7 costs to consider when buying an investment property for the first time
By | 27th Jan 16

Property investment and things to consider

7 costs to consider when buying an investment property for the first time

It’s well known that investing in property can increase your wealth - which is why 1.7 million Australians own at least one investment property.

The property market is now so lucrative that a third of new investors are first home buyers opting to enter the market as an investor instead of an owner-occupier.

But like every investment, there are a handful of additional costs with property investing that could catch a new investor unaware.

Whilst most are aware of their monthly mortgage repayments and deposit, they forget to plan for the expenses associated with purchasing, owning and then selling a property. 

So here’s my list of important costs all investors should keep in mind before making their next purchase.

Stamp Duty
Just like everything else you buy in Australia, you also have to pay tax – or stamp duty - on your property purchases. The price varies from state, but as a rule of thumb stamp duty is calculated in relation to the value of the property. One trap investors commonly make is thinking that stamp duty is the same if you were to purchase as an owner-occupier – but in actual fact it’s much higher for investors and therefore can impact your purchasing power. For instance, for a $500,000 house in Victoria, you will be required to pay approximately $27,000 in stamp duty on top of the cost of the house.

Conveyancer fees
Signing the dotted line on your property contract is exciting, but it also means you’re going to need legal representation to conduct the settlement with your bank. The cost of hiring a property conveyancer won’t cost you an arm and a leg, but expect to fork out up to $2,000 for their services.

Land Tax
Unfortunately, stamp duty isn’t the only tax you’ll have to pay as an investor – you’ll also be required to pay land tax annually. Land tax is typically calculated on the total taxable value of the property. In Victoria and NSW it is levied on the 31st of December each year, while in other states it’s on the 30th June. Add that one to the calendar!

Outgoings
Although you may not be living in the property you’ll also have to pay for any outgoings. Remember to budget for annual water rates, council rates, landlord and building insurance on an annual or quarterly basis. Most property managers should be able to manage these for you and pay these out of your rental income so it’s much easier for you too.

Another ongoing cost to factor in is property management fees, which you will have to pay if you’re leasing. And don’t forget the expenses that come with the maintenance of the house, such as repairs and gardens.

Capital Gains Tax
Yes, another tax to pay! When you come to sell your investment property, you’ll also need to pay capital gains tax on your profit since the time you purchased. If you held the property for 12 months or more, which is advised for any investor, you will receive a 50% discount. But if you sell the property in a shorter space of time you will have to pay tax on 100% of your profit.

When considering purchasing an investment property, develop an annual budget to ensure that you will have adequate cash flow throughout the year to accommodate these additional ongoing costs. With that said, accommodate for the fact that many of these costs can be claimed back against your income as you will be entitled to a tax benefit through your investment property.

By Frank Valentic

Frank Valentic is the founder of independent buyer’s advocacy service, Advantage Property Consulting. Over its 15 years of operation, Advantage has expanded its service offerings to include property management, vendor’s advocacy, group block purchases and investment seminars, having bought and sold for over 2000 clients.