Costs of buying and owning an investment property

When investing in real estate, people calculate their cash flow based on their mortgage expenses and rental income. However, there’s more to investment property costs than cash flow and loan repayments.  

To better understand the price of an investment property, you need to know the full scope of expenses, which can be divided into two categories: upfront investment property costs and ongoing investment property costs. 

Upfront costs of buying an investment property 

The upfront costs are initial one-time payments you need to consider before buying an investment property. Aside from the property’s sale price, you need to think about the deposit, taxes, and a host of other fees. It’s best to include these additional upfront costs in your initial budget to see just how much an investment property is going to cost. 

Deposit 

The size of the deposit you need depends on the value of the property you want to buy. Ideally, you want to put down a deposit of at least 20% to avoid paying for Lender’s Mortgage Insurance (LMI), which protects the lender if you can't repay the loan. Lenders may also offer better rates and features to borrowers who put down a 20% deposit or more, as it poses less risk to them. 

Some lenders do accept a deposit of only 10% of the property’s purchase price. However, you will need to pay for LMI. 

Lender’s Mortgage Insurance 

The cost of Lender’s Mortgage Insurance will depend on the size of your deposit and the amount of money you are seeking to borrow. Usually, LMI is a one-off charge that you can add to your home loan. 

Stamp duty 

Stamp duty is another upfront cost when you invest in real estate. Stamp duty is a tax imposed by the state or territory government. The price of stamp duty will depend on the price of the property you’re buying, where you’re buying, and the purpose of the purchase.  

Generally, you’ll need to pay stamp duty at settlement. You can get an estimate of how much stamp duty you’ll need to pay by using our online stamp duty calculator. 

Conveyancing fees 

Conveyancing is the legal process of transferring land or property ownership from one person to another. Conveyancing can be done by a licensed conveyancer or a solicitor. The average cost of a conveyancer is between $1,500 and upwards of $2,000. You may pay more for a solicitor, which can range between $700 and $1,300 or more, including disbursements. 

Building and pest inspection 

An investment property that has structural or pest issues will cost you thousands of dollars to repair. To avoid this, you should get a building and pest inspection report. This can cost you $400 to $1,000 or more, depending on your area and the size of the house. 

Mortgage registration fee 

Mortgage registration fees are paid to state and territory governments to register the property as security or collateral on the investment home loan. This allows future buyers to check any existing or previous claims on the home. The fee ranges from $130 to $200, depending on where you are in the country. 

Land transfer fee 

This is usually also payable to the state or territory governments, and the fees can range from $150 to $5,000 or more. The price of the land transfer fee depends on the guidelines set by the state or territory government. It’s best to check the rules in your state or territory to know how much you’re expected to pay. 

Loan application fees 

Also known as an establishment, start-up, or set-up fee, application fees are charged at the start of your home loan to cover the administration of setting up and processing the loan. This could be anywhere between $150 to $700 or even more, depending on the lender and the type of loan you’re applying for. 

The good news is that not all lenders require an application or establishment fee. Lenders like loans.com.au offer no application fees, which means you could save on your loan from the get-go. 

Ongoing costs of owning an investment property 

These refer to the recurring expenses incurred while owning and managing an investment property. As a property investor, you need to add all these additional costs into your budget before buying an investment property so you can make a realistic estimate about the expected return and ensure positive cash flow. 

Repairs and maintenance 

Many things can go wrong with a property. The walls might need a fresh coat of paint; you might need to replace a broken fence or fix leaky pipes. You must have funds set aside for these maintenance expenses. The cost of maintaining the property can vary depending on what kind of repair is needed. 

Body corporate fees 

You will need to pay body corporate fees or strata fees if you own a unit or a townhouse that’s within a complex. These fees are used to maintain amenities within the building, such as swimming pools, gardens, lifts, or a gym. Keep in mind that more features will mean higher body corporate fees. 

Insurance 

As a property investor, it’s important to consider the types of insurance you will get. Of course, you should insure the property, but you may also want to get a higher level of cover with landlord's protection insurance. This covers your property against loss or damage caused by tenants, whether it is by accident or deliberate.  

Depending on your provider, landlord's insurance can cover you for accidental or malicious damage to both the structure of your property and any contents that you may have leased to your tenants for their use. 

Property management fees 

You will pay this if you hire a property manager for your property. In return for the money, they will market your property, dealing directly with prospects and tenants, collecting rent, handling maintenance, tenant complaints and any evictions. The cost of hiring a property manager will depend on which company you use. 

Utilities 

Utilities are a common ongoing cost of living in a property and include things like electricity, gas, and water. You can offload these costs to your tenant if you wish, but if you’re keen to attract tenants you may consider incurring the cost yourself. 

Council rates 

Council rates are the responsibility of the landlord. The rate levied on a rental property will vary depending on the local government area. 

Tax 

Tax can be a costly thing when investing in property. That’s because many of the above costs mentioned can be tax-deductible, as is the depreciation of your property and some of its contents. If you decide to sell your property, you may incur Capital Gains Tax, which can also be incredibly costly. 

Investment properties and taxes are a highly complex topic. Read our quick guide on tax deductions for investment properties, or consult the Australian Tax Office or a consultant to see how much you may have to pay and what's tax-deductible. 

Mortgage repayments 

This will likely be your highest ongoing cost when buying an investment property. Your mortgage repayment will vary depending on the amount you borrowed, the term of your loan, loan type, and any loan servicing fees. You can get an idea of how much you’ll pay on your investment home loan repayments by using our online loan repayment calculator.  

Ongoing loan fees 

Recurring loan fees include annual and monthly ongoing fees, late repayment fees, additional payment fees, redraw fees, and the like. It’s best to learn about these fees beforehand to better understand the cost of your home loan. 

If you want to save more on your loan, find lenders such as loans.com.au, which offer minimal or no ongoing fees. At loans.com.au, we understand that every dollar counts, so we help you save wherever possible. 

Buying an investment property? 

When it comes to buying an investment property, it’s important to get a full picture of the costs involved so you can weigh them against the potential benefits. If you are thinking of investing in property and want to find out more, why not talk to one of our lending specialists today or read our helpful checklist for buying an investment property. 

Ready to start your property investment journey? Apply for a home loan online! 

Disclaimer: The information provided in this article is general in nature and does not constitute financial or legal advice. Please seek professional advice tailored to your circumstances before making any financial decisions.

Ready to start saving on your home loan?

Find out in under 2 minutes if you qualify for one of our low rate home loans.

Do I Qualify?