Understanding the potential costs of investing in property

Thinking about investing in property? You’re not alone. Around 2.2 million Australians own an investment property, according to data from the Australian Tax Office.

Like all investments, property investment can come with risks. One of these risks is not knowing the costs involved and potentially getting caught short. There are various upfront and ongoing costs of owning a rental property which could add up.

To help you plan ahead, let’s take a look at some of the costs you could face.

Upfront costs to cover at settlement

There are various fees and charges that may be required to be paid before you become the proud new owner of an investment property. The main ones are explained below. You can also use our home deposit and upfront costs calculator to estimate how much you’ll have left for a home deposit after allowing for upfront costs.

Stamp duty

Stamp duty is a tax imposed on certain property transactions, for example, when transferring property ownership from one name to another. The amount may vary depending on the price of the property and the relevant requirements of the state or territory in which the property is located.

Use our stamp duty calculator to estimate how much your upfront stamp duty costs could be.

Conveyancing fees

While they may be less than stamp duty costs, conveyancing costs should still be considered when working out how much you may need to pay upfront. Conveyancing typically covers the legal processes associated with the sale – like preparing contracts, conducting searches and handling settlement.

The cost can vary depending on things like the property price, location and the complexity of the transaction. You may wish to ask for quotes from conveyancers to better understand how much you could expect to pay.

Government fees and charges

You may also have to pay government fees and charges, which cover the various administrative duties the government performs during the sales. These may include registration fees, title search fees and transfer of land fees.

Check your state and local government websites for an indication of the types of fees that may be required.

Ongoing investment property costs to account for

There are also a number of ongoing expenses for your investment property. Seek advice from your accountant to consider the tax implications of these costs and whether these may be tax deductable.

Building and landlord insurance

There are typically two types of insurance that may protect your investment. First, there’s building insurance, which may cover the costs associated with damage or destruction to your property in the event of, for example, a flood, fire or some other major event. Then there’s landlord insurance, which may cover you for losses or damage to the property associated with tenancy. (Note: ANZ Landlord Insurance^disclaimer is offered for building only, contents only or combined cover.)

To get an idea of these costs, you may wish to get quotes from insurance providers.

Land tax

Your investment property may be subject to land tax. This tax is typically charged on any land you own that’s not the land you live on. It’s calculated purely on the unimproved value of the land – it doesn’t generally take into account any buildings, fences, paths, driveways or other improvements you’ve made.

The amount you’ll pay may depend on the value of the land and the relevant requirements in the state or territory where the land is located.

Rates and utilities

You may be required to pay council rates on your investment property. These rates generally cover services like rubbish collection, road maintenance and street lighting, and the cost can vary depending on the property type and location. You can ask the local council for an estimate.

Depending on what you agree with your tenants and how utilities are measured on the property, you may also need to pay for utilities like water, gas and electricity.  

Body corporate fees

If you're investing in an apartment or unit, you may be part of a body corporate. This is a legal entity typically responsible for managing common areas of the building like the foyer, garden areas and external walls and windows. To pay for this maintenance – and to cover insurances and other expenses – the body corporate charges each owner a monthly or quarterly fee, also known as a strata fee.

The real estate agent may provide you with information about these fees when you view the property. You should also speak to your lender if buying into a strata property, as it may affect how much you can borrow.

Maintenance and repairs

Before any tenants move in, you may need to make some repairs to ensure the property meets the minimum rental standards in your state or territory. These could include things like adequate ventilation, natural light, plumbing and drainage. Check the rules in the relevant state or territory and set aside funds for these costs. Remember, landlord obligations and rules regularly change, so make sure to check relevant resources on a regular basis.

Don’t forget, even properties bought in good condition may need the occasional maintenance. Unexpected repairs could be costly, so it’s important to consider budgeting for these expenses.

Property management fees

If you’re not managing your investment property yourself, you may need to pay property management fees. These fees typically cover the cost of finding tenants, collecting rent and handling maintenance issues. If you plan to outsource this job, you may wish to ask for fee estimates from real estate agents or property managers.

Loss of rental income

From time to time, you may face situations where you miss out on rental income. For example, if your current tenant leaves at the end of their lease and it takes time to find a new one, you could have a gap in rental income. In such cases, you may need to cover that lost income – particularly if it goes towards your mortgage repayments.

Ready to go with a rental property?

Now that you have a better idea of some of the potential costs of investment properties, you may be in a better position to decide whether you can afford it in the long term. If the answer’s yes, then let the property hunt begin.

And once you’ve got your eye on a property, you may wish to utilise an ANZ Property Profile Sales Report. This will allow you to see property price range estimates^disclaimer, suburb insights, comparable recent sales, rental history and more. Enter the property details and the report will be emailed to you in minutes. Get your free report.