Property investment is an effective way to grow wealth - but it also requires ample preparation and financing. Real estate investment often involves planning as there are several costs that have to be taken into account before making a purchase.

Making the correct investment decisions are always the number one priority of any investor and accepting what expenses that may be incorporated goes a long way to helping. The checklist below clarifies the different initial upfront and ongoing costs involved with investment property.

Upfront Costs

1. Deposit - The deposit is a percentage of the property’s value that investors need to pay to the vendor. Generally, residential properties require a 20% deposit while commercial properties require 30%.
2. Loan Establishment Fees - A loan establishment fee, also called an application fee, covers the cost of preparing documents of a new mortgage. There are some banks and financial institutions that are willing to waive this one-off payment, however, it can cost between $200 and $700 depending on the loan.
3. Lenders Mortgage Insurance - Lenders require LMI if the deposit is less than 20% of the property price. This one-off fee protects lenders financially if a borrower defaults on their mortgage. This LMI estimator can help calculate the amount needed to pay for a chosen property.
4. Stamp Duty - Stamp duty covers the cost of changing the title and ownership of a property. The amount differs depending on the state where the property is situated. The property’s value and purpose also determine how much stamp duty should be paid. Investment properties generally have higher stamp duty costs than those who have principal residence. This stamp duty calculator can provide an estimate.
5. Connections - These are fees covering utilities and services, including electricity, water, and gas, that need to be installed before the property is ready for occupancy.
6. Legal Fees - These include solicitor or conveyancing fees, which cover the legal transfer of the property’s ownership. The amount varies depending on the lender, fees can start at $100 and, in some instances, exceed $1,000. Title transfer may also require search processing fees, which can cost about $50 per search.

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Ongoing Costs

1. Loan Repayment - The cost of monthly mortgage repayments is calculated by the amount borrowed or principal, type of loan, loan term, and interest. An estimate can be provided by this mortgage repayment calculator.
2. Land Tax - State governments, excluding Northern Territory, levy yearly taxes to landowners. The cost differs depending on the state or territory and does not include properties constructed on the land: land tax calculator.
3. Council Rates - Council rates are a type of property tax that also changes from state to state. Local governments collect these on a quarterly or yearly basis, for the property maintenance of the council area and cover garbage collection, plumbing, electrical, and other services. The costs are often indexed against the property’s value and can reach thousands of dollars every year.
4. Body Corporate Fees - Also called strata fees, body corporate fees are rates charged on properties located in the shared block such as apartments, townhouses, units, and flats. These cover the management of the block and maintenance of common areas. The cost is dependant on the condition, size and location of the property, and can range between $50 and several hundred dollars per week.
5. Building and Landlord Insurance - Building insurance provides cover to the buildings on the property and its contents from unforeseen damage such as natural disasters i.e. fires and flooding. Landlord insurance protects property owners against loss or damage arising from tenancy issues, including theft, loss of rental income, vandalism. It is advisable to have these policies, however, they are not always required. Annual premiums vary per state but typically ranges from $1,000 to $2,000.
6. Property Management Fees - Some investors choose to outsource the day-to-day management of their property. A property manager overlooks the daily operations of rental properties from collecting rent to maintenance and repair. They could cost between 5% and 8% of the monthly income. Plus a letting fee once a tenant is secured which can vary from one-week rental to 2.5 weeks rental plus GST.
7. Advertising - To generate income, rental properties need tenants. The internet is filled with real estate websites that owners can use to attract potential renters. Advertising on these platforms usually costs a few hundred dollars.
8. Repair and Maintenance Costs - A landlord is responsible for ensuring a property is in a livable state for tenants, so it is recommended to put aside a yearly budget for costs and repairs.

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Investment properties return a multitude of benefits, among these is the potential for sturdy financial returns. Careful thought and planning are required when venturing into real estate investment. The key is not to rush in purchasing a property and consider all the costs involved.

For more information on Investment Property, whether you’d like to buy or sell, contact the team here at Crowders Real Estate.

Phone: 03 5983 3038

Email: property@crowdersre.com.au

Visit: 2375A Point Nepean Road, Rye VIC 3941

Appraisal Request: crowdersre.com.au/appraisals

Disclaimer:  This article is a general overview and not in any way purports to be financial advice.  We are not authorised to provide any financial advice.  We recommend on seeking financial advice tailored to your individual needs from your Accountant, Financial Advisor and Bank for formal advice on investment properties.