Buying an investment property costs a lot of money but maintaining it is also costly. This introductory guide will help you know what costs to expect after purchasing a rental property.

The key to successfully maintaining a property investment is to know all of the expenses that are involved, large and small. When you have a budget and solid plan, you’ll avoid costly surprises, have peace of mind and be well on your way to reaching your wealth goals.

At first glance, the arrangement seems simple: you buy a property and then charge a rental rate that helps you cover the mortgage.

But in reality, there’s much more involved.

The costs of maintaining a rental property vary widely depending on where you live and other factors unique to your property and situation.

Listed here are some of the areas where you’re most likely to have some costs. It’s up to you and your experienced property accounting team to do due diligence, understand where the expenses are and set a budget in place.

Insurance

Landlord insurance will save you from crushing debt in the event that a disaster or bad tenants damage your property. You will feel much more secure having adequate insurance cover in place, but this is a variable and ongoing cost that you will have to be prepared to pay.

Council Rates

These fees vary with location and are sometimes billed as quarterly payments or even annual payments. In Australia, these fees average out to $3.50 per day per household for services that keep the community running smoothly.

Mortgage Expenses

When you buy a rental property with finance, you don’t just pay back the money you borrowed. You’ll have added costs in the form of interest payments and other fees attached to the loan.

Rental Property Management

If you don’t have the time or expertise to manage a rental property and the agreement with the tenant, then you’ll need to work with a property manager.

Typically, a portion of your rental income goes to the agency or individual managing your property for you. This works out to less than 10% of the income on a weekly or monthly basis. There are high fees, however, which are due when there is a transition of renters. If you have a high turnover rate of tenants, then paying for rental property management can get quite expensive.

Maintenance Costs

If you buy a fixer-upper to rent out, then there will be regular maintenance and repair needs. But even new buildings need regular maintenance and can develop serious issues over time. It’s hard to predict exactly how much your maintenance costs will be, but it’s wise to have plenty of cash set aside for just-in-case.

Water Rates

Nowadays it is possible to pass this expense on to your tenants, but as the property owner is usually held responsible for paying this bill regularly, it’s still a cost you should be prepared for.

Renovations and Upgrades

There are plenty of optional updates, large and small, that you may choose to do on your rental property simply to keep it comfortable and appealing to potential tenants. Even if these projects aren’t essential, it’s still wise to set aside some funds to cover the cost since updates can increase the value of your property.

Tax

Tax is a big one to be aware of – property investment should be geared to support your tax strategy, and it is important to work with an experienced accountant to ensure you are set up correctly. How much you’ll owe in tax will vary but it is an absolutely critical cost to prepare for.

Business Expenses

There are many little costs that go into the landlord business that you may not anticipate, at first. These include money spent in communicating with tenants, mailing documents and paying legal fees.

You’ll also have to pay for things like stationary and utility bills and supplies for your home office.

All of these little expenses add up. While they can be tax-deductible, they do represent essential costs that you have to cover while maintaining a rental property.

How to Save on the Costs of Owning a Rental Property

There are a few key ways you can cut back on your expenses as a landlord. These include:

• Self-managing your property
• Taking care of maintenance issues while they’re still small to avoid bigger and more expensive problems
• Regularly reviewing the market for rental rates to ensure you’re charging enough rent
• Review and the repayment terms for your loan (refinance) every 18 months or so
• Keep great relationships with your tenants
• And most importantly, get good advice:

Working with an experienced property accountant will help you understand what you can afford, understand the tax benefits and risks, put a property investment strategy in place, define the budget and help you on your pathway to profit.

Contact Nitschke Nancarrow, experts in all aspects of property – accounting, financial planning, advisory and business. We operate in Adelaide, Sydney, Melbourne and throughout Australia. Managing partner Kym Nitschke is available for a free initial discussion about your situation. Call us on (08) 8379 9950 or send me an email.

– Kym Nitschke

The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on Nitschke Nancarrow’s  interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

Nitschke Nancarrow specialises in accounting, tax and financial advice for superannuation. Contact us now for a no obligations discussion about your needs.