​Investing in property? Know the costs before you buy

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Delving into property investment can yield significant profits. However, it’s essential to gauge whether this kind of long-term commitment aligns with your financial goals.

What Makes Property Investment Appealing?

Property investment’s popularity stems from two main advantages: the potential for rental income and the opportunity for capital appreciation.

What’s different for investors vs. homeowners?

Stamp Duty Considerations

As an investor, you will be required to pay stamp duty, which varies based on the state and your property’s purchase price. Generally, this expense is greater for investment properties compared to residences. Use our stamp duty calculator for a preliminary estimate, but for an exact figure, it’s advisable to consult your State Revenue Office.

Lenders Mortgage Insurance and Origination Fees

Similar to securing a residential mortgage, covering 20% of your investment property’s cost can help you bypass Lenders Mortgage Insurance. If this isn’t possible, you’ll need to include this cost along with any loan origination fees in your budget. Discussing these aspects with your banker can provide clarity on lending and Lenders Mortgage Insurance pertaining to the property you’re eyeing.

Insurance for Your Building and Landlord Role

Investing in property is a significant financial endeavor, making insurance crucial. Building insurance protects against unexpected damages like fires or floods. If you’re purchasing a unit, building insurance expenses will be covered through strata levies.

Land Tax

Land tax is another expense exclusive to investment properties, not applicable to your primary residence. This annual tax varies state by state, and your land is evaluated yearly to determine your tax liability.

You can find more details on your State Revenue Office’s website.

Municipal Rates and Utilities

As the property owner, you’re responsible for the municipal rates, which fluctuate based on local property codes. Standard residential tenancy agreements require the landlord to cover costs associated with:

  • Initial connection to utilities like electricity, water, and gas.
  • Electricity and gas if the premises are not separately metered.
  • Water services.
  • Sewerage services.

Body Corporate Fees

For townhouses, units, or flats, body corporate fees should be considered. These costs are comparable to those incurred by owner-occupiers and are typically paid quarterly. They cover maintenance of shared spaces and building insurance. The exact amount depends on the property’s condition, its features, and its location.

Maintenance and Repairs

You, as the owner, will be responsible for any repair or maintenance expenses. Although these costs are partially tax-deductible, any improvements or renovations to the property are not.

Management Fees

Managing an investment property demands significant time. If you choose to oversee the property yourself, you’re in charge of property viewings, inspections, rent collection, and repair arrangements. Evaluate if this is the most productive use of your time. Alternatively, you could hire a professional property manager, with their fees being tax-deductible.

Mortgage Repayments

Relying on rent to cater to your investment property’s mortgage payments and other costs may sometimes prove insufficient, necessitating additional funds from your end.

There might also be instances where your property is vacant. To prevent vacancy, several proactive steps can be taken.

Understanding the neighborhood’s vacancy rate is critical. A high rate might signify a less attractive area, making it more challenging to rent and potentially harder to sell in the future.

Target properties with desirable features for the majority of individuals, such as an extra bathroom, secure garage, or proximity to amenities like shops, schools, and transport.

Ready to chat?

Talk to one of our home loan experts today.

Karlie Scharfenberg
Karlie Scharfenberg

Director & Senior Finance Broker

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