What factors should I consider when purchasing an investment property in NSW?

Narelle Davis

December 13, 2023


If you’ve saved up enough money to make a significant investment, buying property can be a secure way to build wealth over time. An investment property could offer the financial benefits of passive income and capital growth. It also comes with the perks of being a physical asset, allowing you to be in control of rent prices, renovations and sales.

Making a profit from an investment property happens when it earns you more money than you’re paying to own and maintain it. Understanding the costs, processes and legal requirements involved in purchasing an investment property will help you make informed decisions about which rental property you buy and prepare you for a profitable journey ahead. 

Why should I buy an investment property in NSW?

For overseas and local investors, New South Wales (NSW) has become an increasingly attractive state to purchase property in. As the most populated state in Australia, owners of rental properties currently can be confident that they won’t have to worry about finding tenants. NSW is a state enriched with a diverse spectrum of suburbs, offering investment opportunities in coastal, rural and metropolitan areas.

Investors in NSW property need to understand the unique requirements that will affect them as property owners, including tax, building restrictions and renovation costs. They should also consider investment-specific factors like the growth rate of the suburb they’re buying into.

Keep reading to dive deeper into the factors you should consider before purchasing a property in NSW.

Identifying growth suburbs in NSW

Once you’ve decided you want to purchase an investment property in NSW, it’s time to narrow down the exact location. Do your research to identify which suburbs will significantly grow in population and increase in value over time. Growth suburbs can be in close proximity to any new or upcoming developments, such as the Tweed Valley Hospital or Kings Forest Development. Identifying trends in vacancy rates, demographics and property prices will also help you identify growth suburbs.

Searching for planning information

Being aware of any building restrictions or plans in each NSW suburb will also help you predict developments that may negatively affect the value of your property. For example, if you’re buying an apartment that overlooks the ocean you’ll want to search for any building plans that will obstruct the view and cause your property’s value to depreciate. You will also want to know any restrictions on building and ownership pertaining to your block. A conveyancer can help guide you with the process of how you can conduct comprehensive and accurate searches on a property’s planning information. 

Determining the distance between you and your investment property

Do you want to be able to easily stop by your investment property? Or, do you want to avoid running into your tenants at the grocery store? If you’re a NSW local, you’ll need to consider the location of your investment property in relation to your home to help refine your search.

Getting a loan for an investment property in NSW

Navigating the investment landscape is hard enough without the added financial complications. Like the rest of Australia, repayments on an investment property in NSW can be higher than a mortgage on an owner-occupied property. While standard home loans are the cost of principal and interest, many investors prefer the option of an interest-only loan. Lower repayments means more liquid wealth. Additionally, interest on rental properties is tax deductible.

Other factors to consider when choosing a loan for your investment property include how often you want to make repayments and whether you want to use an offset account. It may be helpful to get in touch with a trusted home loan lender to further discuss the loan options available to you, and that best suit your investment goals.

Taxes on an investment property

When you buy an investment property in NSW, you become eligible for multiple tax benefits that can help cover the cost of maintaining and managing the property. However, owners of an investment property in NSW must pay the state’s unique duties and taxes. These include:

Stamp duty

Also known as transfer duty, stamp duty is tax you’ll need to pay when you acquire land. For NSW, stamp duty is generally determined by the contract price, when a property is purchased at arm’s length (e.g. through an agent and between non-related parties). There are standard and premium rates for stamp duty depending on the property price.

Land tax

When you acquire land in NSW, you could be subject to land tax. This is determined by a number of factors, including the unimproved value of all of the land you hold for investment purposes in NSW, whether you are eligible for any thresholds, the type of entity you own the property in, etc.

In addition to the above taxes, you will also need to consider income tax and capital gains tax. It is important to speak to an accountant or qualified financial advisor prior to buying an investment property to make sure that your purchasing structure, and your estimated return or expectation of capital growth fits your investment goals and personal circumstances.

Uncovering extra costs before purchasing

It’s important to have an accurate understanding of what your investment property is going to cost you over time, not just its selling price. In addition to the tax costs previously outlined, other expenses like renovations, repairs and rates will be your responsibility.

To protect yourself from paying for problems that already existed before you bought the property, consider engaging the services of a conveyancer. As an expert in property transactions, a conveyancer can help you organise pre-purchase reports and negotiate a solution based on any issues found.

Invest in informed property decisions

We’ve helped a returning network of local and overseas investors secure their dream investment property in NSW. We draw on years of experience in NSW property transactions to conduct comprehensive research, perfect contracts and achieve a smooth settlement experience.

Chat to our conveyancing experts about the acquisition of your investment property in NSW.

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