10 costs to consider when buying an investment property

10 costs to consider when buying an investment property

Property purchases and ownership come with several expenses, from up-front legal and valuation fees to ongoing expenses like property management and council charges. Additionally, there are other expenses unique to investment properties. Here is a useful timeline of events.

Purchase Price:

The cost of the property is one of the most critical factors to consider. You want to ensure that the price you pay is reasonable and aligns with the property’s potential for generating rental income and capital growth.

When considering the purchase price, you should also consider factors such as the property’s location, size, age, and condition. You’ll want to compare the price of similar properties in the area and consider any renovations or repairs that may need to be made.

Stamp duty:

Stamp duty is a tax levied by the government on property transactions. It’s important to factor this cost into your budget as it can be a significant expense. The amount of stamp duty you’ll need to pay varies by state and territory in Australia. You can use online calculators to estimate your stamp duty costs, and it’s important to factor this expense into your budget.

Legal fees:

You’ll need to engage a solicitor or conveyancer to handle the legal aspects of the purchase. Legal fees can vary, and it’s essential to get a quote upfront and budget accordingly. Legal fees can include conveyance fees, title searches, and other charges associated with the legal transfer of the property. You should get a quote upfront from your solicitor or conveyancer to avoid any surprises.

Lenders Mortgage Insurance:

If you’re borrowing more than 80% of the property’s value, you may be required to pay lender’s mortgage insurance. This is an insurance policy that protects the lender in case you default on your loan. Lenders Mortgage Insurance (LMI) is typically required if you’re borrowing more than 80% of the property’s value. The cost of LMI varies based on the amount you’re borrowing and the loan-to-value ratio (LVR).

Inspection reports:

Before you buy a property, it’s essential to have it inspected by a professional to identify any issues or potential problems. This includes building and pest inspections, which can uncover any structural or pest-related issues.

Inspection reports can identify any potential issues with the property that could affect its value or rental income potential. You’ll want to ensure that you have a thorough inspection done by a licensed inspector.

Loan Repayment:

If you’re borrowing money to buy the property, you’ll need to factor in loan repayments. It’s important to ensure that the rental income generated by the property can cover these costs.

When considering loan repayments, you’ll need to factor in the interest rate, loan term, and any fees associated with the loan. You can use online calculators to estimate your loan repayments based on these factors.

Council Rates:

As the property owner, you’ll be responsible for paying council rates, which cover services such as garbage collection, roads, and parks. Council rates can vary based on the location and value of the property. You’ll want to check the council rates for the area to ensure that they’re reasonable and won’t negatively impact your rental income.

Strata Fees:

If the property is part of a strata complex, you’ll need to pay strata fees. These fees cover the maintenance of common areas such as gardens, swimming pools, and lifts. Strata fees can vary based on the size and complexity of the strata complex.

You’ll want to review the strata by-laws and financial statements to ensure that the fees are reasonable and won’t negatively impact your rental income.

Building and Landlord Insurance:

As the landlord, it’s important to have building and landlord insurance to protect your investment in case of damage, theft, or loss of rental income. Building insurance can protect your investment in case of damage caused by events such as fire, storm, or flood.

Landlord insurance can protect you against loss of rental income, tenant damage, and legal liability.

Utilities and Maintenance:

You’ll need to budget for ongoing maintenance costs such as repairs and upgrades, as well as utilities such as water, gas, and electricity. Ongoing maintenance costs can include repairs, upgrades, and general upkeep of the property.

You’ll also need to budget for utilities such as water, gas, and electricity, which may be the responsibility of the tenant or the landlord, depending on the lease agreement.