It’s not just the mortgage you have to worry about when It comes to Investment Property Costs.
There’s lots of little hidden expenses that are going to eat away at your savings and your cash flow unless you become aware of what they are and how to leverage your money in a way that minimises all of your expenses and puts you into a positive cash flow position with every property.
All of these expenses together, as well as your mortgage repayment rate make all the difference between a positively geared or negatively geared investment property.
Probably the most complained about expense on earth, taxes are a given. If you’ve successfully invested in a property that is giving you positive cash flow returns, you’re probably going to get taxed. The key trick here is to always buy new properties so you can claim the depreciation back on your tax to offset the amount of tax you’ll have to pay.
When you first purchase your property, you have to pay a stamp duty which is a state government tax levied on all property purchases. Stamp duty varies from state to state with different rates and concessions available based on your own individual circumstances. Other Government fees also include quarterly Council Rates which will depend on the which local council your property resides in.
Many people aren’t aware that they have to pay Land Tax on investment properties. Land Tax is a common property investment expense that is paid on every property you purchase that is not your principal place of residence. These land tax rates vary from state to state and the amount of tax you pay will also depend on the type of property you purchase as houses cover more land than units which will mean you have to pay more land tax. If you purchase a unit however, you’ll have to pay strata fees, so buying units doesn’t necessarily mean you’ll save more money.
If you purchase any unit property in a complex, Strata Fees are an expense you have to pay for because the maintenance of your unit complex’ is a shared space. The fees are paid to a body corporate which handles the maintenance of your shared space. Like most property expenses, the actual cost of your Strata Fees will depend on the location and value of your property as well as what is included in the shared space.
If you’ve purchased an investment property with the intention of renting it out to tenants, it would probably be a smart decision to get landlords insurance. This not only covers you for property damage from tenants or a lack of rent received but also covers you for damage from natural complications such as fires or flood damage. It’s important here to look at the terms of your insurer’s contract to make sure you’re getting everything you need and the best deal you can possibly get.
One of the more straightforward expenses, paying with interest on a loan is definitely a given. The thing most people don’t realise is that if you get a principal and interest loan, it’s actually a hidden expense. Interest only loans are so much better option because they allow you to leverage and control your own money, so you can put it in an offset account that pays off your mortgage faster, and they also allow you to get more money back on your tax, at the same time, minimising the monthly expenses of your property.
Managing a property portfolio can be a tedious fulltime job if you do it yourself. This goes against the notion of investing for passive income and financial independence. You’ve got to handle both the tenants and the maintenance. It’s much better to hire a property manger to do the work for you, but like everything else, this also has its costs.
Property Managers charge around 6%-8% of the your rental income and also approximately a week and a half worth of rent to cover the advertisement costs if tenants move out and they have to find new ones. Of course all of these expenses can vary depending on who is managing your property.
As you can see, Investing in Property comes with a lot of costs, and it might seem like too big of a headache to even bother investing. The truth of it however is, Property Investment is the most secure way to reach financial independence and if it was easy, everyone would do it. Despite all of the expenses, armed with the right knowledge, you can ensure that your property investment portfolio can give you the positive cash flow return you need to live your life the way you want.
To find out more how you can get the right structure and planning to avoid or leverage these costs and expenses to your advantage CHECK OUT my Live Training