When buying a property, it’s crucial to understand investment property costs to avoid any nasty suprises. While it can provide great income and capital growth, there are many expenses to consider. Keep reading to learn about these costs and how you can best prepare for them.
Mortgage repayment increases: One of the major investment property costs
One of the most significant investment property costs is the potential for mortgage repayment increases. Even if you buy a property when interest rates are low, it’s essential to account for what your repayments could be if rates rise. Banks often add a serviceability buffer of 3%, which means they assess your ability to pay your mortgage at rates up to 3% higher than current levels.
When calculating what costs are involved in owning an investment property, consider targeting properties with a higher rental yield to help offset potential increases in repayments.
Unexpected maintenance and repairs: A common surprise cost Involved in owning an investment property
Maintenance and repairs are inevitable, and this is one of the most overlooked investment property costs. No matter the age of the property, things will eventually need repair. Setting aside a buffer specifically for unexpected repairs will ensure you’re not caught off-guard. Many investors follow the 50% rule — setting aside 50% of rental income to cover repairs, insurance, property management fees, and other operating costs.
Insurance: Protecting yourself and covering key costs
Insurance is another necessary cost involved in owning an investment property. Landlord insurance can protect against tenant-related issues, such as non-payment of rent or property damage. Apart from this, taking out additional income protection insurance or life insurance can also protect your ability to cover mortgage payments should something unexpected occur. Consulting with a financial adviser will help you make informed decisions about insurance coverage.
Strata fees: A common predicable investment property cost
If your investment is a townhouse or apartment, strata fees are a key cost involved in owning an investment property. These fees cover the maintenance of common areas, such as pools, gardens, and other amenities. Properties with more features generally incur higher strata fees, which should be factored into your calculations.
Property management fees: Worthwhile investment property costs
Hiring a property manager is another investment property cost but one that can significantly reduce the stress of managing tenants and maintaining the property. A professional property manager can handle all aspects of compliance, tenant relations, and property upkeep, ensuring you get the most out of your investment. While this service comes at a price, it’s a tax-deductible expense that can help you maintain long-term tenants and reduce vacancy periods. AMKAR Real Estate offers expert property management so contact our friendly team today.
Understanding what costs are involved in owning an investment property will help you manage your finances more effectively and avoid unexpected surprises. From mortgage increases and repairs to insurance and property management fees, these costs are an essential part of maintaining a profitable investment. Planning ahead and seeking advice from financial professionals will ensure you’re well-prepared.
Remember, this article is general in nature and is not financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.