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What does it cost to own an investment property

Many people I speak to are afraid to enter the property market because of 2 main reasons.

Firstly they think they can't afford it and secondly they don' know anything about the process. The second problem is easily solved by talking to professionals such as an accountant, bank manager, property manager and other investors. A property manager is an important source of information as they can advise on rental returns and what attracts tenants to certain properties. They can also indicate choice suburbs where quality tenants can be found or not and suburbs where it is always easier to rent your property. Remember information is power and the more research that can be done, the better equipped you will be when problems arise.

Affordability is often talked about in the news with reference to first home buyers. But what about affordability for those first home buyers who have owned their home for a few years and are looking to buy an investment property.

What does it actually cost?  Negative gearing is a term used often with relation to property investment, but for those who are new to investing, it is a method where your own taxes help pay for the shortfall in the costs associated with buying and running a rental property. The government does this for numerous reasons, but the important thing is they pay for some of these costs.

// are many calculators on the internet which can help the first timer with estimating all the cost involved. However, what if you don't know what the costs are. Below is a very basic summary of costs associated with running your rental property. This list is not complete but gives the first time Investor some idea.  

Let's assume an investor purchases a property for $400.000. Stamp duty and loan costs will increase the loan to about $415,000.  If the loan was for this amount, the interest only payment at 5.5%  would be $1835/month. Other costs associated with a rental property are maintenance, insurance, rates and property management fees. A conservative figure for all these expenses would be $500/month giving a total of $2335/month. Income for the property through rent at conservative $370/week equals $1603/month. Now depending on the age and state of the property, including the tax bracket one is in, deductions through a depreciation schedule for you property can be as high as $500/month. Adding these sums together, $2103 is just short of the $2335/month needed or just under $60/week out of pocket expenses.

This is obviously not a lot of expense to buy a property worth around $400,000.  One can also see that the determining factors for all these expenses are the interest rate, the rent you receive as well as the depreciation schedule or the tax benefits that you can obtain from the government. The rest of the costs will be fairly standard and remain reasonably static.

Or course, due diligence is always the number one rule. Talk to the professionals and research your type of residence and suburb or location and you will soon be on your way to owning your first investment property. 

Our office does free rental appraisals to help you on your way. Visit our website at
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