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Cost of Investing in Property

If done well, investing in property can provide solid financial returns. However, properties can also be expensive assets to acquire and keep. It is important to be aware of the initial and ongoing costs associated with owning a property and consider these before you make a purchase.

Initial costs of acquiring an investment property

The following costs will be incurred when you are purchasing a property.

Expense Frequency Notes
Deposit Once off payment If you do not have the full purchase price you may be able to obtain a mortgage to assist with the purchase of the property. However, you will still need to contribute funds towards the purchase (a deposit). The amount of deposit required will depend on the lender and your situation. Usually 5% is the minimum amount required for a deposit. If you are a first home buyer you may be able to get a first home owner grant (FHOG). Some lenders will allow you to contribute the FHOG towards the deposit. However, in most cases you will need to pay for lenders mortgage insurance if you are borrowing more than 80% of the property value (see below).
Loan
Establishment
Fees
Once off payment Some banks and lenders will charge an establishment fee or other related fees (e.g. property valuation fee, the bank’s legal fees etc..) to cover the costs of setting up your loan. Other lender may waive these fees. Once you have selected a lender you will be able to determine how much (if any) the fees will be.
Lender’s Mortgage
Insurance
Once off payment If you are borrowing more than 80 percent of the value of the property, the bank or lender usually requires you to pay lenders mortgage insurance. Consult your mortgage broker to determine likely costs of lender’s mortgage insurance that you will be charged if you are borrowing more than 80% of the property value.
Utility Connections Once off payment You will need to pay for the connections for all the utilities and services to the property. If there is body corporate payable on the property you may need to pay a proportion of this to the vendor for the period that they have already paid.
Stamp Duty Once off payment The amount of stamp duty that you will need to pay will be based on the price / value of the property but the rate varies depending on which State or Territory that you are in. If you are a first home buyer you may be able to get a discount on the amount of stamp duty that you need to pay. Find out more about  Stamp duty. Foreigners purchasing property in Australia may require Foreign Investment Review Board approval or be subject to other taxes.
Legal / Conveyancing costs Once off payment Conveyancing is the legal transfer of ownership of the property. This is usually conducted by a solicitor or conveyancer. A good full service conveyancer / solicitor will review the contract of sale and explain any unusual terms or conditions prior to you signing the contract. This is highly recommended. Conveyancing may cost approximately $600-$1400 (or more).

Ongoing costs of owning an investing in Property

Estimating the exact ongoing costs of owning an investment property can be difficult as costs may vary from month to month and year to year. The following are costs you may incur as part of owning an investment property.

Expense Once Off /
Ongoing
Notes
Building & Landlord Insurance Annual payment Building and landlord insurance protects you from unforeseen building repairs (for example fires or flooding), but also some common tenant problems i.e. damage your property, the tenant refusing to pay rent or vacating the property prior to the end of the tenancy agreement (and ceasing to pay rent).
Annual fees on your investment property loan Annual payment Your investment loan may have an annual fee. Your mortgage broker will be able to inform you of any annual fees at the time that you are selecting the loan.
Land Tax Annual payment This cost is the annual tax on landowners. Land tax may be exempt in certain cases, however when purchasing a property as an investment you will be required to pay land tax. Land tax is levied by states and territories. Contact your relevant state authority for more information.
Council Rates /
Government Taxes
Annual payment In most instances the landlord is responsible for council rates and government taxes. These rates will vary depending on which city or provincial council the property is within. Contact your local council for more information.
Body Corporate
Fees
Quarterly payment If your property resides on a block with common areas (e.g. most apartments and many townhouses and units), it is likely to have a body corporate that manages these areas. The body corporate will also charge the residents for this service. These fees cover maintenance of common areas as well as external building insurance. The fees will depend on the operation of the body corporate.
Mortgage
Repayments
Monthly payment If you have a mortgage then you will need to keep up the repayments. Depending on the rental yield of the property the rent may or may not cover all of the mortgage payments.
Utilities Monthly payment Many of the utilities will be the responsibility of the tenant. However, if the utility does not have a separate metering devices like water you will be responsible for the charges. You will also be responsible for the annual sewerage charges.
Property
Management
Monthly payment If you will use a real estate agent to management the rental of your property you will need to consider their fees and charges. These will vary depending on the agent that you use. There is likely to a charge or letting the property and then ongoing charges which are usually a percentage of the rental amount. There may also be account keeping fees.
Repairs and maintenance Ongoing – varies Day to day wear and tear is expected and you may be able to obtain a tax deduction for depreciation. You will also need to budget some funds for maintenance and repairs. Maintenance and repair cost of a property can be partly tax deductible, however, it is important to double check what you can and cannot claim. Some things may be considered as capital expenditure.

 

Find out about the process of buying real estate in Australia

The process of buying real estate can be confusing and is different depending on where you are. Find out about the process of buying real estate in Australia here:

 

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