When considering the costs associated with owning an investment property, it's crucial to break them down into three main categories for a comprehensive understanding of your financial obligations.
Below are the costs of owning an investment property.
Mortgage Repayments
One of the most significant costs to factor in is mortgage repayments, which can vary based on the loan amount, repayment type, and interest rate. It's advisable to consult with your Mortgage Broker or Lender to gain clarity on your specific mortgage repayment details.
Loan Type
Understanding the different repayment types is essential in managing your financial commitments effectively:
Principal and Interest: This repayment type includes both the interest and principal components of the loan.
Interest Only: With this repayment type, you only pay the interest portion of the loan for a specified period, typically ranging from 1 to 5 years. The debt is not reduced during this period but the repayments are lower than the principal and interest option.
Interest Rate Type
There are two interest rate types to consider:
Variable: Repayments fluctuate based on the interest rate.
Fixed: Repayments remain constant with a set interest rate for a specified period, typically ranging from 1 to 5 years.
Property Management
Property management fees are paid to a company to oversee the rental property, typically ranging between 8.8% and 10% of the rent. These fees can vary based on the property's location and the services provided by the rental management agency.
For instance, with a weekly rent of $700, the management fee will range from $56 to $70 per week.
Ongoing Holding Costs
In addition to mortgage repayments and property management fees, there are several other ongoing holding costs to consider:
Insurance: Coverage to protect the property from damage or liability claims. This includes building, landlord and contents insurance.
Vacancy costs: Expenses incurred when the property is unoccupied and not generating rental income, typically estimated at four weeks' worth of rent.
Utilities: Expenses for essential services like water, electricity, gas, or trash removal.
Maintenance and repairs: Costs associated with upkeep and fixing damages to the property.
Property taxes: Taxes levied by state and local governments based on the property's assessed value, such as land tax, council rates and emergency services levy.
Strata Fees: Fees associated with shared amenities or services in a strata-titled property. Typically found in units and apartment complexes.
A quick calculation to work out the ongoing holding cost per year is 1.5% to 2% of the property's purchase price. However, this depends on the type of property, and it is crucial to take into account all expenses before deciding to buy the property.
Next Steps
Before embarking on the journey of building your property portfolio, it is crucial to have a comprehensive understanding of the ongoing costs involved. By carefully evaluating and planning for these expenses upfront, you can better prepare yourself for any financial challenges that may arise and ensure that your portfolio remains a valuable asset.
If you would like to know more about how we can help you build a property portfolio give us a call on 0423 344 286 or email us at hello@mindsetproperty.com.au, or simply connect with our Director Peter Theodorou.
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Note: This is general advice and does not take into consideration your objectives, situations or needs. Please consider if this advice is suitable for you and your circumstances and speak to a professional before making any financial decisions.
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