Real costs to consider when holding an investment property

“Recurring rates, fees, and maintenance costs can be the difference between a positively and negatively-geared property, depending on how much rental income a property generates,” according to property professional Jack Needham. “Keeping on top of these costs by factoring them into your calculations can also reduce any personal stress relating to your portfolio.”

Jack lists the most common costs associated with holding an investment property, beyond the initial costs of establishing an investment:

1. Loan repayments

This is defined as the cost of servicing the loan used to purchase a property and it can vary based on the amount borrowed, loan term, loan type, and other servicing fees.

2. Council rates and land tax

These rates will depend on local government areas and are usually paid annually.

3. Water rates

Depending on the provisions for separate metering of utilities, some investors may have to pay for the water costs of an investment property.

“Many older apartments will not have separate metering of water, meaning that the owner will typically be liable for water rates,” Jack said.

4. Insurance

Aside from building insurance, many property investors also opt for landlord insurance to further protect them from the impact of unexpected tenant-related liabilities.

5. Body corporate fees

These fees are used to keep apartments and townhouse complex in good condition and are usually paid quarterly. Detached houses will not be liable for these costs.

6. Repairs and maintenance costs

According to Jack, this is one of the most difficult cost to anticipate and control because it can turn up anytime and may vary depending on the nature of the issue and the current condition of the property, as well as the insurance policies in place.

7. Property management fees

Property investors who choose to go through an agency to help them manage their properties will have to consider ongoing agency fees, which they will take as a proportion of the monthly rent.

8. Tax on rental income

All rental property investments should be able to provide an investor income in the form of rental payments.

Jack explained: “These rental payments, along with any reimbursements associated with outgoings, are subject to taxation and must be declared on an investor’s tax return.”

While these holding costs may seem too much to handle, budding property investors should not be discouraged to continue their journey as long as they are committed to keeping an updated budget, which will assist them in spreading expenses over a period of time.