Costs of Buying and Owning an Investment Property
Investing in property can be financially rewarding, but it’s crucial to understand the full scope of costs involved. From upfront expenses to ongoing ownership costs, planning your budget ensures you maximise returns and avoid surprises.
As mortgage brokers working with investors in Bondi Junction and Launceston, we’ve outlined the key costs you’ll encounter when buying and owning an investment property.
Upfront Costs
Before you purchase an investment property, several upfront costs need to be factored into your budget:
Deposit
Typically 10–20% of the property value. A $600,000 property may require a $120,000 deposit.
Stamp Duty
A state government tax based on the property’s value. For investment properties, rates are higher than for owner-occupied homes.
Legal and Conveyancing Fees
Expect to pay $1,000–$2,500 for conveyancing and legal services.
Lender’s Mortgage Insurance (LMI)
If your deposit is below 20%, LMI may be required.
Building and Pest Inspections
These inspections ensure the property is structurally sound and pest-free, costing around $400–$800.
Learn more about upfront costs in our Guide to Valuing Your Investment Property.
Ongoing Costs
Once you own the property, there are regular costs to consider:
Loan Repayments
- Monthly or fortnightly mortgage payments are typically your largest expense.
- Use our Loan Calculator to estimate repayments based on your borrowing amount and interest rate.
Property Management Fees
- Hiring a property manager costs around 7–10% of your rental income. They handle tenant sourcing, rent collection, and property maintenance.
Insurance
- Landlord Insurance: Protects against tenant damage, loss of rental income, and liability claims.
- Building Insurance: Covers structural damage from fire, storms, or other hazards.
Council Rates and Utilities
- Paid quarterly, these are essential for maintaining council services and utilities. Costs vary depending on the property’s location.
Maintenance and Repairs
- Allocate 1–2% of the property’s value annually for maintenance. For example, a $500,000 property may require $5,000 for upkeep.
Hidden Costs to Watch For
Vacancies
Periods without tenants mean no rental income, so it’s wise to budget for these gaps. Suburbs with strong rental demand, like Bondi Junction, reduce this risk.
Renovations and Upgrades
Updating fixtures, repainting, or renovating kitchens and bathrooms can improve rental appeal but requires additional investment.
Tax Implications
Negative gearing can offset losses, but you’ll still need to budget for potential tax liabilities. Learn more in our Negative Gearing Guide.
Long-Term Costs and Exit Fees
If you decide to sell your investment property, consider these costs:
Capital Gains Tax (CGT)
Applied to the profit you make from the sale.
Agent and Marketing Fees
Selling costs, including agent commissions and property advertising, typically range from 2–3% of the sale price.
Read our Capital Gains Tax Guide for more details on selling costs.
FAQs About the Costs of Investment Properties
How much should I save before buying an investment property?
Aim to save at least 20% of the property value to cover the deposit and reduce costs like Lender’s Mortgage Insurance (LMI).
Are there tax benefits for owning an investment property?
Yes, you can claim deductions for loan interest, depreciation, and property-related expenses.
How do I manage unexpected costs like vacancies?
Build an emergency fund to cover unexpected costs, such as repairs or periods without tenants.
Is property management worth the cost?
For investors without time or expertise, property managers are invaluable for handling tenants and ensuring the property is well-maintained.
Can I refinance to reduce ongoing costs?
Yes, refinancing can lower your interest rate and monthly repayments. Learn more in our Refinancing Strategies Guide.
Let Us Help You Navigate Property Costs
Understanding the full cost of buying and owning an investment property ensures you’re prepared and positioned for success. Our team of mortgage brokers can guide you through the process and help structure your finances effectively.