Investment Property Costs to Know Before You Buy

Why buy an investment property?

Purchasing an investment property is regarded as a relatively stable and lower-risk investment option. Buying an investment property offers several potential advantages, such as: Appreciating in value over time (commonly referred to as capital growth). Earning rental income from tenants. And tax advantages.

What’s the difference when purchasing a property for investors and homeowners?

Stamp duty

As a property investor, you’ll also be responsible for paying stamp duty, the amount of which varies depending on your state. Typically, stamp duty for an investment property is higher than that for a primary residence and is calculated based on the property’s purchase price. You can use a stamp duty calculator to get a quick estimate of the amount you’ll owe. For precise details, it’s advisable to consult with your State Revenue Office.

Lenders Mortgage Insurance and loan establishment fees

Similar to obtaining a home mortgage, providing a 20% deposit for your investment property purchase can help you bypass the need to pay Lenders Mortgage Insurance (LMI). However, if you’re unable to meet this threshold, you’ll need to consider the cost of LMI along with any loan establishment fees. Feel free to reach out to our mortgage brokers to gain insights into lending requirements and Lenders Mortgage Insurance specific to the property you’re considering.

Building and landlord insurance

When you’re investing your hard-earned savings and time into a property, insurance is an essential aspect not to overlook. Building insurance provides coverage for unexpected damages such as fire or flooding. If you purchase a unit, building insurance costs will typically be covered through strata levies.

Land tax

Unlike your primary residence, purchasing a property for investment purposes entails the responsibility of paying land tax, an annual tax that varies across states. Each year, your land is assessed to determine the applicable tax amount. For further information, you can visit the website of your State Revenue Office.

Council rates and utilities

As the property owner, you’ll be responsible for covering the council rates, which are determined based on local authority property codes. According to standard residential tenancy agreements, landlords are required to pay for:

  • Installation for initial connection to electricity, water, and gas services
  • Electricity and gas if the premises are not separately metered
  • Water service
  • Sewerage services

Body corporate fees

When purchasing a townhouse, unit, or flat, it’s essential to consider body corporate fees. These fees are equivalent to those paid if you were residing in the property. Typically paid quarterly, they encompass maintenance of common areas and building insurance. The specific amount of these fees is influenced by factors such as the property’s condition, features, and location.

Maintenance and repairs

As the property owner, you’ll be responsible for covering any repair and maintenance expenses for the property. While some of these costs may be partially tax deductible, it’s important to note that improvements or renovations to the property are not eligible for deduction.

Management fees

Handling an investment property can consume a significant amount of time. If you opt to manage the property yourself, you’ll take on tasks such as showing the property to tenants, conducting inspections, collecting rent, and coordinating repairs. It’s crucial to assess whether this aligns with your priorities and commitments. Alternatively, you have the option to enlist the services of a professional property manager. While this incurs fees, it provides you with expert assistance in overseeing your property. It’s worth noting that these management fees are tax deductible.

Mortgage repayments

If you’re relying on rental income to cover your investment property’s mortgage payments and other expenses, you may encounter situations where this income falls short, necessitating you to cover the shortfall yourself.

Additionally, there might be periods when your property remains unoccupied. To mitigate the risk of vacancy, consider the following steps:

  1. Research the vacancy rate in the neighborhood. A high vacancy rate could indicate a less desirable area, making it challenging to rent the property and potentially affecting its resale value in the future.
  2. Seek properties with appealing features that cater to a broad audience. Consider amenities like a second bathroom, lock-up garage, or proximity to shops, schools, and transportation options. These features can enhance the property’s appeal and make it more attractive to potential tenants.

If you’re looking to invest in property, talk to us about a home loan today.

Contact us online or call us on 03 9427 0855.