All the Costs of Buying and Owning an Investment Property

Published 20 April 2021 by Team :Different

Let's talk money, honey - specifically, investment property costs. If you're considering purchasing an investment property, it’s vital that you’re aware of all the upfront and ongoing costs involved before making any decisions.

Sure, you know you'll have to put down a deposit and get some insurance, but to figure out your true investment property costs, you need to calculate your cost base.

The cost base of an investment property includes not just the original purchase price and loan repayments, but incidental costs like stamp duty, legal costs, council rates, property maintenance costs and so on. It's the costs you will weather throughout the life cycle of your investment property, from when you buy it until you sell it.

We've compiled a list of the costs of an investment property and a case study to give you an idea of what the true cost base of your property might be.

The upfront costs of buying an investment property

When people consider the costs of buying a rental property, upfront costs are usually what first come to mind. Your deposit for the property is a given, but what investors often forget to consider are some of the hidden costs involved. These include:

  • Stamp duty, a tax charged by the state/territory government. The cost will depend on where you’re buying property, so use a stamp duty calculator to figure out your price. An $850,000 property in NSW will cost you an extra $33,878 in stamp duty.
  • Legal fees to a conveyancer or solicitor, to organise contracts and any other legal documents required. Usually costs around $1500-$2000.
  • Mortgage registration fees. Usually around $150 to a few hundred bucks.
  • Landlord insurance is highly recommended. Usually costs $1000-$2000 depending on the provider for the full year.
  • Any expert inspections you want to be conducted on the property before you buy, like a building or pest inspector.

Ongoing costs of owning an investment property

Now that you know the upfront costs you can expect when buying a rental property, let's walk through all the ongoing costs that will keep occurring over the life-cycle of your investment.

1. Loan repayments

Paying back your mortgage will be the biggest bulk of your ongoing investment property costs.

The amount that you'll pay will depend on the loan structure you choose. Read our article on P&I or IO loan structure if you want to learn more about the right choice for you.

Once you know your investment property loan structure, the loan amount and the deposit you're looking to put down, you can use a mortgage calculator to see how much you'll pay on a monthly basis.

2. Land Tax

The amount you'll pay in land tax will vary depending on which state you're in. The only exception is Northern Territory which doesn't have any land tax, so consider yourself lucky if you live there!

Check the amount you'll need to pay in land tax on your government website below:

3. Landlord insurance

Depending on where your property is located, the coverage you're paying for and the size of the property, you'll pay different amounts in landlord insurance.

It's not a legal requirement to have it, so you can skip this, but you'll find most landlords who do purchase it enjoy the extra peace of mind.

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4. Property maintenance

Unless the damage was caused by reckless tenant behaviour, you're in charge of any repairs, property maintenance and pest control for the rental property.

You can read one of our past articles for a property maintenance price list, and for budgeting tips for investment property maintenance to decrease your costs on maintenance and ensure you're getting a fair rate.

5. Property management

Whilst hiring a property manager is not a requirement, there's a good reason why most property investors in Australia do it.

A good property manager will help take your mind off your investment property and can also come with useful tips and ideas to help increase the returns on your investment property. All things considered, you pay a relatively small fee per month in order to save a lot of time and headache.

Did you know 80% of property investors in Australia use a property manager?

The cost of property management varies and can be confusing, as many property managers charge a percentage-of-rent fee, while others charge a flat property management fee.

We suggest reading our guide to property management if you want to learn more about property managers and decide if it's the right fit for you.

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6. Council Rates

Your council rates again depend on where your property is located, as well as on the value of the property. Follow the government links below to see what your local council rates are, and how to pay them:

7. Body corp fees

If your investment property is an apartment, townhouse, or unit in a complex, you probably will be required to pay body corporate fees. It covers the maintenance of shared spaces such as gardens, car parks and balconies. 

Body corp fees depend on the size of the complex and the number of shared areas and can range from $30 to $600 per week. Definitely check what you're required to pay before jumping on an investment property.

8. Accountant

Also not required, but also a very popular choice with property investors. Many landlords choose to hire a tax accountant to help manage their investment property tax.

This will give you peace of mind at tax time, making sure that everything is done correctly, and can help you reduce tax on your investment property.

In Australia, it won't cost you a fortune either, as the average cost of a tax accountant ranges from $75 to $220.

9. Rental property advertising

When you're looking for tenants you can either go the route of hiring a leasing manager to find tenants for you, or you can go the DIY route and find them yourself.

A leasing manager will - you guessed it - vary in price depending on the organisation you go for. Common practice is charging 2 weeks of rent for leasing services, while others offer property leasing at a flat rate.

If you go the DIY route it is possible to do it all without costs, but that's at the expense of quality tenant applicants. In order to attract quality tenants, you'll need to invest in things like professional photography and listings on quality sites in order to make your property stand out.

If you do end up going the DIY route, read our tips for attracting tenants to get rid of vacancies faster.

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Case study - investment property costs example

To give you a more concrete idea of what you might expect in terms of investment property costs, we've made up a little case study for you.

Georgina is buying her first investment property (yay!) in a suburb of Brisbane. It's a 3 bedroom, 2 bathroom townhouse in West End, and the property is listed for sale at $750,000.

Georgina's upfront investment property costs

  • Deposit: $160,000
  • Building and pest inspection: $349
  • Stamp Duty: $29,274
  • Legal fees: $1,800
  • Mortgage registration fee: $195 (included in stamp duty)

Total upfront cost: $191,423

Georgina's ongoing investment property costs

  • Loan repayments: $1,134/month (you can use a mortgage repayment calculator to estimate this)
  • Land tax: $2,000/year
  • Insurance: $349.50 (first year free with :Different) 
  • Maintenance and pest control: $170/month (average)
  • Property management: $100/month with :Different
  • Council rates: $1,001.72/year 
  • Body Corp fees: $100/week
  • Tax accountant: $90/year

Total annual cost: $25,489.22 

Georgina keeps the investment property for 8 years before she sells it. The cost base on her investment property is $395,336.76 plus costs of selling, which will depend on the value of her property and the commission she pays the agent.

As you can tell, there are a lot of other factors that will determine whether or not you can afford to invest in property, not just if you have the required deposit! Keep that in mind when you're thinking if you should invest in property.

So, is investing in property still worth it?

We know these numbers might look intimidating, but don't let them scare you off.

What they don't show is the money you’ll be bringing in from your new purchase - it is an investment property, after all. In around 7-10 years, the income you’ll net from the property will be pretty significant - with an average growth rate of 8%, Georgina could expect her property to increase by $535,368.20 in 7 years!

Georgina will also have a tenant occupying the rental property most of the year, which will net her a fantastic source of income on a regular.

What's more, is that properties are a much more secure investment than other options such as stocks, which is why banks tend to be accommodating when they consider giving you an investment property home loan.

If you want a more in-depth comparison of real estate as opposed to stocks, you can read our property and stocks comparison.

It's a big decision, and there's a lot to consider when purchasing an investment property, but these figures should give you a better idea of what to expect for the cost base of your investment property.

Remember that time in the market beats timing the market, so hold onto that property and in less than a decade you’ll have made an amazing profit!

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