What to consider when making a property investment in 2026
While property investment offers attractive benefits, it also comes with unique challenges, writes BDO in Australia.
More than two million Australians invest in property. While property investment offers attractive benefits, it also comes with unique challenges. Understanding both the advantages and risks is essential before deciding if property investment is right for your circumstances.
In this article based off of information discussed in our webinar, The Wealth Space – Investment properties, we look at the opportunities, challenges and strategic considerations that come when making the decision to invest in property.
Should you invest in property?
Property investment appeals to many clients because it offers a sense of security that other asset classes may not. Unlike shares or cryptocurrencies, property is a tangible asset. It is something you can see, feel and stand on. This tangibility often provides investors with greater peace of mind, as they feel more in control of their investment.
The key benefits of investing in property are:
- Capital growth potential – particularly in major cities
- Ongoing rental income can help cover mortgage repayments and provide passive income
- Tax advantages: negative gearing, depreciation and capital gains tax (CGT) discounts.
Setting up your investment property
Whether or not you should invest in property depends on your individual circumstances. A property can be an effective way to build wealth over time, as it has the potential to generate passive income and capital growth. Investment properties are most effective for those in the wealth accumulation phase—typically individuals who are still working and building assets, with time to ride out market cycles.
For those nearing retirement or focused on preserving wealth, an investment property may not be a suitable investment, due to ongoing costs and management requirements. It’s important to understand where you are in your financial journey before deciding to invest in property.
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Superannuation vs property
Property can be held within or outside superannuation as part of a broader wealth strategy. Rather than choosing between property and superannuation, a diversified approach that includes both can support long‑term financial security, depending on your life stage and investment goals.
Superannuation is a legal and tax structure, not an investment, and the investment structure chosen within determines how investments are managed and taxed. When investing in property, it’s important to consider the type of property, its purpose and your long‑term strategy, as different options carry different risks.
A holistic approach brings this all together, so the investment structures complement each other, rather than compete. For most people, it’s not about choosing between property or shares—the ideal scenario is a diversified portfolio which can include both.
Planning your exit strategy
Before investing in property, it is important to plan your exit strategy. Some key things to consider are:
- How long do you intend to hold the property?
- Your strategy for selling the asset.
- Potential tax implications, such as capital gains tax (CGT).
Understanding these implications early can help you make informed decisions and avoid surprises.
It’s also recommended to consider when you will need liquidity and whether the property can provide it at the right time. A thoroughly considered exit plan will ensure your long-term financial goals are supported, not restricted.
Build your investment team
A successful property investment often involves a team of professionals:
Important: Be aware of property spruikers. They often use high pressure tactics and, unlike professional buyer’s agents, don’t take your personal circumstances into account.
Understanding these roles and engaging the right professionals for the job can make the difference between a smooth investment experience and costly mistakes. Always think about who professionals are referring you to, and why. It’s beneficial to think about what each professional is incentivised by, so you can continue making informed decisions.
Types of investment properties
There are a few different ways you can tangibly invest in property:
- Residential: Houses, townhouses, and apartments. Land typically appreciates, while buildings depreciate.
- Commercial or industrial: Offices, shops, and warehouses. These may offer higher rental yields but come with greater complexity and risk.
- Real Estate Investment Trusts (REITs) or Managed funds: Provide exposure to property markets without direct ownership, offering greater liquidity and lower entry costs. A lot of superannuation funds have property exposure within the fund as an REIT, so you may already be a property investor and not even know it.
Understanding property investment tax strategies
Depreciation
Depreciation is an important tax benefit for property investors. There are two categories of depreciation:
- Capital Works (Division 43): This applies to the building structure, allowing you to claim 2.5per cent per year over 40 years.
- Plant & Equipment (Division 40): This covers items like appliances and carpet, but post-2017, this applies to new fixtures only.
A quantity surveyor report can help to maximise deductions.
Positive gearing
Positive gearing occurs when rental income exceeds expenses such as loan repayments, interest, maintenance and insurance. This results in a net profit which is taxable. Positive gearing can provide extra cash flow and is less reliant on capital growth. However, it can be affected by interest rate rises if borrowings are held against the property.
Negative gearing
Negative gearing occurs when expenses exceed rental income creating a deductable loss that can reduce your taxable income. It can provide tax benefits and may also deliver long-term growth in property value. However, you’ll need to cover any shortfalls out of pocket, and it can be risky if property values remain flat and interest rates rise.
Depreciation which is a non-cash expense can contribute significantly to this and should form part of the planning if negative gearing is the strategy. The cash outflow after the benefit of tax savings with the use of a depreciation non-cash deduction can be minimal at times.
Benefits and drawbacks of property investment
Property investment offers benefits such as stability, leverage, and tax advantages, but also involves high entry costs, ongoing expenses, and potential illiquidity. Assess both the advantages and risks before investing.
| Benefits | Drawbacks |
|---|---|
| Tangible, stable asset. | Relatively high entry and transaction costs. |
| Considered safer than shares by banks, often resulting in higher borrowing capacity and lower interest rates | Requires ongoing ownership and maintenance costs. |
| Can be used as leverage for future investments. | Cannot sell part of a property to meet short-term capital need (illiquidity).
Limited liquidity, as partial sale of the asset is not possible to meet short-term capital needs. |
| Demand for property is likely to grow over time, potentially making the investment more valuable. | Investment performance can be difficult to assess. |
| Tax advantages and potential for capital growth. | Exposes investors to vacancy risks. |
| Ability to control and improve the asset over time through renovations or upgrades. | Requires Lenders Mortgage Insurance (LMI) when purchasing with a deposit of less than 20 per cent; LMI protects the lender, not the investor. |
| Limits diversification and carries legislative risks. |
How BDO can help
Everyone’s financial situation is different, and getting the right advice for your circumstances can make a huge difference. If you’d like help understanding your options or planning your next steps, our private wealth and business services teams are here to support you.
Speak with a local adviser
- For tailored support, our Adelaide‑based advisers can help translate these insights into practical next steps:
Lachlan Kennett
Partner, Private Wealth
[email protected]
+61 428 676 709
Disclaimer
This publication has been carefully prepared, but is general commentary only. This publication is not legal or financial advice and should not be relied upon as such. The information in this publication is subject to change at any time and therefore we give no assurance or warranty that the information is current when read. The publication cannot be relied upon to cover any specific situation and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances.
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