How Much Does It Cost to Buy an Investment Property?

It can be difficult to find concrete information about how much it costs to buy an investment property. This is largely because everyone’s situation is different, and there is no “one size fits all” response. Plus, in addition to the there are a number of costs to consider in addition to the up-front deposit. This article will help you budget and fully understand if you are able to afford an investment property by explaining each cost.

Up-Front Costs of an Investment Property

Deposit

The biggest up-front cost for your investment property is the deposit. Depending on what funds you have available, what bank you go through, and your employment and credit history, this can be anything above 5% of the total price of the property. However, many banks require at least a minimum of 20% of the purchase price, as anything under this amount means you would also need to pay Lenders Mortgage Insurance (LMI).

Equity

Equity is the value of a property that is already owned on a mortgage. In some cases, if you or a family member already own a home, the equity on that home may be used to secure your investment property. This can save the need for a large sum up front and may mean you are able to get into the property market sooner.

Lenders Mortgage Insurance

If you don’t have a minimum 20% deposit or equivalent equity, you will need to pay LMI, which insures the bank in the case that you default on your loan repayments for any reason. This value depends on the bank, property value and the total loan amount. In the example of a $500,000 home, with a deposit of 10% ($50,000), the LMI to be paid would be approximately $8,000 – according to this calculator. This amount can be paid up front or added to the loan amount.

Stamp Duty

Stamp duty is a state or territory tax that is charge on the value of your property. The stamp duty amounts vary across Australia but are usually between 3-5% of the value of the property. Do not forget to budget for this cost when planning the purchase of your property, as stamp duty needs to be paid up-front. There are stamp duty calculators, such as this one, that can provide you with a general idea of the extra you will need to save.

Mortgage Registration Fee

The mortgage registration fee is paid to the Land Titles office in the state or territory that the investment property is. This fee is paid upon the discharge of a mortgage on a property, and is the fee for registering the mortgage on the appropriate title record. You should pay between $100-$200 for the mortgage registration fee.

Services

Involving professionals throughout the purchase process is important to ensure you receive the best possible experience, and do not overlook anything that will cost you more further down the track. The professional services you may need to access and pay for up front include a Property Investment Advisor, your Accountant, a Mortgage Broker, a Pest Inspector, Building Inspector and a Conveyancer.

Ongoing Expenses for an Investment Property

As well as the cost of the deposit, it’s important to consider the ongoing costs of the property.

Mortgage

Since paying your deposit, you now must pay off the rest of the loan. These payments can be arranged to be paid weekly, fortnightly, or monthly, and the total cost will depend on the total and length of your loan.

Insurance

Taking out insurance on your insurance property is highly recommended to protect against damage both naturally, or from tenant use.

Council Rates

Any fees charged by the council are payable by you, the landlord.

Strata Fees

If your property is an apartment or townhouse, you will have to pay strata fees to the body corporate, who are responsible for maintaining and insuring common areas. This is a quarterly fee.

Repairs and Maintenance

As a landlord, you are responsible for organising repairs on the property for issues caused by fault or general wear and tear. However, the tenant is responsible for their own damages.

Property Management

Property managers are a very necessary additional ongoing cost. Just make sure you find one who will put in the time and effort to make sure your property is well looked after.

Income

While these expenses may seem like a lot, don’t forget that with an investment property, you will have a tenant paying rent consistently, which will help offset, or even cover, your weekly costs. This is called a positively geared property. In the event that the rental income still doesn’t cover your repayments and other costs, or a negatively geared property, you are still able to claim many of your out-of-pocket expenses as tax deductibles (in addition to being able to claim other deductibles such as depreciation).

Are You Ready to Invest?

If you’ve considered all these expenses and are confident you can afford an investment property (or maybe you’ve even got pre-approval!), then give us a call! We’d love to help you find the right property to help you meet your goals.