Real costs to consider in property investment

Apart from mortgage repayments, they must also consider the multiple ongoing costs, particularly fluctuating holding costs, which may very well impact their ability to grow their portfolio over the long term.

Property professional Jack Needham said: “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.”

“Keeping on top of these costs by factoring them into your calculations can also reduce any personal stress relating to your portfolio.”

Beyond the initial costs of acquiring and establishing a property investment, among the most common costs associated with holding an investment property are:

1. Loan repayments: Defined as the cost of servicing the loan used to purchase a property, repayments may vary based on the amount borrowed, loan term, loan type, and other servicing fees.

2. Council rates and land tax: The rates will depend on local government areas and are usually paid annually.

3. Insurance: Aside from building insurance, investors may also opt for landlord insurance to further protect them from the impact of unexpected tenant-related liabilities. Further, investors with lower deposits may have to pay for the Lenders mortgage insurance.

4. Body corporate fees: These costs, usually paid quarterly, are associated with the upkeep apartments and townhouse complex. Detached houses will not be liable for these costs.

5. 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, which means that the owner will be liable for water rates.

6. Property management fees: Investors who choose to hire an agency to help them manage their properties will have to consider ongoing agency fees, which they can take as a proportion of the monthly rent.

7. Repairs and maintenance costs: Investors are advised to pay attention to these costs as they could be one of the most difficult to anticipate and control. Costs may vary depending on the nature of the issue and the current condition of the property, as well as the insurance policies in place.

8. Tax on rental income: All rental properties should be able to provide an investor income in the form of rental payments. According to Mr Needham: “These rental payments, along with any reimbursements associated with outgoings, are subject to taxation and must be declared on an investor’s tax return.”