How to save money on your investment property in 2024

Property investment is an increasingly popular way to achieve financial stability in 2024. But that’s not to say it won’t cost you along the way. 

Whether you’ve bought your first investment property, or you’re adding another to your portfolio, you’re likely aware of how quickly expenses add up. Thankfully, there are plenty of ways to save on your investment property costs.

One of the best things about being a property investor in Australia is that our tax system will let you deduct any losses on your property against other sources of income, such as your salary, wages, or business income. 

It’s called negative gearing, and it’s quite generous. 

You might be able to claim a negative gearing deduction and reduce your taxable income if your rental property isn’t making enough to cover your property’s costs (e.g. home loan interest and maintenance costs). 

For example, say your property costs you $25,000 one year, but you only get $20,000 total rental income. 

Due to the property costing you $5,000 more than you made from it, you can offset your taxable income by that amount.

Negative gearing is mainly used when your property is vacant for an extended period, or you don’t make as much rental income to cover your costs.

You won’t have to worry about capital gains tax (CGT) until it comes time to sell your investment property. 

This is a tax on the difference between the amount you bought your property for and the price you eventually sell it for. In other words, it’s a tax on your capital gains.

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.

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

• Loan establishment fees
• Lenders mortgage insurance (LMI)
• 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.

Property investors can also claim losses incurred from depreciation as a tax deduction. You can claim depreciation on both the building and any assets within the property. 

Building depreciation 

Depreciation on your rental property is also known as capital works depreciation. It’s the wear and tear to the actual structure of your investment property and fixed items like doors, walls, the roof, and cupboards.

Assets depreciation 

The assets within your property, also known as ‘plant and equipment assets’, are eligible for depreciation deductions. This relates to the depreciation of non-permanent assets found in your property, such as ovens, refrigerators, the carpet, curtains and blinds, air-conditioners, hot water systems, and smoke alarms. 

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.

An accountant who specialises in property is a must for investors. They’ll keep track of any changes to laws that may affect you and your investments, help maximise your tax deductions if your property is negatively geared, and suggest ways to minimise any risks and liabilities.

Whenever you come into an expense, keep a record or copy of the receipt to show your accountant. Come tax time, they’ll be able to tell you what you can and can’t claim as a deduction. 

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.

Check your investment home loan every couple of years to ensure you’re not paying more than you need to. 

Home loan rates have increased significantly over the last couple of years, so if you’ve been getting hammered with higher repayments on your property or are simply looking for ways to save on your investment, do some rate research. 

Have a look at your current interest rate, then compare investment home loans to see if you can find a more competitive one that helps reduce your repayments. 

The average investor variable rate (P&I, $400k, <80% LVR) in the Mozo database, at the time of writing, is 7.16% p.a. However, the best rate we’ve found is over 1% p.a. lower, at 6.04% p.a. 

You can compare a few of the featured investment home loans below, or do a full database search below.