Investing in property

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The pros of property investing

Income & tax opportunity

A solid building with good tenants can deliver a reliable ongoing income. And certain expenses could be offset against your income tax through negative gearing.

A tangible asset

Unlike stocks and shares, you can do things to raise a property’s value – like renovating, adding solar, building a granny flat or upgrading the kitchen.

Growth potential

During the last 5 decades, property values have displayed good capital growth over the long term, with less unpredictability than stocks and shares.

Paving the way to an investment property

1. Knowing your price range

How much could you borrow? Figure out your borrowing power to get an idea of the properties and locations you can afford.

Borrowing power calculator

2. Raising capital

Accumulate the necessary deposit to secure your investment.

Stamp duty & costs calculator

3. Doing your homework

Hunt for emerging hidden gems, with property and suburb snapshots. Get the trends, demographics, and nearby opportunities

Property & suburb reports

4. Pre-approval

Begin your no obligation application. A lender will call you back to chat about your home loan, rate and potential pre-approval.

Start applying

Negotiate your investment home loan interest rate

Talk about better cash flow

One of our helpful lenders will call you back to chat about some rates – including a variable interest rate with offset, calculated just for you.

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What stage are you at?

I’m starting out, this will be my first

Rentvesting can be a smart way to get your foot in the front door. You buy a property and rent it out. Meanwhile, you might rent your own place, live interstate or board with parents. If your rent is lower than your rental income, you could come out ahead.

First home buyer’s hub

I already own a property, but I’m new to investing

You could rent out your current place as an investment property or buy somewhere else and rent that out instead. Before making a move, get a feel for your loan repayments and negative gearing options, the property market, insurance costs and more.

I’m ready for my next investment property

There's an all-in-one $395 annual package fee^#, no matter how many packaged home loans you hold with us. Whatever your portfolio needs more of – acreage, a new granny flat, or something else – our lenders are ready to help make it happen.

Property investing: guides & calculators

Doing the sums

Add up your expenses, then calculate your net rental yield.

Guides

Match with the right loan and insurance, then apply.

FAQs on property investment

How are owner occupier and investment loans different?

There are three main differences:

Owner occupier home loans (for a property you live in yourself) tend to have lower home loan interest rates than residential investment home loans. Vacancy rates and rent income can fluctuate, so there's a little more risk for the bank.
Investors can apply for up to 10 years of Interest Only repayments, after which, their repayment type converts to Principal and Interest. For owner occupiers it’s up to 5 years.
By opting to pay 12 months Interest Only in Advance^***on our Fixed Rate Investment home loan^{^^}, property investors can get an extra fixed interest rate discount. Ask your lender for details.

How much deposit do I need to buy an investment property?

For a property purchase, you’ll need a minimum of 20% deposit (80% loan-to-value ratio) from usable equity from your existing home and/or from savings. If your deposit’s less than 20%, budget for a one-off lenders mortgage insurance (LMI) cost.

> Calculate your LMI

LMI waivers

Certain medical professionals with a min 5% deposit are able to apply for the LMI waiver. And some emergency services and healthcare practitioners, earning at least $90k annual income with at least 10% deposit, can also apply for the LMI waiver.

> Book an appointment

Our Family Pledge option

Family Pledge is available for first home buyers buying an investment property. Your parents, siblings, sons and daughters have the option to provide the Family Pledge guarantee, which uses their home's equity to guarantee part of your investment property loan.

> Family Pledge

How do I calculate usable equity for my deposit?

Equity is the difference between the current value of your existing property, and what you still owe on your home loan. If the value of your property has increased, you may be able to use some of this equity towards buying investment properties.

How does it work?

Speak to your lender about the current market value of your property to see how much equity you may have.
To free up any equity, you’ll need to apply to increase your home loan (AKA a ‘home loan top up’).
This equity can then be put towards the deposit for an investment property: we could simply set up another home loan account for you.
Usable equity = 80% of your property’s estimated market value, minus your current home loan balance. If your new loan-to-value ratio (LVR) exceeds 80%, you’ll likely need to pay lenders mortgage insurance.

Here’s an example:

Claire’s home is valued at $800,000 and has a mortgage balance of $440,000.

After a review of her financial circumstances, Claire’s lender will let her borrow up to 80% of her current home’s value (80% x $800,000 = $640,000).

Claire will have useable equity of $200,000 ($640,000 - $440,000).

How long should I hold an investment property for?

Property tends to be seen as a long-term asset. To maximise return on investment, some investors prefer to hold for at least five years – though it really does depend on your risk appetite, financial situation and investment strategy.

> Moneysmart: investment timeframes

Signs that you might need to change your strategy:

Alternative investments offer a stronger ROI
The income is much lower than all your expenses
The value of your negatively-geared investment property isn't rising
You want to retire sooner than expected.

Is property investment a good way to make money?

All types of investing come with a level of financial risk, and investing in property is no different. So, it depends on your personal situation, investment strategy, risk appetite, and your level of experience.

Pros:

A physical asset. Option to renovate and style to increase value.
Ongoing passive income. Reliable tenants can provide a steady income.
Capital growth. Property values have shown good growth over the long term, with less unpredictability than shares.
Diversifying. By balancing your portfolio over different asset classes, you can manage risk of negative events affecting an asset class.
Tax deduction. Certain expenses have the potential to be offset against your income tax – seek professional advice from your financial advisor or accountant.

Considerations:

Illiquid asset. Unlike with other asset classes, selling can take months. Plus, you can't quickly sell off a bedroom if you need a smaller amount of money.
Poor tenants. Vacancies and poorly screened tenants can eat into your rental income.
Costs involved. Includes upfront costs like stamp duty; other costs like home loan monthly repayments, maintenance, landlord insurance and property management; selling costs like Capital Gains Tax if it's not your primary residence.
Higher interest rates. Higher rates than owner-occupier loans, and they could increase – eating into your cash flow and capital gains.
Risks. Negative equity: your property value drops lower than your loan amount. Property damage e.g. from natural disasters. Overcapitalisation: the property value increase is lower that your renovation costs.

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The Detail

Conditions, credit criteria, fees and charges apply. Based on Bank of Melbourne’s credit criteria, residential lending is not available for Non-Australian resident borrowers. Interest rates subject to change. Before making a decision, it’s best to read the terms and conditions.

Loan Accounts – Charges for specific services and accounts (PDF 33KB)

^#Advantage Package: A $395 annual package fee applies and is payable from a Bank of Melbourne Complete Freedom transaction account. Before deciding to open a Bank of Melbourne Complete Freedom account, read the Terms & Conditions, and consider if the account’s right for you.
Terms & Conditions (PDF 179KB) apply.

^{^^}Fixed rate home loan: Bank of Melbourne will apply the fixed rate that is available at the loan settlement date or the date the fixed rate period commences. At the end of the fixed rate period the interest rate will convert to the applicable variable home loan interest rate.

***Interest Only in Advance:  Credit criteria, fees and charges apply, application is subject to Bank's approval. Interest Only in Advance interest rates and discounts apply to new Fixed Rate Investment Property Loans and loans which have been switched into Interest Only in Advance products. Existing fixed loans are not eligible unless the loan is re-fixed (a break cost may apply). Discounts are subject to change.

Investing in property

The pros of property investing

Paving the way to an investment property

1. Knowing your price range

2. Raising capital

3. Doing your homework

4. Pre-approval

Negotiate your investment home loan interest rate

Talk about better cash flow

What stage are you at?

I’m starting out, this will be my first

I already own a property, but I’m new to investing

I’m ready for my next investment property

Property investing: guides & calculators

Doing the sums

Guides

FAQs on property investment

Save time, apply online

Book an appointment

Talk with us 1300 304 660

The Detail

Talk with us
1300 304 660