Buying an investment property? Be sure to budget for these costs
People purchase investment properties in Melbourne for several reasons. Of course there’s the added income, but other benefits include tax deductions and locking up your money in a generally stable market.
It’s important to note, however, the initial purchase of an investment property might set you back more than you may initially think due to certain unexpected costs. These costs aren’t reasons to steer clear, but they should be factored into your budget. Here’s what to plan for:
1. Depreciation schedule
Every financial year, you can claim depreciation on your residential investment property. Many investors miss this though because they assume they need to spend in order to make a claim – things like cleaning fees or advertising costs.
So how do you determine your maximum depreciation? By conducting a depreciation schedule with a quantity surveyor who will thoroughly inspect your property and work out your tax benefits each year.
This will cost you anywhere between $450 and $1000, according to On Property, but it will likely save you much more down the line.
2. Landlord’s insurance
Even the most attentive landlord can’t prevent every damage and loss. Fortunately, there’s landlord’s insurance.
Landlord’s insurance can help you recoup financial losses by protecting against:
- Storms and natural disasters
- Damage to the building itself, including the pipes and cables or gas and plumbing systems
- Damage to the contents of a property – including everything from furniture and carpets to utensils you provide
- Rent default, tenant eviction or even the unexpected death of a tenant
According to Canstar, landlord’s insurance will cost investors with a median annual rental income of $20,800 ($400 per week) around $928 a year – a small price to pay for peace of mind.
3. Conveyancing costs
Finding the perfect property is the fun part. After that comes the nitty gritty, where you actually pore through the transaction to ensure a smooth, fair and, above all, legal transaction.
For most people, this requires the assistance of a professional conveyancer who oversees the entire process of transferring a property from one person or entity to another.
Buyers and sellers both will typically hire their own conveyancer. For buyers, conveyancers:
- Research the property and its title
- Prepare and lodge legal documents
- Calculate rates and taxes
- Settle the property
Conveyancing costs will vary by sale, but the Australian Institute of Conveyancers estimates that total number will fall between the $900 and $2000 mark.
Still need some assistance planning your investment property budget? Don’t worry – the team at Nelson Alexander can help. Even if you don’t have the full deposit ready or have a number of questions to ask, we’re here to help. Our agents are glad to sit down, talk through your goals and help make your property investing dreams a reality. To find out more, reach out today.