Whether you’re buying your first investment property or adding to your existing portfolio, there’s always more to learn when it comes to buying property for investment. But buying an investment property doesn’t just involve getting a great investment loan. You also need to ensure you’ve saved enough for your property purchasing costs that come with your latest investment. As such, there will be no nasty surprises when you settle.
Investment property costs include two categories: costs of buying and costs of owning. The costs of buying an investment property are the same as those when you’re buying a house to live in. So, you may be already familiar with them.
Check out our handy guide to upfront property purchasing costs to make sure you’re covered to buy your property.
In this article, we’ll cover the different property purchasing costs involved with owning an investment property. We’ll explain what they are, why you need to pay them and tell you where you can go to get a more accurate estimation of how much to save:
- Property’s council rates and strata
- Property maintenance
- Loan maintenance
- Tax and travel
Interested in how much your upfront costs will add up to? Check out our upfront cost calculator to see how much you could be paying.
Protecting an asset as valuable as an investment property should be any buyer’s first priority. Getting insurance on your investment property before settlement can protect if the property becomes damaged or affected by other circumstances.
Landlord insurance is additional insurance that can protect your property when it’s being occupied by tenants. It can cover damages to the property, loss, or rent and can even protect any furniture you provide. Remember, you don’t have to provide insurance for your tenants’ possessions.
It’s important to remember that insurance premiums vary between providers. Do your research to ensure you’re getting the best plan for your needs, at the best price.
As a landlord, you’ll pay to connect power and gas to your property. You may also need to pay for water. However, recent changes mean that tenants are often paying for water rates entirely.
In NSW, many property owners receive their water rates quarterly and pass them onto their tenants. Although you’re paying for these utilities to be available, your tenants will be the ones paying for how much they consume.
If you’re not sure what utilities you need to pay for, check out this guide to your rights and responsibilities as a landlord in NSW or your relevant state or territory.
Council rates and strata
The council in your property’s area leverage council rates to improve community services, like maintaining roads, parks, and gardens. It is a requirement for landlords to pay council rates for their investment property. However, there are exceptions depending on where you live.
To determine whether you have to pay council rates for your investment property, check out the information on council rates here.
If you own a unit or a townhouse in a larger complex, you’ll need to pay strata fees, or body corporate fees. This cost covers the maintenance of shared and common spaces, such as lifts, driveways, or gardens.
Strata costs are dependent on the type and amount of shared facilities your property has. Therefore, properties with many shared spaces, such as gardens, pools, and gyms will have a higher strata cost. Keep this in mind as you’re looking for and deciding on an investment property to ensure you’re able to cover this cost.
The owners’ corporation or body corporate is responsible for organising and carrying out property maintenance, so you won’t need to organise it. Similarly to water rates, owners usually pass on strata costs to landlords and they pay the strata quarterly.
No matter how new and well-inspected your investment property is, there’s always a chance it’ll need repairs during the time you own it. Whether it’s a broken water heater or a leaking roof, landlords are responsible for organising all property repairs.
The law mandates landlords to respond to urgent property damages, so it’s important to have cash set aside. This could be a small portion of your rental income or another amount, as long as it covers emergency repairs.
If a tenant causes damage, you may be in your right to ask them to pay for damages. If you’re unsure what you need to pay in the event of property damages, seek advice from a solicitor or other trusted legal professional.
As your property ages, it might need some repairs so it remains attractive and liveable for tenants. This could involve replacing carpet and appliances, painting walls, or other improvements. Whether you hire someone to do these renovations or do them yourself, you’ll need cash set aside.
Although this isn’t a cost you’ll need to pay often, it’s a good idea to have cash aside to afford renovations if you feel they’re needed. Even the most simple of renovations could make all the difference when it comes to advertising your property to tenants.
Pest maintenance involves paying a professional to inspect your property to ensure there are no pest issues. You should organise a pest inspection before and after settling when you believe they are needed to avoid any nasty and expensive surprises later on.
If you feel maintaining your investment property on your own will be too difficult, you can hire a rental manager to assist you with your property management needs. They’ll often charge around 6-8% of your rental income.
It’s important to note that if your tenant moves out, rental managers will charge approximately 110-150% of one week’s rent to compensate until a new tenant can be found. Check out our guide on everything you need to know about rental property managers to see if they can help you.
Loan and income maintenance
The interest charged on your loan is something you need to factor in when deciding on an investment property loan. Although interest rates in Australia are currently very low, they could rise in the future.
It’s important to decide whether a principal and interest loan or interest-only loan is right for you. Check out our comparison of principal and interest vs interest-only loans to see which one is best for you.
During your mortgage, banks will require you to pay additional fees to maintain your loan. Whether these fees are charged monthly or annually, it’s important to determine how much you’ll need to be paying so you can set that amount aside in advance.
Accountants, Solicitors, etc.
Although you can manage your investment portfolio on your own, it can be tricky to understand and keep up with market changes and legal requirements.
Hiring a solicitor, accountant, and other professionals will ensure your loan and your financial interests are looked after and for expert, personalised financial advice.
We recommend getting in touch with a lawyer and accountant to schedule a consultation and determine how much they’ll charge.
Tax on your investment property is determined by whether it is positively or negatively geared. If your rental income is more than you’re paying in expenses, your investment is positively geared and you’ll probably be paying tax. However, if it’s negatively geared, you may be entitled to a tax refund.
Many investment property costs are also tax-deductible. Check out the Australian Tax Office (ATO) list of tax-deductible investment expenses to see what you can get back.
What are your next steps?
Although these costs may seem overwhelming, property investment is still the most secure form of investment in Australia. And while it may take some time to see returns on your investment, once you do, they can be substantial and supplement your income for a very long time.
The key to investing well is to find the best loan. Our experienced brokers specialise in investment services and can compare loans from over 30 banks so you don’t have to. We can provide you with personalised and informed financial advice every step of the way. Additionally, if you secure a loan with us, we can help a family doing it tough in Australia or the Asia Pacific get a home, too.
For more information about home loans and investing, send us a quick message and we can answer all your questions, with no strings attached.
Disclaimer: The information provided is general in nature and does not constitute financial advice. Please speak to us for recommendations on your individual circumstance and requirements.