COSTS OF HOLDING AN INVESTMENT PROPERTY
Property investing is a great vehicle for building wealth. But there are a number of costs involved, which you need to be aware of. For example:
This is absolutely essential in order to cover potential problems involving tenants. These could include a loss of rental income or property damage. Depending on the property’s value and risk profile, you should be able to obtain a policy from as little as $1 a day, which is a very small price to pay for something that is of huge benefit and will give you enormous peace of mind.
Repairs and Maintenance
The reality is that properties always require repair and maintenance. Examples could be fixing small water leaks or a door hinge, or resealing wet areas like the kitchen and bathroom. But over the longer term there are bigger jobs that may need to be done and these will be more costly. Examples would be replacing a hot water system or an air-conditioning unit, or major appliances like the oven or dishwasher.
Finding New Tenants
This can be a lengthy process. You will need to pay advertising fees, cover the mortgage while the property is empty and pay the letting fee when it has been leased. The longer the property is vacant, the faster these expenses build-up, so always remember to speak to your property manager about making sure the place appeals to quality tenants and is priced appropriately.
Rates and Body Corporate Fees
Council rates and body corporate fees are another big cost for property investors. And if your property is an apartment (or you are considering buying an apartment), there are other potential costs such as a maintenance fund. You will also need to find out about any large repairs and maintenance that may be needed in common areas in an apartment building.
All of this underscores the fact that you must have cash set aside, or have a stable cash flow, to deal with ongoing repairs and maintenance and larger emergencies and, of course, the regular shortfall if you are negatively geared.
* This article does not constitute financial or legal advice. Please talk to a professional financial and legal adviser before making any decisions.