The 15 Ongoing Costs When Owning An Investment Property (Ep118)

A lot of people when looking at investment
properties do calculations based on what their expected mortgage expenses are going to be
and what the rental income is and if the rental income is greater than the mortgage, then
they say what did you do? It’s going to be a positive cash flow, but that’s not necessarily
the case, there are a lot of ongoing costs when you own an investment property and I
am going to look at 15 of those ongoing costs in today’s episode. Today’s episode is brought
to you by ,if you’re interested in investing in the US market then
Corr and Helene are your team that can help you get rental yields of 39% or more if you
want more information then head over to today. All right, so what are these ongoing
costs when owning an investment property and how much of this, these costs do I need to
take into account to understand whether properties is going to be positively geared or negatively
geared and whether or not that property is going to deliver me the return on investment
that I want, because at the end of the day the more expenses that are going out, the
more money you have to make, in order to get the return on investment you want. So let’s
go into more detail and look at these 15 different things, this is, I’ll try get through them
as quick as possible. Ongoing costs number one is insurance. So you own an investment
property, the chances are, you want to get landlords insurance. Now this insurance will
not cover you for things like flood damage ,fires, you know total destruction to the
house, but then it is going to cover you for the things like malicious damage from the
tenants, you know a lack of rental income, from tenants who have damaged the property
or failed to pay rent and so obviously every different insurer is going to offer a different
sort of landlords insurance to make sure you’re clear on what they offer, but basically it’s
going to cover you in most circumstances. When I interviewed Ben Turner from
back in episode 102 and 103 ,he said that he had experienced it, because he had invested
in rougher areas, where he had tenants that had set fire in the house who sets fire in
a house, like intentionally, but anyway, the cost of fixing it and the cost of rent while
he couldn’t rent it was all covered by insurance, because he had that landlords insurance, he
was very fortunate, so definitely something that you need to look at. Number two is your
interest or your mortgage, so this is a very fairly obvious one, if you purchase a property
and you get a loan then interest is going to be charged on that loan. Apparently interest
rate are really low you’re looking at 5% or less but traditionally interest rates have
been higher than that, so you need to assess it either if are you’re going with interest
only loan then obviously you’re just looking at the interest that needs to be paid ,but
if you’re going with the principal and interest loan or then depending on the amount of years
that you want to pay off your debt in, you’re actually going to have to pay extra on top
of the interest to pay down that principle as well. Ongoing costs number 3 is your accountant
and so this is unless you can do it yourself, which is not something that I would do, I
always get a tax accountant, unless you do it yourself you get out of paying accountant
to help you do your tax returns at the end of the year. So you need to assess things
like depreciation you need to assess you know your rental income your expenses and what
you can claim and what you can’t claim. An accountant will help you pull all that together
and will help you do your tax return. This is generally or almost always a tax deductible
expense. Ongoing expense number four are your council rates, so depending on the council
that you are in, rates may differ but basically in order to live on a property in order to
own property you are going to have to pay tax, you are going to have to pay your council
rates to make sure that the council keeps running. So council rates are something that
you are going to have to pay these are usually once every quarter. Ongoing cost number five
is your bank fees so the are mortgages, where you don’t have any bank fees associated with
it, but a lot of the mortgages out there have annual bank fees that you need to pay or maybe
monthly bank fees that you need to pay, so that is going to be an ongoing expense that
you need to take into an account. It’s probably not going to be extravagant, it’s probably
not going to be super expensive, but it is something they you need to take into account,
because hundred dollars here on bank fees and than a couple of hundred dollars there
on council rates,you know, it all start to add up. Ongoing expense number six is strata
fees or also known as body corporate fees. So this exists when you live in a unit or
you own a unit, in a unit block or maybe you’re in a townhouse in a complex you are going
to have to pay strata or body corporate, which helps pays for the maintenance of the common
areas, so this might be things like lawns, there might be internal hallway, could be
an elevator, could be a pool or a gym depending on what is actually in the facility will depend
on how much your strata costs are going to be. Properties that have a lot of high maintenance
things in them, things like pools which need to be maintained , gyms and gym equipment,
saunas in all this fanncy,**smancy** stuff ,they are going to come with higher strata
fees, so when you’re investing in maybe a lovely property, but you need to think about
this strata expenses that you’re going to have. Ongoing cost number seven is your rental
manager. So unless you are renting out the property yourself and doing all the managing
yourself from receiving the rents and doing all the repairs and stuff like that, you probably
going to hire a rental manager to do that for you. Now they tent to charge anywhere
between, anywhere from about 5%-10%, 6%-7% or 8% is a more healthy range that’s where
most rental managers charge and that’s a percentage of the rental income that’s coming in. Rental
managers will also often charge a fee of around 110%-115% of one weeks rent, whenever a tenant
moves out and they need to get a new tenant and so that costs help them to pay for their
advertising that they need to do, on sites like or or
in the newspaper or wherever, so you need to take into account your standard 6-7-8%
whatever is percent per week of the rental income and then whenever you need a new tenant,
then you going to be looking at, you know at least, at least one weeks rent, in most
cases. Ongoing expense number eight is maintenance so unless you’re buying a brand-new build
and even then you could have the maintenance, chances are that things are going to be, need
to be maintained ,you might have broken water heater, you might need a fresh coat of paint,
you might need some new carpet you might get leaky taps, your roof might leak, you know,
you might have problems in the back yard there might be you know a whole new million of things
that can go wrong with a property and any of us who have been tenants in a property
or who own our own property, you know that there’s always expense keeping a property
going and making sure that’s happy for tenants to live in there.So maintenance is something
that you need to take into account, some people will gather percentage of rental income put
that aside maintenance maybe 5% other the people say maybe, $1000 or $2000 or $3000
per year put aside for the maintenance. Today’s episode is brought to you by
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or call Core on his personal line which is 0409455604. Ongoing expense number nine is
water and I’ve put a bracket around the saying maybe, because things are slowly changing
recently ,where a lot of tenants are getting charged for water. In the property, than in
at the moment I am a tenant, I’m not paying for water, which is also, the owner is paying
for it, but in the last three properties that I was in in New South Wales I had to pay for
water and the way that work is that you as an owner would get your water rates sent to
you each quarter and basically the cost of your water rates would be passed onto the
tenant and so this is organised when you sign a new tenant or when you update the contract
you let them know that they have to pay the water rates and obviously the tenant agrees
to that and that tends to be how works out.So water rates might be something they have to
pay for or you could potentially get the tenants to pay for it as well. Number 10 ongoing expense
number 10 is pest maintenance. So every now and then you’re probably going to need to
get someone to come into the property and to spray the property and just make sure that
there is no pest issues with the property. I remember living, we lived in the **half**
house, so we are at the back half it was an older house and the cockroaches where just
huge and we will have to get the place sprayed every 3 to 6 months in this property ,because
it was just so many cockroaches, so many places for them to live and you know, but now I’m
in a new built house and we really don’t have major pest issues, but the thing is about
once a year they spray the house once every six months just to make sure that no pest
issues come up. So that’s an expenses that you’re going to needed to take into account.
Or also recently, I had an** opossum** living in my roof which I needed to get out and so
that came at the expense of the landlord and that was like around $300 . So event though,
I don’t technically count that as pest maintenance, you know someone had to come to get opossum
out of the house in a safe and secure way and that cost the landlord money, so pest
maintenance is something that you need to budget for .Ongoing expense number 11 is new
tenant fees so this is something that I’ve already covered, I didn’t even realise that
I had it as a number 11 but basically what that is, is when a tenant leaves your property
that you’ve got a new tenant coming in the real estate agent and your rental manager
is probably going to charge you a fee in order to advertise that property, do-over for inspections
and get that property listed.Generally that’s around 110% of one weeks rent but it does
vary from hundred percent to 150 or two weeks rent, really depends on your rental manager,
depends on the type property that you’ve got, but that’s all you need to take into account,
because if you’ve got a new person coming in, you know every six months then you are
going to be paying that feed twice a year, if you’ve got tenants every two months than
you’ll be paying it six times a year and so it is an expense that you need to take into
account.Ongoing expense number 12 is renovations. So this is when you really want to upgrade
the property and want to make it nice and liable, so you can keep getting the rental
returns that you’ve been getting and so this may mean going in like new carpet, maybe doing
paint all over the house maybe a fairly standard cosmetic renovation which isn’t going to cost
you a huge amount of money but it may be, you know, more intense renovation maybe you
add a bathroom or knock down a wall or do something more extreme in order to maximise
the rental yield of your property. It’s not an ongoing cost that you’re probably going
to experience every single year but something that you want to do properly every few years
or so just to get the property up to its standard, make sure you’re getting the best tenants
and the best return on investment. Ongoing cost number 13 is tax, so they say you know,
we’ve got 2 guarantees in life, there is death and there is taxes and we know that every
year when 30 June comes around that we are going to have to do our tax return and we
are going to have to pay our taxes, so if you’ve got a positive cash flow on property
where the property is generating you more rental income then you’re paying in expenses
unless you can depreciate a lot to offset that chances are you going to have to pay
tax, but in some cases, you know, you may be negatively geared property, where you may
have a good amount of the building and the plant and equipment to depreciate and you
might actually get a tax refund depends on the property but as you own a property longer
and longer there’s going to be less to depreciate rental incomes is going to go up and so your
expenses are either going to stay the same or probably go down and so therefore you’re
going to be making money which you’ll need to pay tax on. Ongoing expense number 14 is
a random one that you probably never thought of and that’s stationary.Things like printer
cartridges, paper, pens all the stuff that you need to buy to manage your paperwork for
the investment property that you run. There might be signing rental contracts that might
be you know, signing stuff to do with insurance you may need to print you know rental applications
to assess them , there is a whole bunch of different things that you may need to do with
stationary at home and so there is the potential to claim that as an expense on your property.
Even if you choose not to claim it, you are still going to have an expense that you are
going to have to pay for, so definitely something to consider. And last but not least ongoing
expense number 15 is travel and accommodation, so if you need to travel and you need to stay
somewhere in order to inspect your property then you are going to have to pay for that
out of your own pocket and obviously a portion of that or maybe even all of it can be tax
deductible, but basically if you actually want be one of those people who do inspect
their property and not just have the rental managers inspect that, then you need to take
into account the cost of travelling to the property and also the cost of staying overnight
if you need to if it’s interstate or something like that. So there you have it, we conquered
it. 15 ongoing costs when owning an investment property now obviously there are other costs
that I haven’t put in this list and there are some things that I just couldn’t necessarily
think of that this is not a definitive list but it is a good place to start and it’s going
to recover most of your major expenses anyway so hope that this has been helpful to you
if you want the full list, if you want to print it out, so that you have access to it
forever then head over to so this is episode 118 so you can get access
to printable version, there will be a full transcription and you can download the podcast
whichever way you like it you can check it out so go on to check
that out and until tomorrow when the next episode comes out because we don’t miss a
bit here we don’t miss a day, everyday you’ve got something remember your long-term success,
remember your long-term success is only achieved one day at a time. So may paper, so many new
property investors, looking at a property in terms of cash flow and than they say if
the property is renting for $400 per week and I do my mortgage in 5% interest rate , it’s
going to cost me $350 per week to pay the interest,**damn** that’s $50 a week in positive
cash flow, but that is so not the case. There are so many more more expenses that you need
to take into an account. If you guys want a helpful tool that can help you assess all
these expenses and punch it out an estimated weekly or yearly figure, whether you property
is going to be in a positive cash flow or negative cash flow than just head over to and that’s going to, you can find it through there. There is
a calculator that can help you assess that, probably an advanced property calculator and
it’s all is again up on

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