There are charges and fees to factor in when purchasing an investment property. These can be split into one-off costs before the purchase, and the ongoing charges associated with the upkeep and daily running of the rental.
Pre purchase costs
Costs due before settlement are numerous, and most are single payments for which money often needs to be available up front.
This one is obvious, but bears mentioning. Obviously, the deposit amount needs to be considered and factored in.
This is insurance paid by the investor that protects the lenders investment in your property. This is often charged if borrowing more than 80% of the value of the home
This should be carried out by a qualified expert prior to purchasing.
Similarly, this should be carried out before purchasing the property.
Loan establishment fees
Some lenders charge fees to cover their administration costs of establishing a home loan. This is a one off payment that not all lenders charge, so check with your institution. If you change lenders over the life of your mortgage and still have less than 20% equity in the property you may be charged again by the new lender.
Stamp duty is a tax payable to your state/territory authority upon the transfer of property. The amount owed varies from state to state, but is usually higher for investment properties than for your principal home.
Conveyancing fees differ depending on the firm and the complexity of the purchase. These fees cover the cost of legally transferring property ownership.
Post purchase costs
Once you have bought the property there are standing charges, bills, and other maintenance costs to pay. These can be annual, monthly, or as required, but cash needs to be available to cover these expenses.
This is the insurance you take out to cover the property for damage. This may not be needed however, if you are buying a unit or townhouse in a development where strata fees cover building insurance. As an extra safeguard, investors should consider landlord’s insurance.
Home loan account fees
In addition to the loan establishment fee, some lenders charge an annual fee for holding your mortgage account with them. Talk to your lender to see if this is applicable to you.
The majority of home loans require regular repayments to be made to meet the conditions of your mortgage contract. You should know the amount and frequency of this payment if you have obtained a pre-approval from your lender.
If your property is positively geared you will owe tax on your profits, this can be offset by claiming rebates such as depreciation. Land tax is payable by owners of land, consult your state or territory if you believe you may be liable to pay this.
For most rental properties annual council rates are the landlords responsibility, be sure to factor this in to your overall cost assessment.
If you are looking to purchase a unit, flat or townhouse that shares common access and facilities with other residents you are likely to be liable for body corporate fees.
Any utilities that do not have individual meters are the responsibility of the landlord. For high density dwellings this often includes gas, water and sewerage.
If you intend to employ a person or agency to manage your property there will be a cost for this. This fee is often 7-10% of the rent charged. Agents may offer increasing rates for higher tiers of service, so always be aware of what’s included for your money.
Repairs and maintenance
If you have employed a property manager then your costs of maintenance could be covered in your payments, or added on to your bill when necessary. If you are undertaking repairs and maintenance yourself you will likely save costs, but this will take up your free time.
There’s nothing worse than purchasing a property only to find that costs are much higher than you first anticipated. Run the numbers to find out the real cost of owning an investment property, overestimating to be sure of the affordability factor. Confidence in the figures will help you to keep a clear head and make the right choice when searching for property.