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Investing in property can generate great financial returns. But before you take the plunge, there are many upfront and ongoing costs you should consider. We’ll run through these costs to give you a better idea of whether this type of long term investment is right for you.

Give me the main points

  • The First Home Owner Grant and Stamp Duty differ for an investment property compared to that for your principal residence – it’s important to see how they affect the overall price.
  • Try and save 20 percent of the value of the property to avoid paying lenders’ mortgage insurance.
  • Building and landlord insurance are costs that shouldn’t be skimped on.
  • Land tax is an annual expense, along with council rates and utilities which needs to be budgeted for.
  • If your property resides on a shared block, you may incur body corporate fees.
  • As the owner, you’ll need to pay for ongoing repairs and maintenance, as well as property management fees if you want someone else to do the hard work.
  • Mortgage repayments may not be covered by the rental payments you receive – you may need to cover the shortfall.

Why we invest in property

Property investment is just one strategy to consider when investing. So why is it so popular? You can earn rental income and benefit from capital growth by investing in property. Also, if you take out a loan to purchase the property, often interest on the loan and some property expenses could be offset against rental income for tax purposes.

What’s different for investors vs. homeowners?

First Home Owner Grant

You need to check the criteria for eligibility for the grant as it differs from state to state. But, generally, this grant is only available if you live in your first property for 12 months.

If you want to rent out your first property as an investment and you’re not eligible for the grant, add any additional cost into your deposit.

Stamp Duty

Like a home owner, if you’re an investor, you’ll also pay Stamp Duty. These costs differ from state to state. They depend on the purchase price of the property and can often be higher for an investment property than if you’re buying a house to live in. Our stamp duty calculator will give you an approximate amount you'll pay. For the exact amount you should speak with your State Revenue Office.

Lenders’ mortgage insurance and loan establishment fees

Whether you’re taking out a mortgage for a home or an investment property, if you can save 20 percent of the value of your property, you may avoid paying lenders’ mortgage insurance. If not, you’ll need to factor in this cost as well as any loan establishment fees. Speak to your banker to understand lending and lenders' mortgage insurance considerations for the property you have in mind.

Building and landlord insurance

When you’re investing your savings and time into a property, insurance isn’t something you should skimp on. Building Insurance will cover you for unforseen damage to the building, like damage from fire or flooding. If you buy a unit, building insurance will be paid from strata levies. Landlord insurance protects you if your tenant damages the property or if they refuse to pay rent.

Land tax

Unlike your principal place of residence, when purchasing a property as an investment, you'll be liable for land tax. It is an annual fee that varies from state to state. Your land is assessed every year to determine the tax amount you’ll pay and to work out if you’re liable for paying the tax.

There’s some helpful information on your State Revenue Office’s website for all the details.

Council rates and utilities

As the owner, you’ll need to cover the council rates for the property. These rates will vary from state to state. Under standard residential tenancy agreements, the landlord is responsible for the costs for:

  • installation for initial connection to an electricity, water, gas service
  • electricity and gas if the premises are not separately metered
  • a water service
  • sewerage services.

Body corporate fees

If you buy a townhouse, unit or flat, you'll need to factor in body corporate fees. This would be the same as if you were living in the property. These fees are usually paid quarterly and 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.

Maintenance and repairs

As the owner you'll need to pay for the costs of repairs and maintenance of the property. These costs can be partly tax deductable, however improvements or renovations to the property are not deductable.

Management fees

Managing an investment property can be time consuming. If you manage the property yourself you’ll be responsible for showing the property to tenants, inspections, collecting rent and organising repairs. You should consider whether this is the best use of your time? Alternatively, you can engage an expert to manage your property. In this case, you’ll need to pay their fees, which are tax deductable.

Mortgage repayments

You may be relying on rental income to cover your mortgage payments for your investment property. But this income may not cover your monthly mortgage repayments or other expenses associated with the property.

If this is the case, you'll need to cover the gap. There may be periods of time where you don’t have a tenant and you'll have to cover all of the costs and mortgage yourself.

To avoid having your investment property vacant, there are a few simple things you can do.

Find out about the vacancy rate in the neighbourhood. A high vacancy rate may indicate a less desirable area. This may make it harder to rent the property and may make it more difficult to sell in the future.

Look for properties with features that will appeal to as many as people as possible, such as a second bathroom, lock up garage or somewhere close to shops, schools and transport.

Finding the right investment property

Choose wisely when investing in property. Understand cash flow, beware the 'hidden agenda', do your research, and get a quality property manager.

Calculating and paying capital gains tax

Calculating and paying capital gains tax doesn't have to be hard. Our guide runs you through the basics

Positive cash flow vs. negative gearing

Here we explain the difference between positive cash flow and negative gearing, two different property investment strategies.

Positive cash flow vs. negative gearing: Two case studies

Here are two case studies showing the difference between the positive cash flow and negative gearing property investment strategies.

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