The investment property costs every landlord should plan for

Owning an investment property can be a positive way to build long-term wealth, but it’s important to remember that rental income is only one side of the equation. 

Like any investment, there are ongoing costs involved, and understanding them from the outset can help you avoid surprises, budget more effectively and keep those costs under control.

As property managers, we often see new investors focus on their mortgage payments while overlooking other expenses that come with owning a rental property. As a result, they end up spending more than they expected. 

Some of the key costs to factor into your budget include:

• Landlord insurance
• Repairs and ongoing maintenance
• Vacancy periods and tenant-finding costs
• Council rates, water charges and strata levies
• Property management fees

Landlord insurance is one of the most important protections available to property owners. Unlike standard home insurance, this is designed specifically for rental properties and may provide cover for tenant-related risks, loss of rent and certain types of property damage. The right policy can provide valuable peace of mind when the unexpected happens and save you money in the long term.

Maintenance, repairs and replacement are also costs to factor in. While smaller jobs such as fixing taps, replacing fittings or repairing appliances are part of normal ownership, larger expenses can arise  when hot water systems, air conditioners and heating units hit their functional limit and need replacing. If you have a depreciation schedule and use it to get a tax refund at tax time, one idea is to set that money aside for a ‘rainy day’ so you can purchase a new appliance without the stress.

A vacant property can also affect your bottom line because you still need to pay the mortgage while covering the cost of advertising the property (including marketing, photography and property manager fees). Having a reliable and well-connected property manager will ensure your vacancy period is as short as possible and that you get quality tenants to help cover your holding costs. 

It’s also important to account for the ongoing ownership costs attached to the property itself. Council rates, water charges and strata levies can have a significant impact on annual expenses. For unit and apartment owners in particular, special strata levies can occasionally arise for major building works, upgrades or repairs that weren’t originally budgeted for.

The final expense is property management, but this is an investment that can help to reduce your other expenses. For example, your manager will:

• Place and manage your ‘For Rent’ listing
• Find, screen and onboard new tenants
• Collect rent and follow up arrears
• Coordinate repairs and maintenance, using reliable tradespeople
• Help keep the property compliant with legislation
• Support you by reducing the risk of costly disputes with your tenant

While the long-term outcome of your investment should be an increase in value, and therefore an improvement in your net worth, holding costs are inevitable. By understanding ownership costs from the outset and working with an experienced property manager to minimise and plan for them, you can approach property ownership with greater confidence and fewer financial surprises along the way.