Is Residential Real Estate a Good Investment?

Warren Buffett once defined investing as putting away money today to make more money tomorrow. If you look at how ordinary Perth families build genuine financial freedom, brick and mortar remains the undisputed favourite. Yet with shifting economic headlines and interest rate talk filling your newsfeed, it is fair to ask whether a residential real estate investment is still the right vehicle for your savings.

To work out whether property fits your plans, you need to look past the headlines and at how the numbers actually behave. Real estate is rarely a one-trick pony: its strength comes from three distinct engines working together — capital growth, rental cash flow and tax treatment. Once you understand how those three lock into place, you can make a clear decision about putting money to work in the Western Australian market.

Capital Growth: Long-Term Wealth vs the Quick Flip

Start with the driver most people care about first: capital gain, which is simply your property growing in value over time. Australian real estate has traditionally been a patient game, compounding value quietly across decades, particularly in well-located Perth suburbs. Holding for the long haul lets you smooth out short-term dips and build real equity.

You might also be watching house-flipping shows and wondering about a faster route. Some investors buy older, tired homes, renovate quickly and sell for a fast profit. It sounds exciting, but tax works very differently for short-term trades: if you flip a house, the ATO treats your profit as ordinary income and taxes it at your marginal rate.

Hold for more than 12 months and you have historically qualified for the Australian Taxation Office’s 50% capital gains tax discount, paying tax on only half of your gain when you sell.

What Changes from 1 July 2027

This is the part of the picture most investors have not caught up with. Under tax reform measures that are now law, from 1 July 2027 the 50% CGT discount for individuals, trusts and partnerships is replaced with cost base indexation plus a 30% minimum tax rate on capital gains, applying to gains that accrue after that date. From the same date, negative gearing on residential property is limited to new builds, with properties held at 7:30pm AEST on 12 May 2026 exempt from that change.

None of this makes property a poor investment, but it does change the arithmetic depending on when you buy and what you buy. If you are weighing a purchase now, the timing and the grandfathering rules matter as much as the headline rate, so model your own position with a qualified accountant rather than relying on the old 50% rule of thumb.

Rental Yield: Unpacking Your Net Returns

Before any of this income arrives, a newly purchased investment has to be made compliant and tenantable — our checklist for getting a property ready to rent covers the WA requirements that have to be cleared before you can lease. Capital growth builds equity, but rental income pays the bills while you wait. When you assess a prospective rental, gross yield only tells part of the story — it compares total rent against the purchase price and ignores what it costs to hold the asset. To see what actually lands in your account, calculate net yield by factoring in the running costs.

How to Calculate Net Rental Yield

Here is how the maths breaks down on a typical $700,000 Perth investment home:

• Purchase price: $700,000
• Rent collected: $650 per week, or $33,800 per year
• Running costs: $10,800 covering council rates, water, insurance, repairs and management
• Net income: $33,800 less $10,800 equals $23,000
• Net rental yield: $23,000 divided by $700,000 equals 3.29%

The figures above are an illustrative example based on Perth market conditions at the time of publication, not a forecast. Your own rent, rates and management fees will differ by suburb and property type.

Combining Yield With Capital Growth

A 3.29% cash yield gives you a steady baseline return. The real effect comes from stacking that cash return on top of capital appreciation: if the same $700,000 property grows in value by 5% over the year, that is $35,000 in equity, and your total combined return reaches 8.29%. Paired with skilled property management that keeps rent aligned to market and minimises vacancy, property leaves cash term deposits well behind.

Tax Deductions and Gearing Strategies

One feature that sets property apart from shares is leverage. Banks lend against real estate readily because it is a tangible asset. How your rental income balances against your mortgage repayments puts the investment into one of three buckets: positive, neutral or negative gearing.

Many Australian property investors use negative gearing. This simply means rental income falls slightly short of covering mortgage interest and upkeep. Why would anyone willingly run a loss? Because that loss can generally be claimed as a deduction against your other income, reducing your tax bill while your tenant helps pay down the underlying debt.

That position is changing. From 1 July 2027 negative gearing on residential property is limited to new builds, and properties held at 7:30pm AEST on 12 May 2026 are exempt from the change. Which side of those lines your purchase falls on has a direct bearing on the strategy, and our guide to rental property tax deductions goes through what landlords can and cannot claim in more detail.

Over time, as rents rise and the loan balance shrinks, a negatively geared property naturally becomes positively geared and starts contributing cash rather than consuming it, and that transition happens regardless of the deduction rules. Because gearing and deductibility now depend on both your circumstances and your purchase date, confirm your position with a qualified accountant before structuring a purchase around either.

Taking Control of Your Investment’s Future

Unlike paper investments, residential real estate gives you direct control over the asset. You can walk through the front door, paint the walls, upgrade the kitchen to lift rent, or adjust strategy to match your life stage. You might aim to sell later for a lump sum, or build a portfolio that pays an income through retirement. Either way, physical property provides an anchor you can see and influence.

At Bourkes we talk with everyday investors about exactly these trade-offs, and the right answer genuinely differs between two people buying in the same street. If you would like to talk through local rental yields, suburb growth trends or what to look for in a specific property, speak with our investment team and we will give you the numbers behind the suburb you are considering.

Frequently Asked Questions About Residential Real Estate Investment

What is a good rental yield in Perth?

There is no single good figure, because yield varies by suburb, property type and purchase price. In the worked example above, a $700,000 home returning $650 a week produces a 3.29% net yield. Judge a yield alongside expected capital growth rather than on its own — a lower yield in a strong growth suburb can outperform a higher yield elsewhere.

How do I calculate net rental yield?

Add up a year’s rent, subtract running costs such as council rates, water, insurance, repairs and management fees, then divide the result by the purchase price. In our example that is $33,800 less $10,800, divided by $700,000, which gives 3.29%. Gross yield skips the running costs and will always flatter the property.

Is negative gearing still worth it in Australia?

It depends on your income, your loan, your long-term plans and now your purchase date. Negative gearing lets you claim a rental shortfall against other income, but you still fund that shortfall from your own cash flow each month. From 1 July 2027 the concession is limited to new builds for residential property, with properties held at 7:30pm AEST on 12 May 2026 exempt. Speak to an accountant about which side of that line your position falls on.

Does the 50% CGT discount still apply?

For now, yes. Holding for more than 12 months has meant paying tax on only half of your capital gain, and selling inside 12 months means the whole gain is generally taxed at your marginal rate. From 1 July 2027 that 50% discount is replaced with cost base indexation and a 30% minimum tax rate on capital gains, applying to gains that accrue after that date. The 12-month holding principle still matters, but the concession attached to it is changing, so get current advice before planning a sale around it.

Is property a better investment than shares?

Neither is better for everyone. Property offers rental income, access to leverage and direct control over the asset, while shares are easier to buy and sell in small amounts and need no maintenance. Property carries higher entry costs and is far less liquid. Many investors hold both for exactly those reasons.

What costs should I allow for when buying an investment property?

Upfront, the figures that catch investors out are stamp duty, your settlement agent’s fee, the lender’s establishment charge and building and pest inspections. Ongoing, budget council rates, water, insurance, repairs and management, and hold a cash buffer for the vacancy between tenancies.

Disclaimer: Figures and examples in this article are provided for general educational purposes and reflect Western Australian market conditions current at the time of publication (2026). Australian negative gearing and capital gains tax rules change from 1 July 2027 under tax reform measures that are now law, and transitional and grandfathering rules apply depending on when a property was acquired. Tax rules, interest rates and individual circumstances vary, so investors should seek tailored advice from a qualified accountant or financial professional before making investment decisions.