All you need to know about the costs involved when investing in property

DO THE SUMS: Make sure you budget for all the upfront and ongoing costs before you invest. Photo - Shutterstock.
DO THE SUMS: Make sure you budget for all the upfront and ongoing costs before you invest. Photo - Shutterstock.

If chosen and managed well, an investment property can reap significant rewards.

However, there are many upfront and ongoing costs which need to be taken into account when taking the plunge, according to realestateview.com.au.

Initial cost of investing in property

These are the costs you will incur with the purchase.

Deposit: The deposit needed to purchase a home is 10 per cent of the asking price. However, if you borrow over 80 per cent of the property value, you will be required to pay mortgage insurance.

Loan Establishment Fees: Some financial institutions will charge an establishment fee to cover your loan's setup costs. Consult your financial institution to determine establishment fees.

Mortgage Insurance: If your deposit is less than 20 per cent of the property's value, the lender may require you to pay mortgage insurance. Consult your financial institution to determine likely costs to insure your loan.

Connections: The cost of the connections for all the utilities and services you will need to have installed in preparation for the tenants who will be occupying your property.

Stamp Duty: Stamp duty costs will differ from state to state and depend on the property's purchase price. Stamp duty for an investment property is usually higher than a principal home. You can calculate costs at stampdutycalculator.com.au.

Legals: This cost covers the legal transfer of ownership. A solicitor or conveyancer usually conducts this. It may cost around $600-$800.

Ongoing cost of investing in property

Estimating ongoing costs can be difficult as they may vary from month to month and year to year. It is important to allow for the following costs you may incur and any extras that may arise.

Insurance (Building & Landlord) Annual payment: Building and landlord insurance will not only protect you from unforeseen building repairs (from fires or flooding), but also common tenant problems, i.e. damage, tenant refusing to pay rent, leaving the property before the agreement's finishing, etc.

Yearly Mortgage Fees Annual payment: Your loan may be subject to an annual loan account fee; consult your financial institution to determine if this is applicable.

Land Tax Annual payment: This cost is the annual tax levied on the owners of land. Land tax may be exempt in some instances; however, you will be liable when purchasing a property as an investment. Land tax is levied by states and territories. You can contact your relevant state authority for more information.

Council Rates / Government Taxes Annual payment: In most instances, council rates and government taxes will be the landlord's responsibility. These rates will vary from state to state. Contact your state authority for more information.

Body Corporate Fees Quarterly payment: If your property resides on a shared block (e.g. is a townhouse, unit or flat), it is likely to incur owner's corporation fees. These fees cover maintenance of common areas as well as building insurance. The fees will depend on the condition of the property, its features and the area.

Mortgage Repayments Monthly payment: Although the rental payments you receive may cover most of your monthly mortgage fees, you may need to contribute and cover the shortfall.

You will also need to keep up with the interest costs on the borrowings of your property and consider the impact of rate rise.

Utilities Monthly payment: You will also be responsible for the cost of any services which do not have separate metering devices like water, as well as the annual sewerage charges.

Property Management Monthly payment: If you have decided on seeking an expert to manage your property, their commission or fees will need to be considered. These fees may vary from state to state.

Repairs Ongoing/varies: As the owner, you will need to maintain the property. Maintenance of a property can be partly tax-deductible; however, it is important to double-check what you can and cannot claim.

You may not expect one cost when buying a shared complex says Toby Balazs, CEO of realestateview.com.au.

"If looking to purchase in a shared complex, e.g. apartment building, you are likely to also incur body corporate fees. Dependent on the facilities and features of the complex this can be fairly costly and need to be considered prior to purchase.

"A property will also be liable for an annual land tax payment when being purchased as an investment. This tax is typically based on the site value from your council notice with a tax rate applied dependent on the value and will need to be paid to your State Revenue office.

"Building and landlord insurance should not be scrimped on. Your property may need unforeseen building repairs, or you may have tenant-related issues, including damage to your property or issues relating to loss of rent. It's vital to ensure you have insurance to protect your rental income."

"Two costs often overlooked are the opportunity cost and time," says PIPA chairman Peter Koulizos.

"The opportunity cost is when you buy a property, you won't be able to buy or invest in something else," says Mr Koulizos.

"You also need to factor in the time cost; owning an investment property is not something that is set and forget.

"At the beginning, the most time spent is in finding the right property, in the right location and in today's market, this will be challenging.

"Once you have your property, how much time you need to spend will depend on how old the property is; it could be as much as a half a day once a month. If you have a low maintenance property and a fantastic property manager, it could be as little as an hour a month.

Mr Koulizos says the one thing not to scrimp on is the location.

"You need to buy in the best location your budget will allow; it's worth spending some time and money getting the right advice and making sure you buy on the right street."

Find more about investing in property at realestateview.com.au.

A good property manager is worth their weight in gold.

Peter Koulizos
This story The costs to consider when investing first appeared on Port Macquarie News.