Investment property costs and revenues

No matter why you want to invest in property – capital growth, rental yield, or tax concessions – it's important to understand the possible returns and costs before you commit.

The possible revenue

Rental income

• What you can realistically expect a tenant to pay you each month given the size, condition and location of your property.
• It is also important to factor in vacant periods when you may not have tenants.

Capital growth

How much will the property grow in value? This will vary over time and depend on the location of property.

The combination of both

It is the combination of capital growth and rental returns that will justify the type of investment you make and the level of borrowing you can consider.

The likely costs

Interest repayments

The monthly interest repayments on either a variable or fixed rate loan. With a variable rate loan, the interest could go up or down at any time. With a fixed rate loan, the repayments will be set for the period of the fixed rate, but will then need to be recalculated when that period ends, depending on the current interest rate at that time.

Council rates

Set annually and include services such as rubbish collection and other local services.

Strata fees

• Set and agreed annually by the strata title owners of an apartment complex. Will include things such as building insurance, maintenance and building works, property management and accountant fees.
• If you are buying an apartment, villa or townhouse, it may be worth obtaining a copy of the strata report so you’ll know if there are any special levies in the pipeline.

Repairs

If it’s a house, you’ll be up for all the building repairs. In an apartment block, you’ll be responsible for repairs to fixtures and fittings and any white goods and appliances you include within your unit.

Property management fees

If you have the time and inclination, you can manage the property yourself. If you hire a managing agent, this will attract a fee that typically amounts to a certain percentage of the rental amount.

Insurance costs

You will pay building insurance directly if you buy a house, or as part of strata fees with an apartment or other strata title property. It’s also a good idea to get landlord’s insurance which covers things like damage by the tenant, your liability if a tenant injures themselves, or lost rental income if your tenant moves out without paying.

Tenant free periods

Assuming your property will be vacant for at least four weeks a year is a good rule of thumb for initial budgeting.

One-off purchase costs

As part of the purchase process, you will incur one off charges such as legal costs, stamp duty and building inspection costs.

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