Five ways to make money from property in 2025

Property investment is one of Australia’s favourite wealth-building strategies. Compared to some other assets, real estate is relatively simple to understand and invest in, and offers several avenues for aspiring investors to potentially enjoy healthy returns, in both the short and long term.

Here are some of the ways you could potentially make money from property this year, as well as some of the risks and challenges to watch out for in the current market:

Rental yields

One of the simplest ways to make money from a property investment is to collect rent from your tenants. If you receive more in rental income than you spend on your property, then you’ve achieved a positive rental yield.

A “good” rental yield can be hard to pin down exactly, though yields of 2% to 4% are generally considered low, and yields between 8% and 10% are considered high.

At the end of December 2024, the national gross rental yield was 3.7%. And with the pace of rental growth reportedly slowing, it’s hard to predict what property investors could expect from rental yields this year.

Keep in mind that you’ll likely need to include the rent from your investment property as income when completing your tax. That said, you can also claim some investment property expenses as deductions on your tax returns, including interest charges on your investment mortgage.

If you end up spending more on your investment property than you receive in rental income, this negative gearing can reduce your total income, which could have some tax benefits – contact a tax accountant and/or the ATO to learn more.  

Capital growth

When the value of your investment property grows over time, this doesn’t just mean you could get a higher price if you sold the home in the future. It can also increase the amount of equity you have in the property. This could help you to sooner refinance to a mortgage that better suits your financial goals, or to secure other flexible finance options such as lines of credit or home equity loans.

It’s important to remember that not every property will increase in value over time. Property values can stagnate or decline in negative circumstances, such as economic downturns or natural disasters. This could trap you in a “mortgage prison”, where it would cost you more in LMI charges to refinance your loan than the value of the benefits you could enjoy. In a worst-case scenario, you could find yourself in negative equity, where you owe more on your mortgage than the property is worth.  

At the start of 2025, national dwelling values have generally been rising over the past two years, only recording a dip of -0.10% in December 2024. Despite high interest rates, cost of living pressure and reduced borrowing capacity, prices generally grew between February 2023 and October 2024. It’s not yet clear whether this trend is likely to continue into 2025, or how this could affect the capital growth strategies of property investors.

House flipping

You may have watched the TV shows about flipping houses, which sounds straightforward: buy a property that has seen better days for a low price, spend a bit of time and money fixing it up, then sell it for a high price. What could be simpler?

Unfortunately, house flipping may not always be the empowering journey of self-discovery seen on TV. Restoring and improving a property that’s in bad shape can take a lot of work. And if you’re not a particularly “handy” person and would be mostly relying on tradies, or if the renovation is large enough that you’d need to call in architects, builders, project managers and more, the project could cost a significant amount of money.

It may be possible to finance a renovation with a home equity loan, personal loan, or a construction loan. However, putting too much money into your reno project could see you overcapitalise, making it much harder to see large returns from your property’s sale.

Remember that the ATO will expect you to pay capital gains tax on money you make from house-flipping, unless you fulfil specific criteria. As this criteria could change, you may want to contact the ATO to confirm what’s required before you get stuck with an enormous tax bill.

Keep in mind that construction costs have risen significantly in some areas over recent years. For example, the cost of building a home in NSW and Victoria reportedly jumped by more than 25% in four years, due in part to completion times blowing out post-pandemic. Plus, fewer government construction grants are available. Keep this in mind when making a decision on whether to try your hand at house flipping.

Developing land

A bit like house flipping, property development involves purchasing a piece of vacant land for cheap; building one or more properties on the site; then either selling the properties or holding onto them as investments. With vacant land generally being less expensive than already established properties, it’s easy to see the appeal of becoming a property developer.

You may be able to use a construction loan to help finance your building project. Unlike a typical home loan, a construction loan lets you draw down the money you need in stages, paying for each phase of the construction project before starting the next. You’ll also only pay interest charges on the money you’ve borrowed so far, which could help to keep some of your early costs down.

Property development can be challenging for an individual, with larger developments typically being the work of larger professional development firms. Much like in the house flipping example, you may not start receiving returns on your investment for some time, and you’d need to take the state of Australia’s construction industry into account when planning your project and outlining its potential costs. 

Building a portfolio

What’s better than owning one investment property? How about owning two, three, or more, all potentially generating income? 

One strategy for building a portfolio is to start with one investment property and wait for it to build up equity. Once you have enough usable equity to secure another mortgage, you can purchase a second investment property. You could potentially extend this further, using your equity in each property to secure the next in a daisy-chain of home loans.

While this strategy could potentially multiply the benefits of owning one investment property, it could similarly multiply the risks involved. A portfolio of multiple interconnected mortgages like this could leave you vulnerable to economic shifts – if you’re unable to make the repayments on one property, you could risk losing the entire portfolio. Because of the potentially higher risks involved, it may be harder to successfully apply for the investment home loans you need to build this portfolio.

The costs involved in maintaining a property portfolio are also significant, and as mentioned previously, there’s no guarantee that your portfolio will rise in value. Depending on the economic climate and what the RBA plans to do in 2025, you could run the risk of ending up in a challenging situation.

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