Understand the costs associated with buying and owning an investment property

When it comes to investing in property, be sure that you’ve considered all of the costs. Whether buying or owning an investment property, there will always be a relatively significant financial commitment associated with such deals – so understanding these implications can help calculate whether your budget allows for what’s needed.

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. You’ll find that stamp duties vary depending on where in Australia and if you are buying a new property or established dwelling.

Conveyancing/legal

You’ll need to cover the costs of a solicitor or conveyancer. This includes reviewing the contract of sale, mortgage and other legal documents. If you do not have a solicitor or conveyancer Auspak can help recommend one.

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.

It is important to do a pest and building inspection before you buy a free standing home.

Strata Report

If you are buying a strata tilted unit, it is important you purchase a strata report on the building. The report will detail all capital works coming up, together with any issues with the building. These are usually purchased through the selling agent of the property.

Buyer’s agent

A buyer’s agent helps you find the right property, negotiate the price and purchase 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. The Auspak team works with a number of different buyers agents specializing over Australia. Buyers Agents can come in handy when buying interstate or out of your local area.

Home loan fees

Some lenders may charge a fee to apply for a loan. Try to avoid this fee or have it waived. The Auspak team 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 Aussie Broker to find out more.

Costs of owning an investment property

There are two types of costs you’ll face as an investor – one off when buying and ongoing expenses that come with owning a property. Take these into consideration before setting your budget so that it’s sufficient for all the different kinds of expenditures associated with investing in real estate over time.

Insurance

Your rental property is a valuable asset. 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. Landlords should consider adding landlord insurance to their policies. This coverage will provide protection against damage or loss caused by tenants.

Council rates

The landlord pays council rates, although there are exceptions depending on where you live.

Strata Fees

A strata titled building is the most common way to own a unit or townhouse. Strata corporations provide for the maintenance and insurance costs on common areas like gardens, lifts or driveways that are owned by all owners in their building complex. Owners usually pay these fees quarterly.

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 fees, paid by the landlord not the tenant. A one-off fee called a letting commission can be charged when an agent signs new tenants and this cost usually comes out of their first rent payment. Property managers also charge a management fee, usually 5-10% of the weekly rental to manage any issue with the tenant/property. These fees can be tax deductible – best to chat to your accountant regarding the tax deduction you can claim.