Cost of Owning An Investment Property

Before investing in real estate, you need to consider all of the associated costs. Whether you’re buying or renting 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 will be able to repay what you owe.

Costs Of Buying Investment Properties

When purchasing an investment property, be sure to consider all costs. Here is a list of some common expenses to help you budget.

Stamp Duty

Stamp duty is a tax imposed by the state and territory governments on the transfer of properties. The amount you pay depends on where you live and the value of the property being transferred. More information is available on your state or territory revenue office’s website, or use our online Stamp Duty Calculator to help you work out what you may need to pay.

Legal & Conveyancing

You will need to budget for the services of a solicitor or conveyancer. This includes preparing the sales contract, mortgage and other legal documents. The professionals may be able to offer advice on avoiding costly mistakes.

Building & Pest Reports

Before you buy a property, it is wise to ensure that it is structurally sound by conducting a pest and building inspection. These can be done together, although they may cost more if the property is located in a regional area.

Buyer’s Agent Fees

A buyer’s agent is a real estate agent who represents the buyer in the purchase of a home and helps with negotiations. They can help find properties that are not yet on the market and make an offer when the seller isn’t ready.

Home Loan or Mortgage Fees

Some lenders charge a fee to apply for a loan. You might ask your My LMI Group broker whether they can help you avoid this fee or have it waived.

Mortgage Insurance

Lenders usually require borrowers to pay lender’s mortgage insurance (LMI) if the borrower’s loan is worth more than 80% of the property’s purchase price. This protects lenders in case the borrower defaults on their payments. The amount you pay depends on several factors, including: the size of your loan, type of property, and lender. It’s typically charged as a one-off premium included in your loan.

Mortgage Registration

The registration fee for mortgaging a property varies between states. The government charges the fee when a home loan is registered 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 goals. My LMI Group brokers is here to help.

Costs Of Owning Investment Properties

As an investor, you incur two types of costs when buying property. One-time costs are outlined above. Ongoing expenses are associated with owning a property, and the expenses vary depending on the type of property you own. 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 Costs

It can be a good idea to have insurance in place before you settle on your property. Taking out cover after you have exchanged contracts can ensure that you are protected if the property is damaged before settlement.

When renting property to tenants, there may be additional risks. 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 insurance policy may cover the value of any fixtures and fittings provided, or if you furnish the property. It is unlikely that you would be responsible for insuring your tenant’s belongings.

Insurance policies generally vary by company, so it’s best to shop around and read the fine print to understand what you’re covered for and what’s excluded.

Home Utilities

The landlord is generally responsible for paying for the cost of having power and gas connected. However, it is up to the tenant to pay for the services they consume.

Understanding Council Rates

Although there are exceptions depending on where you live, your landlord typically pays council rates.

Strata & Property Ownership

Strata is a form of property ownership that 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, insuring and paying for common areas of a building. This is done by passing on costs to the owners in the form of strata fees, which are paid to the body corporate quarterly by property owners.

Repairs, Maintenance & Upkeep

If a tenant requests urgent repairs, the landlord must respond immediately. The landlord is responsible for organising repairs. However, the tenant can be asked to pay for any damage they cause.

Property Manager Costs

Property managers charge fees to landlords, not tenants. A letting commission is an example of a fee that can be charged when the agent signs a new tenant. This cost comes out of the tenant’s first rent payment.

Some ongoing costs of owning a rental property may be tax deductible. Speak to your tax professional to understand the expenses you can claim.