Property investment costs | Property investing - NAB
What costs should you plan for?
When you buy an investment property, the costs usually fall into three main groups:
- Upfront costs such as stamp duty and some loan-related fees.
- Ongoing costs such as land tax, rates, insurance, maintenance and repayments.
- Tax considerations, which may affect your overall return depending on your situation and the rules that apply at the time.
Understanding these costs early can help you work out whether an investment property fits your budget and your longer-term plans.
Upfront costs to budget for
These are some of the first costs you may face, so it helps to include them in your early planning rather than focusing only on the purchase price.
Stamp duty
If you buy a property as an investor, you’ll usually need to pay stamp duty. The amount depends on the property price and the state or territory the property is in. Use a stamp duty calculator to estimate your stamp duty amount.
Loan-related costs
Depending on your deposit, you may also need to factor in lenders mortgage insurance (LMI). Other borrowing costs can include loan establishment fees or other setup costs linked to your home loan.
Ongoing costs of owning an investment property
Once you own the property, there are regular costs to factor into your budget.
Mortgage repayments
Your rental income may help cover your loan repayments, but it may not cover all your costs. There may also be times when the property is vacant and not earning rent.
Land tax
Investment properties may be subject to land tax. This is usually assessed each year, and the rules can vary depending on where the property is located. For current thresholds and details, check with the relevant State Revenue Office.
Council rates and utilities
As the property owner, you’ll generally need to pay council rates. You may also be responsible for some service charges or utilities, depending on the property and tenancy arrangement.
Insurance
Insurance can help protect your property from unexpected events. Depending on the property, you may need to consider building insurance, landlord insurance or both.
If you buy an apartment, unit or townhouse, some building insurance may be included in strata or body corporate fees.
Body corporate or strata fees
If your investment property is part of a strata scheme, you’ll usually need to pay body corporate or strata fees. These may cover shared areas, maintenance, building insurance and other common property costs. The amount can vary depending on the property, its facilities and the condition of the building.
Maintenance and repairs
Owning an investment property means being prepared for repairs and maintenance. Some costs may be planned, such as general upkeep. Others may happen unexpectedly, such as urgent repairs. Setting aside a buffer can make it easier to manage these costs without relying only on rental income.
Property management fees
You can manage the property yourself or use a property manager. If you use a property manager, you’ll need to pay their fees. A property manager may help with tasks such as advertising the property, managing tenants, arranging inspections, collecting rent and organising repairs.
How different choices can change your costs
Scenario 1: The apartment with lower maintenance but higher shared costs
An apartment may need less individual upkeep than a standalone house, but shared building costs can affect your cash flow. Strata or body corporate fees may cover common areas, lifts, gardens, building insurance and maintenance.
Before buying, it’s worth checking what’s included in the fees, whether the building has planned works and if special levies have been raised in the past.
The decision moment
A lower purchase price doesn’t always mean lower ongoing costs. High strata fees or upcoming building works can change how affordable property feels after settlement.
Scenario 2: The property where rent doesn’t cover all costs
Rental income can help cover repayments and expenses, but it may not cover everything. If repayments, rates, insurance, management fees and maintenance are higher than the rent you receive, you’ll need to cover the shortfall yourself.
Some investors factor in possible tax deductions, but tax outcomes can change and depend on individual circumstances.
The decision moment
If the property needs regular top-ups from your own income, you’ll need to be comfortable managing that cash flow even before any tax outcome is known.
Scenario 3: The house with more control but less predictable repairs
A standalone house may give you more control over the property, but it can also mean taking on more responsibility for repairs and upkeep. Costs like roofing, plumbing, fencing, heating, cooling or garden maintenance can be harder to predict.
The decision moment
A house may not have strata fees, but you may need a larger maintenance buffer. This can matter if most of your spare cash is already going toward repayments.
Scenario 4: The property that looks affordable until it’s vacant
A property may look manageable while rent is coming in, but vacancy can quickly change the numbers. Even a short period without tenants can mean covering repayments and other costs without rental income.
The decision moment
Before buying, consider whether you could manage a period without rent. Looking at local rental demand, vacancy rates and tenant appeal can help you understand this risk.
How tax can affect your investment property costs
Some property expenses may be deductible, depending on your circumstances and the tax rules that apply. If your rental income is less than your property expenses, the property may be negatively geared. In some cases, this loss may reduce your taxable income. If you sell the property, capital gains tax can apply.
However, tax rules and government policy can change over time. It’s important to get tax advice and check ATO guidance before making any decisions.
It’s worth remembering that tax can play an important role in the overall costs of owning an investment property, but it shouldn’t be the only reason you choose to invest.
Look beyond the purchase price
An investment property can involve more than the purchase price and loan repayments. Upfront costs, ongoing expenses, rental gaps and tax considerations can all affect how affordable the property is over time. Understanding these costs early can help you make a more informed decision and plan with more confidence.
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The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.