.
Ÿ Organising a new tenant including advertising the
property, conducting inspections, interviewing
tenants and checking references, collecting rent
payments and depositing the cash into your bank
account.
Ÿ Drawing up the lease and managing the legal
obligations of a tenancy including depositing bond
money with the appropriate authority (usually a
rental bond board).
Ÿ Preparing a detailed inspection report at the start of
each tenancy that details the condition of the
property to the start of the lease.
Ÿ Arranging and conducting regular property
inspections before, during and at the end of each
tenancy.
Ÿ Responding to tenant’s ongoing needs including
organising emergency repairs if necessary.
Ÿ Providing regular statements for the landlord
itemising rent received and any outgoings.
Ÿ Organising and attending tenant tribunal hearings if
necessary.
These are all tasks you would need to coordinate if you
choose to manage the property yourself!
No matter whether you take a DIY approach or you use
a property manager, it is advisable to personally inspect
the property at least twice a year. This will identify any
potential tenancy or maintenance problems before they
become a major issue.
In addition, property management can be a field where
employee turnover is high, and once your investment
has passed through the hands of several managers,
your current manager may have no way of knowing the
original condition of the property to gauge if it is
becoming rundown, which will show in the rent and
quality of tenants it attracts.
Select a reputable property manager
Choose your property manager with care – they will be
looking after a valuable asset of yours. Some questions
to pose to potential managers include:
Ÿ How much experience do they have with this type of
property? A knowledgeable real estate agent will
have a realistic idea of the market rent your property
can command to attract quality tenants.
Ÿ Does the agency have a dedicated property
manager?
Ÿ Are clear management systems in place? Ask to see
copies of standard forms or checklists used to
manage tenants and properties.
Ÿ How often is rent (net of expenses) deposited into
your account?
Ÿ How well are tenants screened? A good property
manager will thoroughly check tenant references.
Ÿ How often are tenanted properties inspected?
Making the most of your asset...
21 Investor Guide

23. Ÿ Does the manager have a list of qualified local
tradespeople that can be called on for urgent
repairs?
Ÿ How frequently does the property manager
communicate with you?
Ÿ What is the management fee – is it negotiable?
Ÿ How often are income and expenses statements
issued?
Ÿ What procedure is used for rent arrears, evictions
and vacancies?
Once you have selected a property manager you will be
asked to sign a management agreement which formally
engages the agent to manage the property on your
behalf and outlines the performance and responsibility
of the agent. If you do not fully understand this
document ask your solicitor to explain it to you.
Make your property stand out
One of the best ways to maximise the returns on your
investment is to make your property stand out from the
crowd. A property that holds strong appeal to tenants
will experience lower vacancy rates, and is more likely
to attract high calibre tenants.
Tenants can be very picky about what they are getting in
return for their rent payments, so look at your property
with an objective eye and consider what it offers that
other, similar properties may lack. Features like
abundant storage or secure parking are all points that
should be emphasised when the property is being
marketed to tenants.
First impressions are especially important, so good
presentation is a must and this means:
Ÿ Well tended gardens – especially in street-facing
areas that tenants will see first.
Ÿ Appliances in safe working order.
Ÿ Minor repairs completed on sticking doors or
windows, fixing leaky taps or faucets.
Ÿ Having carpets professionally cleaned and any
necessary re-painting completed between tenancies.
Ÿ Maintaining a clean, tidy and well presented
property.
22 Investor Guide
Be an active investor
Stay in touch with your property manager especially
during reletting periods, to ensure tenants are being
screened for previous renting history, job security and
income.

24. Application fee / Establishment fee
Fee charged to cover or partially cover the lender’s
internal costs of considering and processing a loan
application. The fees are sometimes required to be paid
upfront and are not usually refundable unless the loan
is refused.
Assets
A list of what an individual currently owns, such as real
estate, savings accounts, cars, home contents,
superannuation, shares etc.
Basic variable rate loan
A loan which has an interest rate that varies according
to market forces. The interest rate charged is lower than
a standard variable rate loan but the loan may have
fewer features.
Break costs
Costs incurred when a fixed rate loan is paid off before
the end of the fixed rate period, or when additional
payments are made in advance.
Bridging finance
A short term loan that covers a financial gap between
the purchase of a new property and the sale of a
currently owned property.
Capital gain
The monetary gain obtained when you sell an asset for
more than you paid for it. Such gains may be taxable.
Community title (specific to NSW)
A property title where several dwellings are erected on
an estate and the owners own their property and land
on freehold title, but have shared access to community
facilities e.g. swimming pool, barbecue area, tennis
court etc. All property owners pay levies for upkeep of
the community facilities.
Company title
A type of ownership for a unit/flat/apartment in a
building that is owned by a company. A purchaser buys
particular shares in the company which gives the
purchaser the right to occupy a specific
unit/flat/apartment. Lenders are generally not
enthusiastic about lending on company title properties.
Comparison rate
This is a rate that includes both the actual interest rate
and the upfront and on-going loan fees, expressed as a
single percentage.
Construction loan
A loan specifically for the purpose of funding the
building of a new dwelling. Can also apply to major
renovations of an existing property.
Daily interest
Interest calculated on a daily basis, on the outstanding
balance of the loan or investment account.
Deposit
An initial cash contribution towards the purchase of the
property, usually payable on exchange of contracts.
Deposit bond
A substitute for cash deposit that guarantees the
purchaser will pay the full deposit amount by the
settlement date. Institutions providing deposit bonds
act as a guarantor that payment will be made.
Equity
The value of an asset not subject to any lender’s
interest, e.g a property worth $500,000 with an
outstanding mortgage debt of $150,000 - equity is
$350,000.
Equity loan
A loan that uses the equity in your property to borrow
for any personal purpose, including personal
investment. It usually operates like an overdraft, where
the borrower has a set credit limit to which they can
draw funds. The term Equity loan can also refer to a Line
of Credit loan.
First Home Owner Grant (FHOG)
Various State Governments provide financial grants to
purchasers of their first home, to assist in meeting the
purchase costs.
Fixed interest rate
An interest rate set for a fixed period. At the end of the
fixed rate period, most lenders will allow you to fix
again at the prevailing rates or revert to their standard
variable rate.
Freehold title
The form of property ownership where a parcel of land
fully belongs to the owner.
Genuine savings
Funds that have been accumulated or held for a certain
period of time prior to applying for a loan.
Guarantor
A guarantor is a third party to a loan who is helping the
borrower obtain finance by offering additional security
support. Guarantors are generally limited to spouses or
immediate family members. A guarantor may be liable
for the loan debt if the borrower defaults.
Interest Only (IO)
A loan in which only the interest on the principal is
repaid with each repayment for a specified period.
Jargon explained...
23 Investor Guide

25. Jargon explained...
24 Investor Guide
Introductory (honeymoon) rate
A reduced interest rate offered for a specified period of a
loan, usually the first twelve months.
Joint tenants
Equal holding of property between two or more
persons. If one party dies, their share passes to the
survivor/s. This is a common arrangement for married
couples.
Lenders Mortgage Insurance (LMI)
A form of insurance taken out by the lender to
safeguard against a financial loss in the event of a
security being sold due to the loan going into default.
The borrower pays a once-only premium. The insurance
covers the lender, not the borrower.
Liabilities
A person’s debts or financial obligations, including
existing credit card debts and personal loans.
Line of Credit
A flexible loan arrangement with a specified credit limit
to be used at a borrower's discretion. Also referred to by
some lenders as an Equity loan or All in One loan.
Loan to Valuation Ratio (LVR)
The ratio of the home loan amount compared to the
valuation of the security. Commonly called LVR, e.g for
a loan of $270,000 on a home valued at $300,000, the
LVR is $270,000 divided by $300,000 expressed as a
percentage i.e 90%.
Low documentation (Low Doc) loan
Loans available to applicants who may not have up to
date or complete financial information available at the
time of application.
Mortgage
A form of security for a loan, usually taken over real
estate. The lender (mortgagee) has the right to take the
property if the mortgagor fails to repay the loan.
Mortgagee
The lender of the funds and holder of the mortgage.
Mortgagor
A person who borrows money and grants a mortgage
over their property as security for the loan.
Non-conforming loan
Specialist lenders provide these types of loans to
borrowers who fall outside the normal eligibility
requirements of mainstream lenders.
Offset account
A transactional account linked to the home loan. The
balance held in this account offsets the balance in the
home loan, helping to reduce the interest paid and the
overall term of the loan.
Ombudsman
An arbitrator that provides an avenue through which
customers can make complaints about their loan
consultant or lender and have it dealt with
independently.
Principal
The outstanding loan amount on which interest is
calculated.
Principal and Interest (P&I)
A loan in which both principal and interest are paid
with each repayment during the term of the loan.
Redraw facility
A loan facility whereby you can make additional
repayments and then access those extra funds if
necessary.
Refinancing
To replace or extend an existing loan with funds from
the same lender or a different lender.
Security
Usually the property offered as security for a loan.
Settlement date
Date on which the new owner finalises payment and
assumes possession of land. Sometimes called the
“draw down” date, as this is the date the loan is usually
fully drawn.
Stamp duty
There are two main types of stamp duty that may be
payable when borrowing to purchase a home:
Mortgage stamp duty (loan stamp duty)
Mortgage stamp duty will only be payable in NSW if
purchasing in a company name or for loans for non
housing related purposes.
Transfer stamp duty (contract stamp duty)
Calculated on a sliding scale based on the purchase
price of the property. Significant concessions on transfer
stamp duty may be available for First Home Buyers. The
amount varies from State to State.

26. Jargon explained...
25 Investor Guide
Standard variable loan
A loan which has an interest rate that varies according
to market forces. The loan usually has comprehensive
features, such as offset and redraw facilities.
Strata title
The form of property ownership most commonly
associated with units, apartments and townhouses,
where the owner holds title to a particular unit, which
is called a lot, in a strata plan.
Survey
A plan that shows the boundaries and the building
position on a block of land.
Tenants in common
Where more than one person owns separate, defined
portions of a property. If one person dies, the relevant
portion passes through the deceased’s estate rather
than to the other property owner/s as with joint
tenancy. Each owner can hold a specific share of
ownership and has the right to dispose of their interest.
Term
The length of a loan or a specific portion within the
loan.
Title search
A request to the Land Titles Office to ascertain the
ownership of a specified property and any
encumbrances, covenants and easements that may be
recorded on the title.
Torrens title
Torrens title is the most common form of property title
in Australia. The Real Property Act (RPA) is the legislation
that governs the operation of Torrens title. Ownership of
the property is registered with the Land Titles Office and
evidenced by the Certificate of Title, which shows the
current owner’s name and any other interests in the
property e.g. mortgages.
Unencumbered
A property free of encumbrances (mortgages) or
restrictions.
Valuation
A report required by the lender, detailing a professional
opinion of property value.
Variable interest rate
An interest rate that varies during the term of the loan,
in accordance with market forces.

27. KNOW THE
FEELING
Why choose Mortgage Choice?
There is no charge to you for our home loan service because the lender pays us after your loan settles.
Your local Mortgage Choice home loan expert can come to you at the time and place that suits you.
Access to up to 28 of Australia’s leading lenders, including the major banks.
We make it easier for you by preparing the paperwork, lodging the application and doing all of the
follow up on your behalf.
The information contained in this booklet refers only to loans provided by our panel of lenders with whom Mortgage Choice Ltd has an arrangement under which it receives commissions and
other payments. Not all brokers sell the products of all lenders.
p 0414 259 699 w MortgageChoice.com.au/david.scouller
Mortgage Choice Limited ACN 009 161 979. Australian Credit Licence 382869.