Skip to Content

Categories

The expenses of an investment property

The cost of an investment property isn’t limited to the house; there’s fees, taxes, rates and mystery deductions that can really make a dent for the unprepared buyer. So fear not, we’ve listed some of the extended costs you can expect to incur when buying an investment property.

Upfront: What you pay at the beginning of your investment property

  • Bank fees: Some banks charge an application or confirmation fee when taking out a home loan. UBank charges no initial fees on variable rate home loans, but does charge a one-off fee to lock in a fixed rate home loan.

  • Inspections: You want to ensure the property is ready for tenants before you buy it. Professional inspectors will make sure the place has no nasty surprises that can come back to bite you (literally!) in the long run.

  • Insurance: Lenders Mortgage Insurance is a one-off payment that protects the bank in case you’re unable to pay off your mortgage. It’s usually only required for loan amounts greater than 80% of the total property cost*. You may also need home insurance to protect against natural disasters, floods or acts of property Gods.

  • Legal obligations: Processing a transfer of property ownership is most often covered by a solicitor or conveyancer. You could expect to pay up to $1,000 for these services.

  • Stamp duty: This is often one of the biggest costs you will face. Stamp Duty is a government land transfer tax that differs depending on the state, type of property and your personal circumstances.

*LMI doesn’t apply to UBank customers as our loans require a 20% deposit.
 

The ongoing costs to maintain a rental property

These costs recur on a weekly, monthly or annual basis and may start being incurred even before a property is available for rent.

  • Accountants: Considering the volume of rental income and myriad laws around capital gains and negative gearing policy, it’s wise to consider an accountant to handle your tax returns at the end of every financial year. They’ll consider things like depreciation, rental income, expenses and what you can claim (e.g. repairs, maintenance and legal expenses) vs. what you can’t claim (e.g. the house itself, stamp duty, or tenant-paid bills).

  • Bank fees: Some banks charge an annual fee to continue your home loan. UBank charges no ongoing fees on our variable or fixed rate home loans.

  • Council rates: Rates keep your neighbourhood services running smoothly and are paid by the property owner (not the tenants) on a quarterly basis. Good to pay if you want the trash collected.

  • Income tax: Any rental income that exceeds the cost of a mortgage is classed as profit, and is thus taxable.

    Rental income that falls short of the cost of a mortgage means your property can be claimed as a tax deduction. Read more about negative gearing and investment property tax deductions.

  • Investment property insurance: Including property insurance and tenant protection to help you in case of damage (including that caused by tenants) or unpaid rent.

  • Interest: Whether fixed (you pay the same rate for the entirety of the loan) or variable (the rate changes pending market rates), you’re going to be charged interest on your investment property loan.

  • Land tax: Land tax varies depending on the state/territory you live in, and whether or not your property’s value exceeds that of the threshold. Often paid by investment property owners (and not by those living in their home). 

  • Property maintenance: Any work carried out to maintain or fix parts of the property (i.e. cleaning gutters or fixing plumbing). Again, the cost to maintain a rental property is the responsibility of a landlord and not the tenants. Oftentimes this activity is tax deductible, but be sure to check with your accountant or the ATO.

  • Property managers: You may elect a property manager to help find tenants, process maintenance requests and any other duties to lighten the workload of being a landlord.

  • Taxes: There are 3 main taxes Australian investment property owners may need to pay — Income Tax, Capital Gains Tax and Goods and Service Tax. These differ depending on the owner, the state and the property, so ensure you’re researching with your relevant authority.

  • Strata fees: Often known as Body Corporate fees, these occur when your investment property is within an apartment block or townhouse complex. These pay for shared services and maintenance of the building/surrounds.


The information contained in this article is of a general nature only. It doesn’t take account of any person’s objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate for your circumstances and seek independent legal, financial, and taxation advice.