5 unexpected costs to consider when investing in property

Just like a Saturday night out, investing in property comes with a lot of unexpected costs. You budget for cocktails, but forget about cover charges, Ubers and a cheeky drive-thru on the way home. Not planning for what’s actually involved can leave you with a massive financial hangover.

To help you avoid any nasty surprises when you buy your first investment property, here are five things to look out for:

1. The cost of repairs and maintenance

If there’s a burst water pipe, a cracked window or the central heating stops working, guess who’s responsible to fix it? You. As a landlord, it’s your job to pick up the bill for all maintenance works and repairs. In fact, landlords have a duty under the Residential Tenancies Act 1997 to make sure that the properties they rent out are kept in good repair.

A good way to budget for potential repairs is the one per cent rule: maintenance will cost approximately one per cent of the property value per year. So a property valued at $330,000 should cost about $3,000 a year to maintain.

2. Body corporate or strata fees

If your investment is part of an apartment block or townhouse complex, it’ll be part of a body corporate – an organisation of owners who manage the common grounds of the property and charge fees to cover expenses. These can include building insurance, building works (like installing a fancy new water fountain), gardeners and cleaners, and management fees.

Fees vary drastically depending on the type of property – those with gyms, lifts and swimming pools can expect to pay a lot more. So before you buy, check to see if these quarterly levies are within your budget – otherwise that Saturday night out may always be a Saturday night in.

3. Council rates

Have you ever thought about who pays for your weekly rubbish collection? How about street lighting, your local library or road repairs? Property owners are expected to pay council rates to look after and run their local council.

Rates differ council-to-council and state-to-state, so make sure you factor these costs into your property-buying budget.

4. Property manager fees

Managing your own rental property may seem easy enough on the surface – how hard can it be to collect the monthly rent and organise a few repairs, right? But the truth is, there’s a lot more to managing a property.

Investing in a property manager can take the stress out of renting. They’ll advertise your property, screen the applicants (because you probably don’t want some Breaking Bad situation), collect the rent and bond, organise tradesmen for repairs, and manage any disputes.

However, they do come at a cost: most property managers will charge between 6 and 10 per cent of the total rent. It’s not all bad news though. As an investor, you can claim these costs as a tax deduction.

5. The cost of insurance

Just like a car, you need to insure your property. And this is one cost you don’t want to skimp on.

Landlord insurance covers you for tenant-related risks such as loss of rental income and tenant damage – because red wine on the carpet and gold-sponged feature walls do happen. It also provides cover for flood, storm or rainwater damage, fire and even pet damage (bad girl Lassie!).

The cost of insurance will differ depending on the size of your property (house or unit), its location, how much you actually want to insure it for and the provider. It pays to shop around though to ensure you get the best deal.

There are many benefits to investing in property. And by crunching the numbers and factoring in the unexpected costs now, you can afford the property and a few Saturday night cocktails too.