​Investing in property? Know the costs before you buy

Why invest in property?

Investing in property is a popular choice for many people as you can both earn rental income and benefit from capital growth. 

Another advantage of investing in property is the ability to negatively gear the property. Negative gearing allows you to deduct some of your costs from your taxable income and potentially benefit from capital appreciation.

Buying an investment property is a great way to grow your wealth over the long term, but it’s important to consider the costs that come with investing in property as part of your overall budget.

Costs of buying an investment property

Stamp duty

If you’re an investor you’ll also pay stamp duty, which varies, depending on your state. This is based on your property’s purchase price and is often higher for an investment property than if you’re buying a house to live in. Our stamp duty calculator will give you a quick estimate for the amount you'll pay. For the exact amount you should speak with your State Revenue Office.

Lenders Mortgage Insurance and loan establishment fees

Like taking out a home mortgage, if you can cover 20% of your investment property you may avoid paying Lenders Mortgage Insurance. If not, you’ll have to factor in this cost as well as any loan establishment fees. Speak to your banker to understand lending and Lenders Mortgage Insurance for the property you have in mind.

Building and landlord insurance

When you’re investing your savings and time into a property, insurance is something you should take seriously. Building insurance will cover you for unforeseen damage like fire or flooding. If you buy a unit, building insurance will be paid from strata levies.

Land tax

Unlike your home, when buying a property as an investment you'll be liable for land tax, an annual tax that varies from state to state. Your land is assessed every year to work out the tax amount you’ll pay and if you’re liable for paying it.

More details can be found on your State Revenue Office’s website.

Council rates and utilities

As the owner you’ll need to cover the council rates for the property - which vary according to local authority property codes. Under standard residential tenancy agreements, the landlord must pay for:

• installation for initial connection to an electricity, water, gas service
• electricity and gas if the premises are not separately metered
• a water service
• sewerage services.

Body corporate fees

If you buy a townhouse, unit or flat, you'll need to factor in body corporate fees. These fees would be the same as if you were living in the property. They are usually paid quarterly and cover maintenance of common areas as well as building insurance. Body corporate fees will depend on the condition of the property, its features and the area.

Maintenance and repairs

As the owner you'll need to pay for any repairs and/or maintenance costs for the property. These costs can be partly tax deductable, however improvements or renovations to the property are not deductable.

Management fees

Managing an investment property can be time consuming. If you manage the property yourself you’ll be responsible for showing the property to tenants, inspections, collecting rent and organising repairs. You should consider whether this is the best use of your time. The other option is you can engage an expert to manage your property. In this case, you’ll need to pay their fees, which are tax deductable.

Mortgage repayments

If you’re relying on rent to cover your investment property’s mortgage payments and other expenses, you might find this income isn’t always enough and will need to cover the gap yourself.

There may also be times where you don’t have a tenant. To avoid having your investment property vacant, there are a few simple things you can do.

Find out about the vacancy rate in the neighbourhood. A high vacancy rate may indicate a less desirable area. This may make it harder to rent the property and may make it more difficult to sell in the future.

Look for properties with features that will appeal to as many as people as possible, such as a second bathroom, lock up garage or somewhere close to shops, schools and transport.