“Should I Buy an Investment Property?” Is not a Yes or No Question
I had an interesting conversation this week with a client who had found what looked like a great investment opportunity a dual-dwelling property offering two income streams. On the surface, it seemed appealing: a reasonable price, good rental potential, and the chance to diversify income.
But the very next day, they called again. After sleeping on it, they wanted to know: “Should we buy it?”
It’s a simple question — but the answer isn’t. And here’s why..
PROPERTY IS A VEHICLE, NOT A GOAL
As a financial adviser, I can’t (and shouldn’t) give a straight yes or no without understanding the bigger picture.
An investment property is just one type of vehicle — the key is whether it fits into a broader strategy aligned to your long-term goals.
Before deciding whether any investment is appropriate, we need to first understand:
• What are your long-term goals?
• Are you aiming to retire at a certain age? If so, how much income will you need?
• Will you need access to funds along the way — for things like holidays, education, or helping your children?
• How long do you need the investment to support you — into your 80s, 90s, or beyond?
Without clear answers to these questions, we can’t determine whether a particular investment fits into the plan — or whether there might be a better option.
ALIGNING INVESTMENTS WITH RISK INTOLERANCE
Once we’ve clarified the why, we can start building the how. This includes understanding your tolerance for investment risk. (In the case of couples, individual risk tolerance can often differ — so we need to carefully balance strategy to ensure you’re both comfortable)
I usually take time to educate my clients about the different types of investments (or asset classes), how they behave over time, and how to mix them to manage risk and return.
Looking at how markets performed during past events like the Global Financial Crisis or COVID-19 helps illustrate the importance of long-term thinking and the value of diversification in reducing volatility.
HOW WILL THE INVESTMENT BE ACCESSED?
The next step is considering how to actually access your investment. Can you directly purchase fixed interest assets in a way that’s sufficiently diversified across issuers, countries, and maturity profiles? In most cases, probably not — due to minimum parcel sizes or lack of access to global markets.
That’s where pooled investment vehicles like ETFs or managed funds come into play. These offer built-in diversification and professional oversight, helping you achieve an appropriate mix of assets without having to select and manage them all individually.
OWNERSHIP STRUCTURE MATTERS TOO
Once we know what type of investment is suitable, we look at how it should be owned. Should it sit in personal names? Or would a trust or company structure provide better protection or tax outcomes?
Ownership structures play a big role in areas like asset protection, estate planning, and long-term tax efficiency. For instance, a trust may offer you greater control over how your assets are passed on, while a company could provide tax benefits (depending on how investment income is managed).
Every option has pros and cons — and needs to be assessed in the context of your overall plan and goals.
ACTIVE VS PASSIVE INVESTING - WHAT’S WORTH PAYING FOR?
Another common consideration I discuss with my clients is whether to take an active or passive approach. Active fund managers try to beat the market, but charge higher fees. Passive funds, such as index trackers, aim to match market performance at a much lower cost.
The right answer will depend on your goals, preferences, and even your philosophy around investing.
Often, a blend of both can provide the best of both worlds — targeted opportunities for outperformance combined with low-cost, broad market exposure.
DON’T FORGET PERSONAL RISKS
Beyond investment markets, personal risks can’t be overlooked. What happens if you can’t work for a period of time and need access to funds? This is where reviewing personal insurance — such as income protection, trauma, or life cover — becomes essential.
After all — a good financial plan doesn’t just grow wealth; it also protects it when life doesn’t go to plan!
THE BOTTOM LINE: START WITH A PLAN
Ultimately, there’s no one right answer when it comes to buying an investment property — or any investment, for that matter.
The best place to start is with a comprehensive financial plan. This becomes your foundation document, helping you make informed and strategic decisions based on your goals, risk profile, and life circumstances.
As financial advisers, we also have regulatory obligations to ensure that any advice we give is fit for purpose — delivered with care, diligence, and skill.
That level of advice simply can’t be provided in response to a yes or no question. And nor should it be! Your financial future deserves more than that.
Our blog is not intended to be taken as personal advice and is for informational purposes only.
Before acting on this information, contact our mortgage broker/financial advisor to ensure it is suitable for your circumstances.