While it would be nice to just collect rental money and pay no outgoings, unfortunately that’s just not the case.
Owning and transacting in property isn’t cheap and as such, isn’t something you should just blindly walk into.
Neither is maintaining either your own home or an investment property.
Here is a list of the more regular ongoing costs that you should consider and factor in when leasing out your property;
Strata / body corporate fees
Council rates
Water rates
Interest
Professional fees (lender, agent, accountant, quantity surveyor)
Insurances
Travel
Loss of income
Pest
Stationary
Tax – land tax
Renovations, repairs and maintenance
That’s a lot of fee’s right?
Let’s give it a little more context to help further.
Strata / Body corporate fees
If your property is under a strata management plan or is governed by an external body, you will likely be paying quarterly fees for the management of the building.
There’s generally two parts to strata fees and both are usually paid quarterly;
1. Administration fees
2. Capital works (sinking fund)
Administration fees are the costs you pay to the managing strata agent for managing the building.
Then there’s the capital works fund which is a pool of money contributed by each owner in the complex to cover for any renovations, repairs, rectification or maintenance works required for the building or complex.
This allows for easily accessible money to be used when the building or complex is in need of any urgent or pending minor or major works.
The capital works fund is also used for things like regular maintenance such as cleaning, lawns, gardens, grounds and general maintenance that will be done weekly, fortnightly or monthly (depending on your building and complex).
Council rates
Council rates are paid to keep the council running and for them to provide essential infrastructure and services like rubbish and waste collection.
Water rates
Water rates are charged to supply water to the property and billed according to water consumption. In some cases in NSW, tenants have to pay for some water usage.
Interest
During the course of the loan, you will incur whatever interest rate you’re currently on, whether it’s variable or fixed.
There’s generally two types of loans available;
1. Interest only loans
2. Principal and interest loans
Interest only loans pay just the interest on the property.
Principal and interest loans (P&I) pay down both the interest owing and the value of the house. P&I loans are also known as a traditional mortgage.
Professional Fees
The following professional fees are also usually involved.
Tip – Make sure you’re aware of any and all fees involved before signing up with any professional.
1. Lender fees
Fees vary depending on the property, situation and the type of loan you have set in place.
Have a chat with your lender to find out about all applicable fees for your loan.
2. Agent fees
Agents usually charge a property management fee which is usually a percentage of the weekly rent to manage the property and the leasing side of things like tenants, repairs, maintenance and the back end administration duties like compliance and processing.
Other fees may also be involved which again depend on your property, so have a chat with your agent to find out about all applicable fees for their management services.
3. Accountant fees
Accountants usually charge accounting fees to manage and claim expenses, some depreciation and rental income to successfully lodge and complete your required tax returns.
Fees vary so have a chat with your accountant to understand the tax systems, processes and procedures in place and the applicable fees.
4. Quantity surveyor fees
Quantity surveyors usually charge fees to prepare a schedule of depreciation to help reduce your tax bill even further.
Talk with your quantity surveyor and ask for an idea of applicable fees.
Insurances
As covered earlier, having relevant insurances in place will generally cover and protect landlords against potential risks associated with renting out the property.
As policies and coverage vary depending on the policy taken out, it’s best to discuss with your policy provider about what’s included, what’s offered and any applicable fees and charges.
Travel
If your investment property requires you to travel to view and inspect your property on occasion, this will bear another cost.
If you have to stay overnight, accommodation would also need to be considered.
Keep travel and accommodation expenses in mind before and when you set up your planning to inspect your property.
Loss of income
There will be times in your property investment journey where your property will be vacant, which means no income will be coming in to help pay the mortgage.
Tip – Accepting current market rent will ensure your property is leased as quickly as possible, minimising the amount of time your property sits untenanted and vacant.
Allow a safe and reasonable savings buffer so you’ll be able to service your debts while looking for a tenant. The amount of buffer required will again depend on your required repayment amounts.
Tip – Having at least one, two or preferably three months’ worth of cash reserves for just loan repayment servicing is a wise idea.
Pest
Depending on your property and where it’s situated, different seasons call for different pests to become more active during different times of the year.
This includes pests like termites that can do serious damage to your home.
Having routine pest control in place will help to keep the nasties at bay or completely away.
Have a chat with your pest controller to get an idea for what needs to be done, how often and the fees involved.
Stationary
All the stationary you buy, while not a lot, can still add up.
Things like pens, paper, printer cartridges and other necessities don’t usually cost a lot but are still an expense you should be weary of.
Tax
The amount you pay in taxes depends on a variety of things like;
The type of land
What it’s used for
The total value of the land as at midnight on 31 December every year
How and if your property is generating income (positively geared)
If it’s costing you money to keep (negatively geared) and much more
It’s also important to note that there are some exemptions and concessions applicable.
Again, this is widely variable, but with the help of your accountant and quantity surveyor, they can correctly help you with your lodgement of taxes come tax time.
Renovations, repairs and maintenance
This again depends on your type of property and the requirements it has at any given time of the year.
It’s best to remember that every property is different and unique in its own way and as such, requires its own level of care and attention.
Some properties haven’t needed any work done since the day they were built other than regular painting and maintenance work while others are constant money pits.
Again, this is a perfect example and great reason to have your property looking its best to attract good tenants that will really take care of your property.
You’ve already invested in an investment property, why not invest in good tenants?
You should always allow for a savings buffer, or a rainy day fund to ensure you have money at hand to fix any issues or problems that can (and usually will) come up.
To be on the safe side, a suggested idea is to allow at least 1% of your property’s value just for maintenance and repair work. However, the more you can allow, the better off you’ll likely be.
As we’ve covered, there’s unavoidable costs like taxes, fees and rates that you will always have to pay and then there’s the variables like renovations, repairs, rectification and maintenance that are subjective.
This doesn’t mean there will be maintenance and repair work required every year though, but it does help to build up the savings buffer so you have some money saved for when you really need it.
It’s always better to be prepared than unprepared.
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This information is of a general nature only and does not take into account your objectives, financial situation or needs. We are not financial, legal or tax advisers. You should seek appropriate professional advice specific to you before acting on this information.
