Unexpected expenses you need to consider as a property investor

While owning an investment property can be a good source of income and capital growth, there are expenses involved, too. Understanding your costs when you buy an investment property, such as those for conveyancing and building inspection reports, is critical. It’s also important to know your ongoing costs for holding an investment property. Keep reading to learn about some of the unexpected expenses of owning an investment property and how to prepare for them.

Mortgage repayment increases

Whether you buy an investment property when interest rates are low or when they’re on the rise, you should calculate how much your repayments will be if interest rates go up. As a rule of thumb, banks typically have a serviceability buffer of 3%, meaning they will assess your capacity to make repayments at the current rates and up to 3% higher.

If you have lower disposable income, you may choose to look for properties with a higher rental yield, as this can help to cover some of the mortgage repayments. If you have a large disposable income, you could target properties with a high rental yield and those with capital growth potential but a lower rental yield. The option you pick needs to be chosen based on advice tailored to your unique situation.

Maintenance and repairs

No matter how old our property is, repairs and maintenance will be inevitable. Having a buffer set aside to cover any jobs that need to be done around your property is a good idea. Not only will this help you ensure you get routine jobs done promptly, but it will also reduce stress about how to fund maintenance and repairs when they arise. Generally, the 50% rule will help you cover the total operating costs of your property. This means that you set aside 50% of the property’s rental income to pay for property management fees, taxes, insurance, and repairs and maintenance.

Insurance

Taking out landlord insurance for the building and coverage for situations such as property damage or a tenant not paying rent can help you cover costs when problems arise. Apart from insurance directly related to your property, it can also be prudent to take out income protection and life insurance so you’re protected if you’re unable to earn income to pay the mortgage. Seeking advice from a financial adviser will help you understand what insurance to take out.

Strata fees

If you own an apartment or townhouse, you’ll need to pay strata fees. These fees are collected to maintain common areas, such as lifts, pools, car stackers, gardens, and more. The more features and facilities your building has, the higher your strata fees will be.

Property management fees

Having a property manager can alleviate the day-to-day burden of owning an investment property. A good property manager should be an expert in the market where your property is located and be able to make sure everything in your property is well-maintained and compliant.

The service levels you receive will depend on how much you’re willing to spend. As a tax-deductible expense, it can be worthwhile to invest in an expert who provides great service, especially if they help to source great long-term tenants and make sure your property stays in top condition.

There are lots of expenses associated with owning an investment property. With some planning, you can make sure you have enough funds set aside to cover any unexpected expenses. To make sure you also have the right insurance coverage to protect you and your assets, speak to a financial adviser for tailored advice.

Remember, this article is general in nature and is not financial or legal advice. Please consult your professional financial and legal advisors before making any decisions for yourself.