Investment Property 101: A Beginner's Guide to Property Investments

​Statistics show that around 500,000 residential properties change hands in Australia each year.

Many of these purchases and sales simply bring buyers and sellers from one home to another. For investors, however, some of these transactions represent huge profits.

When you add commercial property to the mix, you have an investment market that is teeming with potential.

Read on as we share some essential knowledge for anyone considering buying investment property in Australia.

What Is Investment Property?

​Quite simply, investment property is any house or commercial building that you purchase with the intention of making a profit. This might sound like a simple distinction from regular property, but it throws up a lot of important differences.

There are a number of ways in which you can make a profit on property.

The classic property investment strategy (and the least labour-intensive one) is speculation. This involves buying a property at a given price in the hope that its value will increase. If and when this happens, you can sell it on and realise the profit.

Another strategy is buying to rent. Here, you buy up buildings and lease them out to tenants, making your returns from rental payments.

This is a slower money-maker than speculation, but it means your potential profits aren't entirely at the mercy of the market. It also means that you don't have to wait months or years to see your first income from your investment.

The approach you adopt will depend on your risk appetite, as well as the length of time you can afford to sit on a property after you invest in it.

Advantages of Investment Property

Property has a number of advantages over other types of investment.

Chief among these is its security.

While property prices may rise and fall over time, the underlying value of land and buildings rarely changes. People will always need places to live and work, and property will remain functional for decades (maybe even centuries) if it's looked after.

If, for example, you were to invest in stocks, you could conceivably lose all of your investment overnight if you made the wrong call. This won't happen if you invest in property.

Property prices also tend to increase steadily over time, keeping you protected from the effects of inflation.
This makes property an ideal option for a long-term investor, such as someone saving for retirement.

Residential & Commercial

One of the most important considerations for a new entrant to the investment property market is whether to opt for residential or commercial property.

Residential property is a house or apartment for people to live in. Commercial property is any building or land that the occupier will use for business purposes.

One major advantage of commercial property for landlords is its treatment in contract law.

Because business owners are presumed to have a degree of savvy about their professional affairs, courts are not as forgiving when they breach lease terms. Courts are also mindful of the fact that a residential property may be the only thing standing between a family and homelessness, while this is not the case for a commercial property.

Therefore, it is easier to secure an eviction in respect of a commercial property, if this becomes necessary.

However, residential property is often easier to manage.

Commercial property will usually have some special requirements, especially in the case of larger businesses. Such larger businesses can also be demanding tenants, as their income is dependent on the suitability of their premises.

Commercial property can also be far more expensive to purchase, making it inaccessible to smaller investors.

The Australian Market

Property investment in Australia has its quirks. Investment property in Brisbane and Melbourne is different to similar ventures in Paris or Beijing.

Firstly, property prices in Australia as a percentage of average income are higher than in other developed nations, such as America or Great Britain. Property is especially pricey in Sydney and Melbourne.

As an investor, however, this isn't necessarily a bad thing. When you make a big investment, you get big returns.

The Australian property market has proven to be resistant to economic shocks. Events such as the burst of the dotcom bubble, the 2008 recession and the end of the mining boom in 2014 did not cause major setbacks.

Property Investment on a Smaller Scale

If you don't have the resources to buy a property outright, there are still paths you can take to enter the investment property market.

One easy option is syndication. You could club together with family members or work colleagues to purchase a property, splitting costs and returns equally (or in accordance with your shares).

With this strategy, you could also afford to hire a property manager, if you plan on renting out your investment property. This manager would look after the maintenance of the building and the interactions with your tenants, leaving you free to watch the money come in while concentrating on other things.

If you don't have people close to you in a position to do this, you could look into a property investment fund. These are capital market instruments which put investor funds into a pool. Fund managers then put this pool towards various property investments, dividing the returns among investors.

This would be a good option if you have only a few thousand dollars to get started with.

Building a More Prosperous FutureThere is a lot to like about investment property. Whether you have a small nest egg or millions to invest, you'll find something to suit your needs.

Property can be a stable, reliable asset, and its future in the Australian market looks bright.

If you're in Sydney, Melbourne, Brisbane, Perth, Adelaide, Hobart, Canberra, Darwin, Newcastle or Gold Coast,  and you'd like to know more about how to plan for your retirement, please get in contact.