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The extra (and often unexpected) costs of Investing in Property

By Emma Smith

During the March quarter last year 93.9 per cent of those who sold homes in Australia’s capital cities made a profit, according to CoreLogic’s most recent pain and gain report. A good portion of these lucky sellers were property investors who most likely received rental income on top of a hefty capital gain.

Property’s not a foolproof investment, however, and if you’re not aware of all the pitfalls and extra costs involved you could even lose money. To make sure fledgling investors aren’t caught out, here are seven of the most commonly unexpected costs of property investment.

If you’re not aware of all the pitfalls and extra costs involved you could lose money.

1. LEGAL FEES

When you buy property you’ll need to have contracts drawn up and inspected.

You’ll want professional legal advice to make sure you’re making the right decision, and you’ll need further help organising settlement and liasing with the seller’s solicitor and bank.

That’s where a conveyancer comes in. According to the Australian Institute of Conveyancers this service will cost between $900 and $2,000, depending on the complexity of the purchase, so it’s a cost that should always be budgeted for.

2. QUANTITY SURVEYORS

When you first purchase an investment property you may need a depreciation schedule. This document lists all assets related to the property and calculates their depreciation, allowing you to claim that amount when you file a tax return. This is essential, as claiming depreciation will reduce your taxable income and, as a result, your tax bill.

The cost of hiring a quantity surveyor varies according to the size of your home and your location. However, Onproperty estimates on average it will sit between $450 and $700 plus GST, depending on the size and age of your property.

Accountants are trained and experienced at maximising the tax efficiency of investment properties.

3. ACCOUNTANT FEES

Service Seeking estimates that the average accountant could cost around $134 an hour. It’s not technically essential to hire an accountant when you buy an investment property, and you could get by filing your own tax return.

However, accountants are trained and experienced at maximising the tax efficiency of investment properties. Therefore hiring an experienced accountant could save you far more than the cost in the long run by reducing your tax bill and making your property work for you.

4. LANDLORD’S INSURANCE

Landlord’s insurance is non-negotiable when buying an investment property. Before you sign a contract of sale you should already have a landlord and house insurance policy in place to protect yourself in any event. This should cover you for things like:

  • Accidental damage by tenants or tenant’s guests.
  • Malicious damage by tenants or tenant’s guests.
  • Loss of rental income due to tenant default.
  • Legal costs related to eviction of tenant.
  • Liability cover and much more.

According to Canstar’s data this will cost between $836 and $1,160 on average, depending on which state you live in. If something unexpected occurs that’ll be money well spent.

5. PROPERTY MANAGEMENT FEES

Landlord’s insurance is non-negotiable when buying an investment property.

Property management fees can vary wildly from state to state and depends on which agency you select. Usually it’s charged as a proportion of the rent collected, which may be somewhere between 5 and 8 per cent.

What you should consider in this case is the cost of not hiring a local property manager from an agency you can trust. If you do it yourself this cost will come in the form of hours out of your day, stress, rental vacancies and possibly even disputes with tenants. It’s better for you and your tenants if you let a trained professional manage that relationship.

6. COUNCIL RATES

An analysis by the Newdaily found that the highest rate paying charging councils were Surfer’s Paradise ($3240), Hobart Council ($3240), Whitsunday ($2723) and City of Melbourne ($2393). However, depending on where you buy, yours may be as low as $1,500.

Because this cost can be exorbitant you should always investigate it before buying and factor it into your annual budget.

One thing you can’t plan for is an extra or special body corporate fee.

7. SPECIAL BODY CORPORATE LEVIES 

Body corporate fees vary from building to building and state to state, but you should always know the cost before buying an apartment or unit as an investment as they can number in the thousands. One thing you can’t plan for is an extra or special body corporate fee.

These may pop up when repairs are needed after a weather event, when a lift unexpectedly breaks down or something otherwise unplanned for occurs. Unfortunately these can be costly, and provided it’s a legal and reasonable cost, you may be required to pay it. For that reason it’s always a good idea to keep some ‘just in case’ funds aside for any unexpected events that may result in extra body corp fees.

If you approach your first investment with your eyes wide open to the costs and possible pitfalls you’ll be far more likely to succeed. For more help navigating your first foray into the property investment market get in touch with a local real estate agent you trust for expert advice.

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