Investing in property can be an effective way to build wealth – but it also requires sufficient preparation and significant funding. Real estate investing often involves long term planning as there are several costs that need to be considered before making a purchase.
Understanding what these expenses are can help ensure that the right investment decisions are made. The checklist below explains the various initial and ongoing costs associated with investment property.
Initial costs
1. Repository
The deposit is a portion of the value of the property that investors must pay directly to the seller. Typically, residential properties require a 20% down payment while commercial properties require 30%.
2. Loan set-up costs
A loan establishment fee, also known as an application fee, covers the cost of documenting a new mortgage. It can cost anywhere from $ 200 to $ 700 depending on the loan, although some banks and financial institutions are willing to forgo this one-time payment.
3. Mortgage insurance from the lender
Lenders require IMT if the deposit is less than 20% of the price of the property. These one-time fees are designed to protect lenders against financial loss if a borrower defaults on their mortgage. This IMT estimator can help calculate how much to pay for a chosen property.
4. Stamp duty
Stamp duty covers the cost of changing title and ownership of a property. This is a tax imposed by the state government meaning the amount varies depending on the state where the property is located. The value and destination of the property also determine the amount of stamp duty payable. Investment properties often have higher stamp duties than those intended for the principal residence. This stamp duty calculator can provide an estimate.
5. Connections
This is a charge covering utilities and utilities, including electricity, water and gas, which must be installed before the property is ready for occupancy .
6. Legal fees
These costs include attorney's or transfer of ownership fees, which cover the legal transfer of ownership of the property. The amount varies by lender, but fees can start at $ 100 and in some cases exceed $ 1,000. The transfer of title may also require a research processing fee, which can cost around $ 50 per research.
Ongoing charges
1. Loan repayments
The cost of monthly mortgage payments often depends on the amount borrowed or principal, type of loan, loan term, and interest. An estimate can be provided by this mortgage repayment calculator.
2. Property tax
State governments, excluding the Northern Territory, levy annual taxes on property owners. Cost varies by state or territory and does not include properties erected on the land.
3. Council Rate
Municipality rates are a form of property tax which also varies from state to state. This is a quarterly or annual fee collected by local governments for the proper maintenance of the council area and covers garbage collection, plumbing, electrical, and other services. The costs are often indexed to the value of the property and can run into the thousands of dollars each year.
4. Legal person fees
Also known as condominium fees, corporate fees are rates applied to properties located in a shared building such as apartments, townhouses, units and apartments. These cover the upkeep of the common areas and the management of the block. The cost depends on the condition, size and location of the property and can range from $ 50 to several hundred dollars per week.
5. Building and owner insurance
Building insurance covers the property and its contents against unforeseen damage resulting from natural disasters such as fire and flood. Landlord & # 39; s insurance protects homeowners against loss or damage resulting from rental issues, including theft, loss of rental income, and vandalism. These policies are not always necessary but it is advisable to have them. Annual premiums vary from state to state, but typically range from $ 1,000 to $ 2,000.
6. Property management costs
Some investors may choose to outsource the day-to-day management of their property. A property manager oversees the day-to-day operations of rental properties from collecting rent to repair and maintenance. They could cost between 5% and 12% of the weekly rental income.
7. Advertising
Rental properties obviously need tenants to generate income. The internet is full of real estate websites that landlords can use to attract tenants. Advertising on these platforms usually costs a few hundred dollars.
8. Repair and maintenance costs
A landlord is responsible for ensuring a property is in habitable condition for tenants, so it is advisable to set aside an annual budget for costs and repairs.
Investment properties offer many advantages, one of which is the potential for strong financial returns. But venturing into real estate investing requires careful thought and planning. The key is not to rush into buying a property and consider all of the costs involved.
