Budgeting for an Investment Property | The Hidden Costs | Personal Budgeting

Anyone that owns an investment property knows that is comes with expenses. Whilst in the long term, investment properties can be a fantastic asset thanks to equity appreciation, it’s important to factor in – and budget for – those extra costs that people often forget about.

 
Often people only consider interest and mortgage repayments when they consider purchasing an investment property, but in reality, there are other costs involved… So before committing to a long-term investment, ensure that you can cater for the following expenses so that your investment property does not cause you unnecessary stress!

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Insurance: Whilst you might not be paying for contents insurance, if you’re renting out your investment property, landlords insurance will limit the financial impact of unforeseen damages and tenant-related liabilities.

Maintenance and Upkeep: No matter what state your property is in when you purchase it, to keep it in good condition, it’s going to need a certain degree of maintenance and/or repairs. This is true even when you purchase a property in good condition – investors often believe only properties in need of renovation need regular upkeep, but this is not always true as small repairs can accumulate over the course of a few years and become somewhat costly. Don’t letthese hidden costs surprise you – keep funds aside for upkeep and unexpected restorations.

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Vacant Property Costs: Whilst renting out your investment property is exciting, but most landlords will go through periods where the property sits vacant on the market. During this time, you’ll still be responsible for those expenses such as council rates, insurance, mortgage repayments etc. and must budget accordingly.

Management Fees: If you choose to hire someone else to look after your property, such as an independent agent or property manager, consider the costs of doing so. Although the cost can be well worth it, as property managers deal with typical maintenance issues and problems on your behalf – typically they charge between 7-12% of the overall rental income.

Body Corporate Fees: If you buy a unit or apartment within a complex with multiple owners, you will be responsible body corporate fees – which assist in ensuring the property and gardens are well maintained and both electricity and insurance within the common areas are paid for.

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Council Rates: Councils collects rates from home and business owners within its municipality to help fund local infrastructure and services. Councils use property values as the basis charging such rates, you can research approximately how much your rates will be according to the price of your investment property.

Water Rates: Whilst in some circumstances owners are allowed to pass on the full cost of water consumption to tenants, there are certain requirements that must be met – this differs between states in Australia. Regardless, owners of investment properties must budget for the cost of water rates, or stipulate that the tenant must to so in the tenancy agreement.

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