5 Things to Check Before Buying Your First Investment Property

Buying your first investment property is a significant financial commitment. The purchase price gets all the attention — but the five factors below are what separate investments that compound wealth from ones that drain it.

1. Gross rental yield

Gross yield = (annual rent ÷ purchase price) × 100. A property that rents for $550/week and costs $650,000 has a gross yield of 4.4%.

Target a minimum of 4% gross yield for the investment to be serviceable. Below that, you're relying entirely on capital growth to justify the cashflow drain. Compare the property's yield against similar stock in the same suburb — a yield significantly below market average often signals the rent hasn't been reviewed or the property is overpriced.

2. Net cashflow after all costs

Gross yield is a starting point, not the finish line. Once you account for loan interest, council rates, insurance, property management (typically 7–9%), maintenance, vacancy allowance (budget 2–4 weeks per year), land tax, and strata fees, you're looking at net yield — which can be 1.5–2 percentage points lower.

Use our investment property tax calculator to model the true after-tax cashflow before you buy.

3. Upfront costs beyond the purchase price

First-time investors routinely underestimate how much cash is needed at settlement. On a $650,000 investment property in NSW, you'll face:

• Stamp duty: ~$25,000 (no first home buyer concessions for investment purchases)
• Conveyancing: $1,500–$2,500
• Building and pest inspection: $600–$800
• Lender's mortgage insurance (if deposit is under 20%): $10,000–$25,000
• Loan establishment fees: $300–$600

Budget a 5–6% cash buffer on top of your deposit to cover these. Use our stamp duty calculator for your state.

4. Depreciation potential

Depreciation is a non-cash deduction that reduces your taxable income without any actual money leaving your pocket. New or near-new properties offer the most: building depreciation (Div 43) at 2.5% of construction cost per year, plus plant and equipment (Div 40) on fixtures and fittings.

A new $650,000 apartment might provide $12,000–$18,000 in first-year depreciation deductions. At a 37% tax rate, that's $4,400–$6,660 in additional tax savings. For properties built before 1987, no Div 43 is available — though plant and equipment still applies. Commission a quantity surveyor's depreciation schedule ($700–$800) before you make an offer if depreciation is a significant part of your investment case.

5. Property management quality in the area

The quality of property management in a suburb matters more than most investors expect. A poor property manager will miss rent reviews, take weeks to fill vacancies, and let maintenance issues compound. Interview at least two agencies before selecting one, check their Google reviews, and ask specifically about their average days-to-lease and their process for handling arrears.

Property management fees of 7–9% of rent are standard in most capital cities. Discount agencies charging 5–6% sometimes compensate with slower service and higher vacancy rates — which can cost more than the fee saving.

Getting these five factors right before you buy removes most of the avoidable risk from property investment. Once you're confident on all of them, you're in a strong position to make an informed decision.