Cost of investing in property

Written by in Buying

Beginner’s Guide to Investing

An investment property has many benefits and if chosen carefully can provide solid financial returns. However, it can also be an expensive asset to acquire and maintain. There is not just one overall cost of investing in property but many  upfront and ongoing costs which need to be taken into account when taking the plunge.

Initial cost of investing in property

The following are costs which you will incur when the purchase is first made. You can fill out the amount to calculate your  budget.

Deposit Once off payment

The deposit needed to purchase a home is 10% of the asking price. However, if you borrow in excess of 80% of the property value, you will be required to pay mortgage insurance.

Loan Establishment Fees Once off payment

Some financial institutions will charge an establishment fee to cover the set up costs for your loan. Consult your financial institution to determine establishment fees.

Mortgage Insurance Once off payment

If your deposit is less than 20 percent of the value of the property, the lender may require you to pay mortgage insurance. Consult your financial institution to determine likely costs to insure your loan.

Connections Once off payment

The cost of the connections for all the utilities and services you will need to have installed in preparation for the tenants who will be occupying your property.

Stamp Duty Once off payment

Stamp duty costs will differ from state to state and will depend on the purchase price of the property. Stamp duty for an investment property is usually higher than a principal home. Refer to the following link to calculate costs:

Legals Once off payment

This cost covers the legal transfer of ownership. This is usually conducted by a solicitor or conveyancer. It may cost approximately $600-$800.

Ongoing cost of investing in property

Estimating ongoing costs can be a difficult task as they may vary from month to month and year to year. It is important to allow for the following costs you may incur as well as any extras which may arise.  You can fill out the amount to calculate your  budget.

Insurance (Building & Landlord) Annual payment

Building and landlord insurance will not only protect you from unforeseen building repairs (from fires or flooding), but also common tenant problems i.e. damage, tenant refusing to pay rent, leaving the property prior to the agreement’s finishing, etc.

Yearly Mortgage Fees Annual payment

Your loan may be subject to a yearly loan account fee. It is important to consult your financial institution to determine if this is applicable.

Land Tax Annual payment

This cost is the annual tax levied on the owners of land. Land tax may be exempt in certain cases, however when purchasing a property as an investment you will be liable. Land tax is levied by states and territories. For more information please contact your relevant state authority.

Council Rates / Government Taxes Annual payment

In most instances council rates and government taxes will be the responsibility of the landlord. These rates will vary from state to state. Contact your state authority for more information.

Body Corporate Fees Quarterly payment

If your property resides on a shared block (e.g. is a townhouse, unit or flat), it is likely to incur owner’s corporation fees. These fees cover maintenance of common areas as well as building insurance. The fees will depend on the condition of the property, its features and the area.

Mortgage Repayments Monthly payment

Although the rental payments you receive may cover most of your monthly mortgage fees, you may need to contribute and cover the shortfall. You will also need to keep up with the interest costs on the borrowings of your property and consider the impact of rate rise.

Utilities Monthly payment

You will also be responsible for the cost of any services which do not have separate metering devices like water, as well as the annual sewerage charges.

Property Management Monthly payment

If you have decided on seeking an expert to manage your property, their commission or fees will need to be considered. These fees may vary from state to state. For more information on the fees of a property manager, please refer to Managing Your Investment, page 12 of this guide.

Repairs Ongoing/varies

As the owner, you will need to maintain the property. Maintenance of a property can be partly tax deductable, however, it is important to double check what you can and cannot claim.