Costs of buying and owning an investment property
- Yuan Gao
- Feb 29, 2024
- 4 min read
Understand the costs associated with buying and owning an investment property
When it comes to investing in property, you need to ensure you’re aware of all the associated costs. Whether you’re buying or owning an investment property, there is going to be a relatively significant financial commitment. Understanding these costs can help you calculate what you can afford, and whether you’re going to be able to repay what you owe.
Costs of buying an investment property
Consider all the costs when buying your investment property. Here’s a handy list to help you budget.
Stamp duty by state
Stamp duty is a tax charged by the state and territory governments on your home’s value. What you pay depends on where you live and what you’re buying. Find out more on your state or territory’s revenue office. Our online Stamp Duty Calculator can also help you work out what you may need to pay.
Conveyancing/legal
You’ll need to cover the costs of a solicitor or conveyancer. This includes preparing the sale contract, mortgage and other legal documents. Bring in the professionals as small mistakes may cost money.
Pest and building reports
Check for structural soundness by doing a pest and building inspection before you buy. These are sometimes done together to save money. You could expect to pay more for these if the property is in a regional area.
Buyer’s agent
A buyer’s agent helps you find the right property, negotiate the price and buy on your behalf. They also have contacts to find a property, fast. Sometimes they find properties that are not yet on the market and help you make an offer
Home loan fees
Some lenders may charge a fee to apply for a loan. Try to avoid this fee or have it waived. Your FND broker can help you navigate this process.
Lender’s mortgage insurance
Your lender will usually ask you to pay lender’s mortgage insurance (LMI) if your home loan is worth more than 80% of the purchase price. This insurance protects lenders in case you default on your payments. The amount you pay will depend on the size of your loan, the type of property and your lender. It's typically charged as a one-off premium included in your loan.
Mortgage registration fee
The mortgage registration fee varies between states. The fee is charged on registering a home loan and the property acts as security. The government requires registration so future claims on the property can be checked.
There are costs involved in finding and buying the right investment property. But don’t let fees sway you from your property goals. Speak to an FND Broker to find out more.
Costs of owning an investment property
You face two types of costs as an investor. There are one-off costs when you buy, which are outlined above. Then there are the ongoing expenses associated with owning a property. Factor both into your budget as you’ll also need to allow for a variety of costs that go with owning real estate over time.
Insurance
Your rental property is a valuable asset. So it can be a good idea to have insurance in place before you settle. Taking out cover after you have exchanged contracts can mean you’re protected if the property is damaged before settlement.
You may face additional risks once the property is tenanted. Landlord insurance can provide extra protection that goes beyond regular building or contents cover. Valuable features include protection against damage caused by the tenant or loss of rent if the tenant skips town.
Your policy may cover the value of fixtures and fittings or any furniture you provide. You’re not responsible for insuring the tenant’s belongings.
Insurance premiums vary. So be prepared to shop around and read the fine print to understand what you’re covered for and what’s excluded.
Utilities
You’re usually responsible for the cost of having power and gas connected. But it’s up to the tenant to pay for the services they consume.
Council rates
The landlord pays council rates, although there are exceptions depending where you live.
Strata
Strata allows people to own part of a property like an apartment or townhouse. It also covers shared ownership of common property like gardens, lifts or driveways.
The owners’ corporation or body corporate is responsible for maintaining and insuring common areas. These costs are passed onto owners through strata fees, which are usually
paid quarterly by property owners.
Repairs and maintenance
Landlords have to respond straight away if a tenant requests urgent repairs. The landlord is responsible for organising repairs. But the tenant can be asked to pay for any damage they cause.
Property manager fees
Property managers charge a range of fees, paid by the landlord not the tenant. A one-off fee called a letting commission can be charged when the agent signs a new tenant. This cost usually comes out of the tenant’s first rent payment.
Some of the ongoing costs of owning a rental investment may be tax deductible. Speak to your tax professional to understand the expenses you can claim.
