When searching for a property investment, a lot of people calculate their cash flow based solely on their expected mortgage expenses and rental income. However, failing to consider ongoing costs is a big mistake that could potentially result in a poor investment decision.
Here are some other ongoing costs of owning an investment property you should take into account:
Repairs and Maintenance
There are many things that 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. It’s important that you have funds set aside for these maintenance expenses.
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.
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.
Council rates are the responsibility of the landlord. They are paid on an annual basis. The rate levied on a rental property will vary depending the local government area.
This will probably be your largest 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.
As a property investor, you need to add all of 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.
04 July 2012
One question that tends to come up over and over again is should a person or couple take out a loan for an investment property.