How to save money on your investment property

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Whether you’re taking your first steps up the property ladder or adding to your portfolio, investing in property can be a solid way to build wealth. But that’s not to say it won’t cost you along the way.

On top of the hefty home loan deposit, there are a number of expenses you’ll need to budget for, including building inspections, council rates and home insurance.

Thankfully, there are plenty of ways you can bring down the cost of owning an investment property. We explore a few of them below.

Use negative gearing deductions

Australia’s tax system lets property investors deduct any losses on their property against other sources of income, such as salary, wages or business income.

So if your rental property is running at a loss - that is, your expenses are greater than the income you receive from rent - you might be able to claim a deduction and reduce the amount of tax you pay.

Claim borrowing expenses

Borrowing expenses are the costs directly incurred when taking out a loan to purchase property. According to the ATO, you can claim the following borrowing expenses at tax time:

  • Loan establishment fees
  • Lender's mortgage insurance
  • Title search fees charged by your lender
  • Costs of preparing and filing mortgage documents (including solicitors' fees)
  • Mortgage broker fees
  • Valuation fees
  • Stamp duty

If your total borrowing expenses are $100 or less, you’ll be able to claim the full amount in the income year the expense was incurred. If they exceed $100, you can spread the deduction over five years or the term of the loan, whichever is shorter.

Claim depreciation

Investors are also able to claim losses incurred by depreciation. There are two types of depreciation you can claim: 

  • Building: the construction costs of the building itself, such as concrete and brickwork.
  • Plant and equipment: assets within your property, such as dishwashers, carpets, light fittings, floorboards and curtains.  

To get an accurate assessment, you’ll need to contact a Quantity Surveyor. They can draw up a depreciation schedule, which will outline the depreciation deductions you can claim when completing your income tax return each year.

It’s a good idea to get a depreciation schedule done sooner rather than later, as the ATO will generally only let you backdate depreciation by two years.

Have the right team on your side

An accountant who specialises in property is a must for investors. They will keep you abreast of any law changes that might affect you, help maximise your tax return if your property is negatively geared, and suggest ways to minimise any risk or liability.

Keep all your receipts

Make sure to keep detailed records of all your property-related expenses. Your accountant will be able to use these to tell you what you can and can’t claim come tax time.

Another approach is to ask the real estate agent that manages your property to cover any expenses that come up using the rent they collect for you. They can then compile a summary of expenses on your behalf.

Refinance your home loan

It’s always a good idea to examine your home loan every few years to make sure you’re not paying more than you should be. 

And with mortgage rates currently at all-time lows, it shouldn’t be too difficult to take advantage of the current rate war between lenders and refinance to a more attractive deal.

At the time of writing, the average investor variable rate (P&I) in our database sits at 3.57% p.a. Meanwhile, the lowest variable rate is currently offered by Queensland Country Bank at 1.99% p.a. (2.38% p.a. comparison rate*).

Capital gains tax exemptions

If you eventually decide to sell your investment property, you’ll have to pay tax on any capital gains. This is the difference between the amount you paid for the property and the amount you sold it for.

Any properties bought and sold within 12 months will be taxed at the full CGT rate. But if you’ve held a property for at least 12 months, only 50% of the profit will be added to your taxable income.

So if a property you’ve owned for more than 12 months makes a profit of $100,000 when sold, only half of the net capital gain - $50,000 - will be subject to income tax.

Want more information on buying an investment property? Browse our range guides or visit our investment home loan comparison page to start shopping for a loan.

Home loan comparisons on Mozo - last updated 25 June 2022

Search promoted home loans below or do a full Mozo database search . Advertiser disclosure
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    interest rate
    comparison rate
    Initial monthly repayment
    2.89% p.a. variable
    3.31% p.a.

    Great low rate on investment loans when you package with your owner-occupied loan. Get a 7.0 star NatHERS rating or higher for up to 1.79% discount on your variable rate home loan. For homes less than 12 months old.

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    interest rate
    comparison rate
    Initial monthly repayment
    2.94% p.a. variable
    2.86% p.a.

    For refinancers only. Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for investors. No application or banking fees. No monthly account keeping or early exit fees. Apply in as little as 10 minutes.

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    Initial monthly repayment
    2.72% p.a. variable
    2.73% p.a.

    Competitive variable Investor rate. Unlimited extra repayments for free. Enjoy the flexibility to redraw additional payments at no charge. Receive $3,288 cashback when you refinance an existing home loan of $250,000. Must apply by 31 August 2022 and settle by 31 October 2022

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    Initial monthly repayment
    3.07% p.a. variable
    3.11% p.a.

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    Investor, Interest Only

    interest rate
    comparison rate
    Initial monthly repayment
    3.74% p.a. variable
    3.76% p.a.

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* 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, loan amount and term entered. 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.

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