Buying an investment property will cost you much more than the sum of your monthly mortgage repayments.
In addition to the one-off initial costs of settlement, there will be ongoing bills and fees that renters don’t have to think about, but you should most certainly consider before you purchase a property.
These costs add up and may affect your ability to meet your mortgage repayments, so it is crucial you know what you are in for, especially if you are making the leap from renter to property investor or homeowner for the first time.
Set some extra money aside for the following costs to avoid any nasty surprises.
You will hear many landlords complain about council rates and for good reason, too!
They can be extremely expensive, depending on what part of the country you live in.
Generally, they are based on land values, which is why council rates in the more blue-chip suburbs are higher.
They are designed to cover the cost of delivering essential services to your area: bin collection, road maintenance, local public works and so on.
So, really, they are a necessary evil.
Now, when it comes to water rates, it is a little bit different.
It varies from state to state, but generally speaking the landlord can pass on the actual costs of water usage to the tenant, as long as the property is individually metered.
Additional water maintenance charges — including parks and sewage costs — must be paid by the landlord.
Oh, the joys of maintenance.
Few first-time property investors are prepared for the upkeep of a home.
Apartments generally require less maintenance, while older homes need a bit of TLC over time, such as repainting (if they are timber) and re-stumping (if they are not on a concrete slab).
Period homes are stunning and offer excellent capital growth prospects due to their scarcity factor, but owners need to factor in these additional maintenance costs.
The older the home, the more potential problems it will face — the plumbing may have problems or the fireplace could need fixing — and I would recommend you put aside a set amount of money each week to help cover these costs.
You will soon know if you are putting enough away!
Even if your property is not that old, things do break and it will need simple repairs.
If the hot water is on the blink, for example, with a tenant in the property you will need to get this seen to immediately.
Body corporate fees
This is one area where homes really do have the upper hand.
Buying an apartment is usually cheaper than a home, but the body corporate fees can easily reduce that advantage very quickly.
These fees are designed to pay for the costs of maintaining the common property, facilities and gardens, as well as paying for compulsory common property insurance.
The rates that you will pay will vary widely from a basic $800 a year for a no-fuss block of four units with very little common land to thousands upon thousands a year for large complexes.
We avoid buying in large complexes for a multitude of reasons, least of which is the high body corporate costs you will have to pay to maintain the pool, the elevators, the gym and so on.
These places are great for renters, not so great for owners’ hip pockets.
Insurance is vital for managing such an important asset as your home or investment property.
But, of course, it will cost you and once you move from renting to becoming a home owner or investor you will need to consider home as well as contents insurance.
I should also add, too, that if you are thinking of renting out your property then you need to consider landlords’ insurance to help protect against damage and unpaid rent.
Of course, the best way to ensure your tenants respect your home is to employ a property manager who will collect rent on your behalf, interview prospective tenants, manage the bond, conduct regular inspections and contact you if any repairs need to be done.
You deserve a property manager who cares as much about your property as you do.
Yep, it all adds up, but don’t be put off.
Forewarned is forearmed, and once you have an idea of your costs you can build those into your budget to determine how much rent you will need to charge.
At least the money will be going into an appreciating asset rather than paying off someone else’s mortgage, as is the case with renting!
SUBSCRIBE & DON'T MISS A SINGLE EPISODE OF MICHAEL YARDNEY'S PODCAST
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
NEED HELP LISTENING TO MICHAEL YARDNEY'S PODCAST FROM YOUR PHONE OR TABLET?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
PREFER TO SUBSCRIBE VIA EMAIL?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.