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November 4, 2016

The cost of buying an investment property

Are you thinking about buying an investment property?

If the answer’s yes, listen up. While buying an investment property is a great first step to take in future-proofing your wealth, it’s important to know exactly how much the endeavour will set you back before you get too carried away.

As with any property purchase, you’ll have to spend more than just the cost of the dwelling in order to secure the premises.

Some of the other costs associated with buying an investment property include:

1. Purchase fees

These can include:

  • Lender’s mortgage insurance – if you need to borrow 80 per cent or more of the property’s purchase price, you’ll be required to pay lender’s mortgage insurance (LMI), which can be thousands of dollars. This fee can be paid as a one-off sum or capitalised onto your loan.
  • Loan application fee – depending on the lender and investment product you want, you may be required to pay a loan application fee. This fee could set you back a couple of hundred dollars.
  • Stamp duty – this is one of the biggest costs you’ll face when buying a property. The amount you have to pay in stamp duty will depend on where you buy and how much you pay for your property.

2. Pest and building inspections

When buying a property (regardless of whether it’s for owner-occupied or investment purposes), it’s vital to conduct pest and building inspections. These can cost anywhere up to $700 depending on the company you go with and while that may seem like a significant expense, it’s a small amount to pay for peace of mind plus it can help you to avoid buying a property with faults.

3. Solicitors/conveyancers

As a property investor, it’s important to have a reliable, trustworthy solicitor on your team. Your solicitor or conveyancer plays an integral part in the process as they’ll complete all of the legal work involved in purchasing real estate. Shop around and partner with a solicitor or conveyancer you have a good rapport with. Depending on your property investment plans, they could also play a very integral role in your life, so it’s important to work with someone you like.

4. Accountant

Accountants are another important professional to have on your team. They help you make the most of the various tax incentives offered to property investors. While a good accountant won’t come cheap, they can be worth their weight in gold, so it’s important to partner with a reputable accountant you trust.

5. Property manager

While you can choose to manage your investment property privately, if you have a busy life or want to build a significant property portfolio, it’s worth investing in a good property manager. As their title suggests, a property manager will manage your property on your behalf and complete tasks like finding suitable tenants and collecting rent. Property management fees vary from agency to agency and can be anywhere between 4.5 and 10 per cent of the weekly rent.

6. Insurance

As an investor, it’s important to properly insure yourself and your property. Insurance can seem costly, but it’s vital you’re covered. Having the right insurances in place will provide you with peace of mind – and that’s something you can’t put a price on.

Some of the more important insurances include income protection, life and landlord’s insurance.

Landlord’s insurance will cover you for any financial losses connected with rental properties. Generally speaking, landlord’s insurance covers the building, with the option of insuring any contents that belong to you inside the premises.

These are some of the common costs associated with buying and owning an investment property. As you can see, there are some significant costs associated with this type of investment and it’s important to factor them into your budget.

At the end of the day, property investment can be a very lucrative investment strategy provided it’s done correctly and you understand exactly what you’re getting yourself in for.

About Jessica Darnbrough

Jessica Darnbrough is the company spokesperson for Mortgage Choice and is responsible for supporting and solidifying the company's strong and professional brand.