Fees and Expenses Involved in Buying Investment Property
Real estate can be a valuable addition to your investment portfolio, offering long-term financial growth. However, it’s more than just buying a property and renting it out. Successful investment requires careful planning, strategic acquisition, and ongoing maintenance to ensure your property delivers strong returns over time.
To maximise your real estate investment, it’s essential to understand the costs involved. These expenses can be categorised into initial costs (one-off expenses when purchasing the property) and ongoing costs (recurring expenses for property management and upkeep).
Breakdown of Investment Property Costs
Initial Costs
Initial costs refer to the expenses incurred when acquiring the property. While not all of these will apply to every investor, here are the key costs to consider:
Deposit: Typically 10-20% of the purchase price. This can be paid in full or partially, with the balance due on a specified settlement date.
Lender’s Mortgage Insurance (LMI): If borrowing more than 80% of the property’s value, lenders usually require LMI. This one-time fee protects the lender in case of loan default and can often be rolled into the mortgage.
Loan Establishment Fees: Some lenders charge a one-time setup fee when taking out a home loan. This is usually paid at the start of the loan term.
Stamp Duty: A state-imposed tax that varies based on location and property value. The amount depends on whether the property is an investment or owner-occupied.
Conveyancing Fees: Hiring a licensed conveyancer or solicitor to handle legal property transfers is highly recommended. Fees typically range from $500 to $1,500, including disbursements.
Connection Fees: Setting up utilities (electricity, water, gas, and internet) may require a one-time connection fee.
Ongoing Costs
Owning an investment property involves ongoing expenses that can fluctuate over time. It’s crucial to account for these in your budget.
Insurance: Building and landlord insurance cover unforeseen repairs, damage, and liability risks (e.g. fire, floods, tenant damage). These are annual costs that investors should plan for.
Land Tax & Council Rates: Property investors must pay land tax annually, which applies only to investment properties (not owner-occupied homes). Local council rates are also an ongoing expense.
Capital Gains Tax (CGT): If selling the property at a profit, CGT applies to the increase in property value since the purchase. The amount varies based on your income tax bracket.
Mortgage Repayments: Monthly repayments are one of the biggest recurring costs. If the rental income doesn’t fully cover the mortgage, you must bridge the gap to avoid late fees or financial strain.
Repairs & Maintenance: Regular upkeep and repairs (e.g. plumbing fixes, painting, and appliance replacement) are necessary to maintain property value. Some maintenance costs are tax-deductible.
Building & Pest Inspections: Pre-purchase inspections identify potential structural issues or pest infestations. While an upfront cost, inspections can prevent costly problems later.
Utilities: If water and electricity are not individually metered, landlords may be responsible for these ongoing bills.
Property Management Fees: Hiring a property manager can help with tenant screening, maintenance coordination, and rent collection. While this is an ongoing expense, it ensures smoother property management.
Successful Property Investment Requires Careful Planning
Purchasing an investment property can be both exciting and overwhelming, especially when factoring in the various initial and ongoing costs. To succeed, investors must carefully plan, budget and understand the full financial picture.
At Providence Property, we provide expert market insights and property management services to guide you through the entire investment process. Whether you’re buying your first investment property or expanding your portfolio, we’re here to help you make informed decisions.
Get in touch today to start your property investment journey with confidence!
