Dissecting Costs Of Property Investment
My leanings towards property investment are an extension of my childhood perceptions. The way I read the world did not leave too much space for liquid assets and till today the regard for this non-volatile, “two-fold benefit” asset class has remained. This is also partly why I chose the career I am in.
While properties can offer extremely sound returns, I will be the first one to agree that they can be difficult to maintain too. There are the upfront costs along with a host of maintenance expenses. Let me take you through them.
As a first, you will be asked to fork out an upfront cost. This can be in the vicinity of 10%-20%. The higher you are ready to pay, the easier your life becomes in terms of mortgage rates. In case you are borrowing more than 80% of the property value, you will also need mortgage insurance; one that insures your lender against any payment default. It may be a worthy strategy to have a “mortgage offset” savings account.
Next in line is the loan establishment fee. In other words, this is the charge of covering up the set up cost of your borrowing. There is the much dreaded “Stamp Duty”. It can be as high as 3.5%, a long way over the global standards. You can claim a rebate in the duty if your property is a principal place of residence but you will have to be as lucky as a leprechaun to avoid stiff Stamp duty for investment property.
You will also have to budget for the conveyancing cost, paid to the solicitor, for the legal transfer of your asset’s ownership.
Building and landlord insurance
Now that I have taken you through the one-off payments, it will be wise to glance at the ongoing costs too. First in line is the building and landlord insurance. This is an imperative for any investor. Great shield I must confess for all those unwarranted misfortunes (flood, arson, burglary) and the dubious intention of your tenants (property damage and refusal to pay rent, among other things).
Your state or territory levies a land tax on you which is payable each year. With some luck, you may be spared an annual payment but it still remains a must-pay item at the time of purchasing the property. Body Corporate fee, council rates, costs incurred on utilities and repairs also join the picture later in the day.
The remuneration paid to your property manager cannot be discounted either but to be fair his services are indispensable if you have a diverse investment portfolio in mind. I can keep adding to the tally but in gist, these are some of the more important costs of property investment you have to keep in mind.
According to you, which among these costs should be done away with?