Is it still profitable to be a landlord?: Balancing profitability & loss

With interest rates on the rise, new rental regulations in certain states to contend with, and changing tax rules, many landlords are asking themselves if the math is still working in their favour. Some have already decided to sell properties within specific markets across their portfolio, while others are sticking it out and hoping the market swings back at some point.

The reality is that there's no one-size-fits-all answer anymore. Whether an investment property is still profitable depends on where you bought, how much you owe, what your ongoing costs look like and how well you adapt to a changing market.

Rising Costs Mean You Need To Keep A Closer Eye On The Numbers

For a lot of landlords, the hard part isn’t actually getting tenants. The real difficulty lies in managing the ever-growing list of bills that go hand in hand with an investment property.

For starters, higher interest rates have pushed mortgage repayments up significantly for anyone on a variable loan or rolling off a fixed rate. But it’s not just the interest rates that are causing landlords to rethink their plans. Council rates have climbed in many areas, tradies aren't getting any cheaper, and routine maintenance seems to cost more every year.

One expense that's actually worth hanging onto is landlord insurance. Should a tenant cause damage, default on rent, or leave you with a painful bill for repairs, insurance cover will spare you an expensive headache. With margins being as tight as they have been in recent years, that type of protection is invaluable.

The reality is that an investment is no longer something a landlord can simply put on autopilot. It pays to take stock of your expenses from time to time, whether that's your loan, your insurance, or ongoing service costs. Saving even a few hundred dollars here and there starts to add up over the course of a year.

Tax Changes Mean Property Investors Need To Think Differently

It’s no secret that Aussies have long been drawn to property investment for the tax benefits. Running an investment at a loss wasn't necessarily a dealbreaker in the past because negative gearing often helped offset some of those costs. But as you probably already know, that’s changed recently.

With the federal government’s recent tax reforms, negative gearing on established properties has been heavily restricted, so the days of counting on certain tax advantages are over for many. On top of that, the long-standing 50% Capital Gains Tax discount has been replaced with an inflation-indexed cost-base model, changing the way profits are calculated when a property is eventually sold.

For some investors, particularly those who have owned property for many years or have already paid down a large chunk of their loan, these reforms may not make too much of a difference. But for people buying established homes as new investments, the numbers can look quite different.

It also shifts the conversation away from tax breaks and back towards the investment itself. Does the rent cover your costs? Is the property in an area with strong long-term demand? Is there realistic potential for capital growth? Those questions matter more than ever, so they’re worth pondering.

Victorian Rental Laws Have Raised The Bar

If you're a landlord in Victoria, you've probably noticed there's a lot more to think about than there used to be. The latest round of rental reforms has put in place much stricter regulations on things like no-fault evictions, rental bidding, and the proper handling of a renter’s personal data.

On top of that, landlords need to ensure that minimum standards are in order before putting a property on the market for lease. That includes things many tenants would reasonably expect anyway, like secure locks, working heating, safe electrical systems, and properties that are genuinely fit to live in. For landlords leasing newer homes, these latest reforms might not cause too much headache. Owners of older properties, however, could find themselves spending thousands on upgrades before they can welcome new tenants.

While these extra costs aren’t exactly ideal, the truth is that a well-maintained property will draw in better quality tenants, see fewer complaints, and often encourage people to stay longer. Long-term tenants mean fewer vacant weeks, fewer advertising costs and less time spent organising inspections every year, which is always a plus for landlords.

Interest Rates And Land Taxes Continue To Eat Into Returns

There’s no denying that the last few years have put a strain on landlords, even those with dependable tenants. Interest rates remain one of the biggest expenses for anyone carrying debt, and many investors have seen repayments jump sharply after fixed-rate loans expired. What looked like a comfortable investment in 2018 can suddenly feel much tighter today, causing landlords to reconsider what once seemed like a lucrative idea.

On top of mortgage costs, several states have also increased land tax obligations through lower thresholds or additional charges. In Victoria and New South Wales, the Emergency Services and Volunteers Fund (ESVF) and Emergency Services Levy (ESL) have also added another ongoing expense for many property owners.

Then there’s the matter of insurance and maintenance, council rates and compliance, which are what catch people out. An additional few hundred on the mortgage isn’t the end of the world, but when you add everything else on, suddenly the property costs far more to own than it did only a few years ago.

Strong Rental Demand Is Helping Offset Some Of The Pressure

The good news is that rental demand across Australia is still going strong. Vacancy rates are low in most areas and rents are on the rise year after year, allowing some landlords to offset higher ownership costs.

Of course, that’s not to say you can charge whatever you like, because the market rate still dictates your rental yield at the end of the day. Push the rent too far and you risk losing a reliable tenant, which can end up costing more than it's worth.

Any landlord who has been in the game for a long time will tell you that a reliable, long-term tenant who pays on time and looks after the place is often worth far more than wringing out a few extra dollars.

Profit Today Isn't The Only Thing That Matters

Rental income isn't the only thing that matters when it comes to being a landlord. The truth is that many people are okay with breaking even or even taking a small loss from their property if they think its value will go up over 10 or 15 years.

That's why it pays to look at the bigger picture instead of focusing on one year's expenses. Even if holding costs are high at the moment, a property in a market with good demand and potential for growth can be a sound investment.

Of course, if the figures no longer add up and there's little sign they'll improve, selling could be the better option. But where the numbers still align with long-term objectives, a tougher couple of years isn't necessarily a reason to walk away.

So, Is It Still Worth Being A Landlord?

Contrary to the doom and gloom you’ll read in the news, property investment hasn't suddenly stopped being a viable wealth-building strategy. It's just become a little bit harder to make the numbers stack up. With the new laws, tax changes and interest rates, it’s definitely pricier to hold on to a property, even if strong rental demand is helping many landlords offset some of those costs.

Whether it's still profitable really depends on your situation. Someone who bought years ago with a much smaller mortgage is probably looking at a very different picture to someone who only recently entered the market.

In the end, though, it all comes down to whether the numbers work in your favour. If they do and it fits with your long term plans, there's no reason property investment can't continue to be a worthwhile strategy for wealth-building. It may just take a bit more work than it used to.

Want to see more stories from trusted news sources?
Make Smart Property Investment a preferred news source on Google.
Click here to add Smart Property Investment as a preferred news source.

Share

RELATED TERMS

Landlord

A landlord, also known as a lessor, refers to an individual that owns a leased property.