An investment 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

  • Stamp Duty costs can differ for an investment property compared to those for your principal residence – it’s important to see how they affect the overall price.
  • 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 use a real estate agent.
  • 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.

What’s different for investors vs. homeowners?

Stamp Duty

If you’re an investor, you’ll also pay Stamp Duty, the costs of which differ from state to state. It depends 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.

Lender's mortgage insurance and loan establishment fees

As with taking out a mortgage for a home, if you can cover 20 percent of the value of your investment property, you may avoid paying lender's 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 lender's 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 unforeseen 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 one local authority to another. 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. They 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 that's 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.

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