Five costs you need to account for as a Landlord
The purpose of any investment property is to make a profit, but in most cases that financial gain will be realised a little later down the track in terms of capital value. In the interim, your investment property might serve the purpose of offsetting your tax, or perhaps supplement your income.
That means you need to fully understand the financial implications that come with owning a rental property and the areas where the outlay might impact your annual budget.
Here’s a quick snapshot of costs you need to account for as a landlord.
Repairs and maintenance
Regardless of whether the property is new or older, repairs and maintenance are part of your responsibility as a landlord. And the fact is, they can crop up when you least expect them.
The best way of mitigating repair and maintenance costs is to work with your property manager to understand exactly what condition your investment property is in and what may need attention in the future.
Meanwhile, have funds set aside to cover unexpected repairs and maintenance. As a rule of thumb, we suggest basing your budget of 48 rather than 52 weeks’ rental income to account for any repairs and maintenance, and also to cover any costs associated with the changeover period between tenants.
Finding a tenant
If your rental property is vacant, it’s costing you money, but there are also additional costs you need to factor in when it comes to finding a new tenant.
These include advertising costs and letting or lease signing fees, which occur at the start of a new tenancy.
Most will be taken out as part of the first month’s rental statement, but you should bear them in mind.
Insurance
Landlord insurance is a must-have. It protects you in the event of a natural disaster or unexpected incident at your property. The right insurance will also cover you for lost rent as a result of the property being uninhabitable due to damage.
But again, it’s an ongoing cost you need to factor in when it comes to the expenditure you will incur as part of owning an investment.
Rates
Usually issued twice yearly by the local government where your property is located, rates are the responsibility of the landlord and are also an ongoing cost.
The price varies from one local government area to another. Meanwhile, if you have a strata titled investment like a unit or townhouse, these rates may be incorporated into your body corporate fees.
Body corporate fees also include contributions to the property’s overall maintenance and repairs, so make sure you know exactly what the total of fees each year will be at the outset.
Mortgage
Very few investment properties are owned outright, meaning most people pay a mortgage on their investment.
Again, these monthly, fortnightly or weekly repayments need to be factored into your budget when it comes to owning an investment.
The final takeaway
Investment properties continue to hold high appeal for people looking to get ahead in the long term, but every investor should be aware of the costs involved.
For some, these costs will be advantageous, allowing you to minimise your tax through negative gearing, for others the rent you receive might actually cover all outgoings and supplement your income.
The trick is to be crystal clear from the outset when it comes to all costs involved and factor them into your household budget.
If you’re looking for property managers who will work with you as a landlord to ensure your property retains its value and appeal, we can assist. You can learn more about the Eview property management difference here.
