21-08-16-Calculate the real costs of property investment

Calculate the real costs of Property Investment

Sounding out your first steps into property investment means having a solid appreciation of the upfront and ongoing costs.


Owning property can provide real and sustainable returns. But you should never venture into property investment without a true understanding of the costs involved, including the upfront, ongoing, and sometimes, the unexpected.


Take a look at our quick guide:


Upfront Costs


  1. With lenders required to soften their appetite for investment property, you should expect to pay a deposit of 10% of the property asking price.


  1. Mortgage Insurance and Loan Establishment Fees. Mortgage insurance is a financial term that refers to insurance the lender will take against your defaulting on a loan. It’s normally required if you borrow in excess of 80% of the property value and you pay a one-off premium. In addition, some financial organisations will charge an establishment fee to set up your loan.


  1. Stamp Duty. Stamp duty is payable on the purchase price of the property. The percentage charge varies by state.


  1. Legal Fees. Solicitors or conveyancers will ensure proper legal transfer of ownership, and their advice doesn’t come for free.


  1. Utility Connection. Utility companies will charge for installation and connection of services in anticipation of occupancy by your tenants. Allow for water and electricity/gas.


Ongoing Costs


  1. Mortgage Repayment and Fees. This will probably be your largest monthly outlay. Consider the impact and likelihood of increased payments should interest rates rise. Some financial organisations also charge an annual loan fee.


  1. Buildings and Landlords Insurance. As the owner, you’re responsible for insuring the property from damage caused by fire, storm, flood etc. In addition, landlords insurance is a must-have to protect you against tenancy problems, such as malicious damage to the property.


  1. Repairs, Maintenance and Renovations. It’s your responsibility to maintain the property, so put aside a fund to cover general maintenance and unexpected repairs.


  1. Rental Management. Most property investors will employ a property management expert, such as a real estate agent. The property manager will charge a monthly fee as a percentage of the rental income and a fee for securing new tenants.


  1. Council Rates. As a landlord, it’s generally your responsibility to pay the rates every quarter or annually. Rates vary according to each council area.


  1. Body Corporate Fees. If you own a unit, flat or townhouse in a shared block you will have owner’s corporation fees to pay. These cover maintenance of common areas and building insurance.


  1. Utility charges. You’ll be responsible for services that do not have a separate metering – typically water and sewerage.


  1. Accountant. An accountant will prepare your tax return, calculate depreciation, rental income and expenses, and work out what you can claim. If you are generating a positive cash flow from your investment, you may have to pay tax.


  1. Land Tax. All states and territories, with the exception of Northern Territory, impose a land tax. The tax is calculated according to land value, so if you purchase units with small land value you will have lower land tax payments.


  1. Other costs. There will be additional ongoing costs such as pest control. And if you intend to carry out regular property checks, depending on the location of your investment property, there will be expenses relating to travel and accommodation.


Consider all the costs involved with your investment property before you invest. The better you prepare, the better results you can expect in the long term.