It's important to be aware of all the costs associated with property investment.

What are the costs of property investment?

The property markets in Sydney and Melbourne have provided substantial gains to investors lucky enough to get in before the boom. Although luck has nothing to do with it when you’ve got an experienced buyers’ agent on hand to help ensure you make informed and profitable decisions.

Figures from CoreLogic RP Data reveal that over the years between December 2008 and September 2015, combined capital city property values shot up 48.8 per cent. However, this value was heavily influenced by homes in Sydney and Melbourne (the only cities above the average), which experienced almost unbelievable growth of 76.5 per cent and 68.8 per cent respectively.

This means a $500,000 property purchased in 2008 would now be worth around $882,500

Essentially, this means a $500,000 property purchased in 2008 would now be worth around $882,500 – a $332,500 profit over the seven years, providing you with around $55,000 in annual equity.

Property Council of Australia’s Executive Director Residential Nick Proud acknowledges that the recent growth has been significant, and the industry is still looking stable for any future investors.

“New housing finance is still creating a reasonable supply pipeline for Australians and seems set to continue to underpin building commencements at elevated levels,” he said.

However, while these numbers do paint a very pretty picture, they don’t tell you the full story. It’s vital that you’re conscious of the many other costs associated with owning an investment property. Your buyers’ agent will be able to help with your budget, but here are just a few of the most prominent expenses you need to be aware of:

There are numerous costs involved with investment, which requires a balanced budget.

There’s more behind the price tag

While the advertised price looks achievable, do you have enough funds in reserve for hidden or unforeseen costs? The Australian Securities and Investments Commission (ASIC) states a common mistake made by investors is over-committing themselves to the initial purchase.

With this in mind, the ASIC advises always having some money set aside for the less visible costs, which can include:

  • The fees associated with borrowing: ANZ affirms that with most lenders, you will have to pay an approval fee, which is often around $600. Furthermore, you may be required to pay lenders mortgage insurance (a one-off payment at the beginning of your mortgage), depending on your loan-to-value ratio.
  • The dreaded stamp duty: The amount you pay depends on the state – for example, investing in a $700,000 property in NSW will cost you around $27,000 in stamp duty, while Victoria would be closer to $37,000 according to the relevant Offices of State Revenue.
  • Legal expenses – You will most often need a solicitor or a conveyancer to ensure the transferral of ownership is all legitimate.
  • Inspection reports – Sure, you don’t have get a professional pest or building report, but it’s highly recommended that you do! The ASIC states that the general cost is around $500, but knowing exactly what you’re getting into can more than make up for the cost.
It’s a good idea to have your entire budget fully planned out.

The ongoing costs

Given that it is a tangible investment, there are a number of ongoing expenses and tasks affiliated with owning a rental property. This can include marketing your home for tenants, maintenance, repairs, insurance, council rates and the potential vacant periods where you have no rental income.

Fortunately, this is where investment property managers can be of help. With the assistance of their extensive networks, they will take care of all of the above and more, ensuring your property is in good hands. What’s more, you can claim tax deductions on basically any expense incurred by your investment property, and this includes any property agent fees or commissions.

Buy my house

If you feel like your finances are in order, you should seek the services of a buyers’ agent to help you navigate the market and potentially gain access to private house sales.

It’s certainly a good time to enter the market, as figures from CoreLogic RP Data reveal that September saw the highest number of new listings poured into the market since March 2015!

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