By Michael Gilbert, co-founder of Cubbi

Congratulations!

You’ve scrimped, saved, got the cash in hand and you’re just about to buy your first investment property.

Unfortunately, the work doesn’t stop here. In fact, it’s only just beginning.

Whether you’re going to be renting or living in it yourself, buying an investment property always comes with additional expenses that you need to be aware of ahead of time.  

The Raiz community is very familiar with the concept of how small amounts can add up over time and the same can be said for the seemingly innocuous extra costs of owning a house (only in a slightly less enjoyable way).

Here’s a breakdown of exactly what some of those expenses are and how you can prepare for them.

Stamp duty

Scratch this, if you’re a first home buyer with a purchase under $600,000 in Victoria or New South Wales (conditions apply in NSW) where state governments have ditched stamp duty altogether.

For everybody else, chances are you’re going to pay some stamp duty and this is generally the biggest additional cost you’ll have to fork out for. For example, an established home worth $500,000 purchased as a rental property in Queensland will cost a first-time buyer no less than $15,925 in stamp duty.

Another key factor you need to keep in mind is that in some cases lenders won’t allow you to lump your stamp duty in with your mortgage and you’ll need to ensure you have that cash upfront. Always speak to your lender in advance about stamp duty to know where you stand.

Registration and conveyancing fees

Registration fees are paid to the Land Titles Office when you submit documentation for processing and can range up to $3605 in Victoria for properties over $500,000.

They are also usually lumped in with your conveyancing fees, the cost of hiring a solicitor to review all the contracts of sale and ensure the it follows the right legal process. Conveyancing fees are not standardised but are generally close to $1000, if not more.

Council rates

It’s amazing how many people don’t take council rates into consideration. You’re going to end up paying at least $1200 per year and it could be more depending on where you live.

Many councils also charge late fees so to avoid paying even more than necessary find out what your rates will be and set up a direct debit as soon as you’ve settled so you’re never late.

Preparing the property for tenants

When you buy a property there are no clear cut rules that say the seller must have the property in pristine condition when it’s time to hand over the keys.

However, when renting out your property there are more stringent standards for the condition it needs to be in and thus you need to factor in the likelihood of having to carry out some maintenance tasks such as: mowing, hard rubbish clearing, painting, carpet cleaning and replacing old or broken fittings such as old blinds and shower screens.

Getting this stuff done while it’s vacant will help attract better tenants (which in itself can save you money) as well as reducing the cost associated with last minute repairs.

Vacancies

As a landlord your first goal is to get some tenants but have you prepared for the fact you might have a month or two without any? As a rule of thumb, you’ll need to budget for about four weeks of vacancy per year.

In between tenants you’ll likely need to spend more money on maintenance and repairs, such as painting, fixing a wobbly towel rack or extra cleaning costs. Things that just didn’t get done or reported by your tenants.

Engaging a real estate agent might help you find tenants faster but that brings us to our next point…

Agency fees

A lot of people underestimate just how much real estate agents cost. They can plug you for between 5-10% of the rent, depending on location and other factors. If you’re renting a property for $450 a week with an agent charging 7%, that’s $1600 gone a year!

General maintenance

Things happen. They aren’t usually anyone’s fault but they happen. A shower starts leaking, a tenant scrapes a piece of furniture against the wall and leaves a mark, a skirting board comes loose.

These are all perfectly normal things that are inexpensive, in and of themselves, but can quickly add up. If you’re a landlord then you need to have cash on hand to make sure maintenance issues get repaired quickly, especially if they involve critical things like hot water systems or electrical issues - two things that can throw your budget out really quickly.

To be on the safe side, you should set aside 5% of the rent amount in a separate savings account to make sure you’re covered for maintenance emergencies. You don’t want to be wacking those on the credit card and racking up 20% interest on top!

Unfortunately, the supplementary costs of buying a house are - for the most part - unavoidable. The smartest thing you can do is know what they are, when they apply and be prepared for them. Hopefully, this brief guide gives you a bit of an idea of what you need to keep in mind before you start raising your hand at auction.

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Author, Michael Gilbert, co-founder of Cubbi

Cubbi is an online property management platform - for the purpose of cutting out the expensive (and often underperforming) middleman and replacing him with technology. For example, when you accept your tenant, you can create your own lease agreement right then and there online instead of waiting for your agent to get round to it.

Important Information
The information on this website is general advice only.  This means it does not take into account any person’s particular investment objectives, financial situation or investment needs. If you are an investor, you should consult your licensed adviser before acting on any information contained in this article to fully understand the benefits and risk associated with the Raiz product.The information in this website is confidential. It must not be reproduced, distributed or disclosed to any other person. The information is based on assumptions or market conditions which change without notice. This will impact the accuracy of the information.Under no circumstances is the information to be used by, or presented to, a person for the purposes of deciding about investing in Raiz. Past return performance of the Raiz product should not be relied on for making a decision to invest in Raiz and is not a good predictor of future performance.