What Are The Expenses Of Owning A Property?

Dilleen Property Group 2021

Often many people forget about the other expenses that come with holding and upkeeping an investment property. These expenses include mortgage repayments, council rates, water rates, management fees, insurance, strata and strata/body corporate.

The best way to have a look at your expenses is to break it up into a cash flow sheet, and see how it will spread over a weekly or monthly basis.

Mortgage Repayments

A mortgage repayment involves repaying the principal and interest payments to the lender that you have chosen. The size and the term will determine how much your repayments will be to your lender. Mortgage repayments can be made weekly, fortnightly or monthly.

Council Rates

Every council is different within Australia so it is important to be aware of how they differ with their rates, especially if you have a diversified property portfolio. Council payments are usually billed quarterly, but this can also differ in terms of what state your property is in. Council rates on average are $1400 annually.

Water Rates

In terms of water rates, you can be looking anywhere between $200 - $400 a quarter, however it ultimately depends on how it is metered. In this sense houses and units can vary in terms of water rates. Houses are individually metered, where as units are metered together and you will receive an average rate for your bill.

Source: Canstar Blue research, May 2020.

Management Fees

Eddie highly recommends using a property management team. Property managers usually take anywhere between 5% - 10% of your weekly rent received. For example, if the rate you have been provided is 5% and you're passive income received from rent is $20,000 annually, this will roughly be $1000 a year.

Insurance – Building (applicable to houses)

Building insurance covers the physical structures of a home, as well as natural disasters. The insurance fee will depend on the value of the property. There are a variety of insurance companies on the market, however Eddie recommends using Terri Scheer. Building insurance fees are roughly $1,500 annually.

Insurance – Landlord

Landlord insurance is not a requirement but is recommended for investors due to renting to tenants. Landlord insurance covers only the inside of the property, as well as loss of rent. This fee is roughly $350 annually.

Strata or Body Corporate (applicable to units, townhouses, or villas)

Strata is essentially the same as body corporate. Strata is paid for the upkeep and maintenance of multi-unit developments due to the common areas. This fee applies to any property that is either a unit, townhouse, or villa. This fee can cost anywhere between $1500 - $4000 annually.

Conclusion

If you are purchasing a property it is always important to look at the council rates, water rates, property management fees, and insurance fees prior to signing the contract. This will provide a rough estimate to whether you can afford to make payments towards the upkeep of the property.

This is why a positive rental yield ranging from 6-12% is especially important. It guarantees the ability to pay off these expenses that are required to hold an investment property, as well as allowing you to receive a positive weekly cashflow on top!

Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.