Mozo guides

How to buy an investment property

A young couple speaks with a real estate agent inside a spacious living room

Property investing is a popular way to grow wealth in Australia. Investment properties can deliver consistent returns over time, demand is usually strong, it creates a passive income from collecting rent, and there are plenty of tax-friendly incentives. 

But an investment property is an investment at the end of the day. That means there’s some homework to do before applying for an investment home loan and signing on the dotted line.

What kind of deposit do you need for an investment property?

As with buying a principal place of residence (PPOR), you’ll usually need a 20% deposit to buy an investment property. 

If you do have less than a 20% deposit, meaning you’re borrowing more than 80% of the value of the property, you might have to pay for lender's mortgage insurance (LMI). 

Deposit amounts according to property value

Property value$500,000$600,000$700,000$800,000$900,000$1,000,000
Deposit amount$100,000$120,000$140,000$160,000$180,000$200,000
A woman sits deep in thought in her living room

What to consider when buying an investment property

There’s plenty to consider when buying an investment property. From the costs associated with buying and selling, to factors like location, and whether you’ll take on the services of a mortgage broker.

What are the costs of investing in property? 

There are a lot of costs that come with buying property. These can be broken down into three main categories: 

  1. Buying and selling costs 
  2. Mortgage repayments
  3. Ongoing fees.

When researching properties, make sure the income you expect to receive from renting it out is enough to cover these costs. Otherwise, you run the risk of defaulting on your mortgage and needing to sell. 

Buying and selling costs

When buying an investment property, there are a few big up-front costs that you’ll need to pay. 

These will have an effect on your overall returns and can include:

There are also fees associated with selling your investment property, like agent’s fees, and capital gains tax if your property value has increased.

Mortgage repayments

Aside from the fees that come from buying and selling, there’s also the matter of loan repayments. 

If you’ve borrowed money from a lender to fund your investment, you’ll have mortgage repayments to make. 

While you might be planning to rely solely on rental income to cover your repayments, that isn’t always a safe bet. If your property is empty for a period of time, you’ll still need to come up with the money to pay your bills. 

Plus, with fluctuating interest rates, you might need to consider refinancing your loan at some point, or using a home loan repayment calculator to work out if you can switch and save. 

Ongoing fees 

The ongoing fees that come with owning a property often get overlooked amid the talk of interest rates and repayments. 

These fees will differ on a state-by-state basis, but will generally include: 

How to choose an investment property 

It’s not just about ‘location, location, location’, although that is a big consideration. You’ll also want to look at the type of property you’re buying and its features. 

Choosing the area to buy in

Doing your research is critical to making a solid property investment decision. So, make sure you take the time to research the suburbs or regions you want to buy in. 

Look for a few positive indicators that may suggest an area has potential for your investment. For example, you’ll want to search properties in areas that:

  • Have high demand for rentals
  • Have a low level of rental vacancies 
  • Are high-growth markets 
  • Have an increasing population
  • Provide access to public amenities 
  • Are close to jobs 
  • Are close to good schools
  • Have a low crime rate 
  • Are close to public transport
  • Have proposed infrastructure or planning developments. 

While you won't always find a property that ticks all of those boxes, they're good guidelines to consider. 

Choosing what type of investment property to buy 

When choosing a property for your investment, you’ll want to find one that meets the demands of potential tenants in the area. 

There are family-oriented areas and areas that house a lot of young people, so the needs of these demographics can be different. 

It’s therefore important to do a bit of research to see if your prospective investment property might cater to the needs of tenants in the area. 

Considerations should include the type of property (house, apartment, etc.) and the features of said property. 

These value-adding features could include: 

  • A garage 
  • A second bathroom 
  • Number of bedrooms 
  • A backyard 
  • Security features.
A senior couple do their research comparing investment loans from their kitchen table

How to choose an investment loan

Once you’ve got your deposit saved, you’ll need to think about what kind of investment loan you’ll need. There are a range of options available to property investors, so it’s a good idea to consider the key features of each option and crunch some numbers to work out which loan is best for you.

Interest-only home loans 

Interest-only loans are often popular amongst property investors due to their generally lower monthly repayments. These repayments, made up of only the interest charged on the loan, may also be tax deductible. 

However, long term, interest-only loans can result in a much higher mortgage by the end of it because you’re not paying down the principal amount borrowed. 

It’s worth doing some maths, or using a repayment calculator, to work out the total amount you’re likely to pay by the end of your mortgage or the difference between principal and interest, and interest-only loans. 

But keep in mind, interest-only home loans aren’t for everyone. The whole point of using an interest-only loan is you’re relying on your property’s value to increase over time. 

This can be risky if you’re buying in an area that could see a drop in property prices down the track, so in this instance you may be better off paying down both the principal and interest.

Variable, fixed or split interest rates? 

When it comes to investment loans, you’ll usually have the choice between fixed rates and variable interest rates

Variable interest rates: 

  • Wide choice of lenders 
  • Generally can be cheaper than fixed rate loans 
  • Can include more features like offset accounts and extra repayments facility 
  • Exposed to interest rate rises 

Fixed interest rates:

  • Not exposed to rate rises for the fixed term 
  • Budgeting is easier due to consistent repayments 
  • Fixed for up to 5 years 

Split interest rate loans

Split interest rates are when you divide your home loan repayments into a fixed rate portion and a variable rate portion. 

You can get the flexibility and features of a variable home loan, as well as the security of a fixed rate if your lender increases their rates.

Offset accounts 

One way to reduce your repayments is to consider a loan with an offset account

Offset accounts are like an everyday bank account that is linked to your loan. Any money you keep in that account can be offset against the principal of your mortgage, reducing the amount of interest you pay.

Start comparing investment loans

Making sure you’ve done your due diligence when it comes to finding the right property, calculating your expenses (including loan repayments), and working out what features you want from your mortgage, it’s time to compare investment loans

When you compare with Mozo, you’ll see a list of investment loans from our featured lenders, with interest rates and an estimated monthly repayment, based on your loan amount and length. 

Keep an eye out for any deals, like cashback incentives, and a brief overview of the product’s major features. 

Check out some of the featured investment property loans below, or browse through the best home loans in Australia – the winners of the 2023 Mozo Experts Choice Home Loan Awards^.

Home loan comparisons on Mozo - last updated 17 April 2024

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure
  • SMSF Home Loan

    LVR <70%

    interest rate
    comparison rate
    Initial monthly repayment
    6.99% p.a. variable
    7.00% p.a.

    Enjoy a competitive rate on your SMSF home loan with Available for refinancers only. No application fee and no settlement fee. No monthly, annual or ongoing fees. Unlimited extra repayments. Online access via Smart Money App. 30% deposit required.

  • Back to Basics Special

    LVR<60%, Investment, Principal & Interest

    interest rate
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    Initial monthly repayment
    6.43% p.a. variable
    6.44% p.a.

    Competitive variable for investors with no monthly account keeping or ongoing annual fees. Unlimited additional repayments & option to redraw additional repayments as cashback.

  • Variable Investor Home Loan 80

    Investor, Principal and Interest, LVR<80%

    interest rate
    comparison rate
    Initial monthly repayment
    6.34% p.a. variable
    6.36% p.a.

    Affordable home loan rate for buyers or refinancers.. No monthly or ongoing fees. Option to add an offset for 0.10%. Access to savings with unlimited redraws available. Minimum 30% deposit required.

Jack Dona
Jack Dona
Money writer

Jack is RG146 Generic Knowledge certified, with a Bachelor of Communications in Creative Writing from UTS, and uses his creative flair to cut through the financial jargon and make home loans, insurance and banking interesting. His reader-first approach to creating content and his passion for financial literacy means he always looks for innovative ways to explain personal finance. Jack's research and explanations have been featured in government publications, and his work is regularly featured alongside major publications in Google's Top Stories for Insurance.

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

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