The extra costs of buying an investment property
The cost of an investment property is more than just the house price. There are also fees, taxes, rates, and other deductions that can make a dent in the savings of an unprepared buyer. Below is a list of extra costs you can expect when buying an investment property.
Upfront costs with an investment property
Bank fees
Some banks will charge an application or confirmation fee when taking out a home loan.
Property inspections
To ensure the property is ready for tenants before you buy it, professional inspectors will check for any building defects, cracks in walls indicating movement, dampness, or potential safety hazards that could become an extra cost in the long run.
Lenders Mortgage Insurance
Lenders Mortgage Insurance, or LMI, is a one-off payment that protects the bank if you cannot pay your mortgage. LMI is usually only required for loans greater than 80% of the total property cost.
Legal obligations
A solicitor or conveyancer will cover the processing of a transfer of property ownership. You could expect to pay up to a few thousand dollars for these services.
Stamp duty
Stamp duty is often one of the bulkiest costs you will face. Stamp duty is a government land transfer tax that differs depending on the state, type of property, and personal circumstances.
The ongoing maintenance costs for a rental property
The following ongoing costs recur weekly, monthly, or annually and may be due before a property is available for rent.
Accountants
There is a myriad of laws around Capital gains and Negative gearing policies. It could be helpful to consider an accountant who can handle your tax returns at the end of every financial year.
An accountant will consider things like depreciation, rental income, and expenses. You can also check with your accountant on what to claim for repairs, maintenance, and legal fees. And also what you can’t claim for the house, stamp duty, or tenant-paid bills.
Bank fees
Some banks will charge an annual fee to manage your home loan. At Ubank, we don’t charge ongoing fees on our Neat home loan.
Council rates
Council rates keep neighbourhood services running smoothly and are paid by the property owner, not the tenants, every quarter. Council rates keep the rubbish collected.
Income tax
Any rental income that exceeds the cost of a mortgage is classed as profit and is thus taxable.
Investment property insurance
Consider taking out property and landlord insurance to help you in case of damage, including damage caused by tenants or unpaid rent.
Interest
Whether you choose fixed or variable, you will pay interest on your investment property loan.
Land tax
Land tax varies depending on your state or territory and whether the property value exceeds the threshold. Often this is paid by investment property owners and not those living in their homes.
Property maintenance
Property maintenance is any work to maintain or fix parts of the property, such as cleaning gutters or plumbing. The landlord will pay the cost to maintain a rental property, not the tenants. Often this activity is tax deductible, but check with your accountant or the ATO.
Property managers
You might elect a property manager to help find tenants, process maintenance requests, and look after any other duties that lighten your workload as a landlord.
Taxes
There are three taxes that Australian investment property owners may pay: income tax, capital gains tax, and goods and services tax. These differ depending on the owner, the state, and the property, so ensure you research with your relevant authority.
Strata fees
Often known as Body Corporate fees, strata fees occur when your investment property is within an apartment block or townhouse complex. These pay for shared services and the maintenance of the building and its surroundings.