There’s plenty of advice out there on what you need to watch out for as a homeowner and the cost of buying a house. It starts off slow…a water rates payment here and there, followed by some accountancy fees. But it’s easy to get scared once all the costs of owning a home start to snowball. So, what just are the ongoing costs of owning a home, and how can you properly budget for them as you plan to purchase your first home or your next investment property?
- Property management fees
While you do, of course, have the option of managing an investment property on your own, not everyone has the time and money (because someone once said that time is money) to dedicate towards acting as your own property manager.
So, how much does it cost?
Property management fees can range from as low as 5% to 10% of all rents collected. This does not include marketing fees, though many agents will provide this free of charge. There are also lease renewal fees, routine inspection fees ($30-40 if they charge) and administration fees. The competition is strong, however, so as the customer you are in the best position to negotiate these extra fees down, as well as the percentage rate of the rent.
- Insurance
The type and extent of insurance you take out is going to depend on your financial capabilities as well as the location of the property. You would be unwise, as a property investor or homeowner, to not get some form of landlords/homeowners insurance to cover you from fire, theft, intentional damage, storm damage etc. In Landlord’s insurance: what to know, we detail some of the misconceptions about insurance and point out what you should look out for when taking out insurance.
For basic home insurance, expect to pay a minimum of $600 per annum. Each year, you should have another look at your policy, see what else is out there and get your provider to match that. All it takes is a conversation with them. If they can’t help you, move on.
- Travel
While not applicable to all situations, you may need to travel to your investment property for many reasons. As of July 2017, deductions may no longer be made on your tax for travel costs that relate to the inspecting, maintaining, or collecting of rent for a residential investment. This doesn’t include particular forms of entities, such as trusts. To find out more, visit the ATO’s website here.
- Loss of income
This is harder to quantify, but it simply means you will be without income for as long as it takes to find a new tenant if your existing tenant leaves. One month spent finding a tenant (this is an optimistic time frame as it includes open for inspections, securing a tenant and the period in which they are yet to pay, which can be 1-2 weeks), for a 2-bedroom unit in Northcote, Melbourne, may see you lose $900-$1100.
That’s why it pays to have a good property manager and good tenants.
- Strata fees
Strata levies or fees can range depending on the size of your building but can include water rates within the cost. Multi-million dollar apartments in high rises can attract staggering strata fees in the tens of thousands per annum, while smaller apartment buildings may see you pay somewhere around $4000-$6000 per annum.
- Interest
This is the interest on your home loan. You may choose to take out an interest-only loan, however banks may not favour this option if you cannot show that you have the capability to eventually start paying off the principles loan.
- Repairs
This is a hard area to predict and budget for. You never know when a tap is going to burst, an air conditioner is going to pack up and die or any of the myriad of things that need attention within a home. Prepare to spend at least .5%-1% of the value of the home per year towards ongoing maintenance costs. Acting quickly on issues that arise will save you in the long run.
- Council rates
Councils charge homeowners rates so that they can provide particular services (such as rubbish collection) and build infrastructure in the local area. Average council rates lie somewhere between $1600-$1800, per annum.
- Bank fees
A 2016 report on bank fees highlighted that households spend on average up to $500 on bank fees per year. As a potential first time home buyer, it may be difficult to reduce your banking fees that are associated with your home loan, but there are banks out there (such as ING) that don’t have banking fees associated with running an account with them and limiting or even eliminating the use of a credit card is a quick and easy way to reduce your banking fees.
- Mortgage broker fees
While it is less common for you to have to pay fees when employing a mortgage broker, there is the possibility that if you do decide to use a mortgage broker, they are likely to be working on commission. This means there is a greater temptation for them to find your mortgages that may give them a slightly larger margin or that are a part of a common arrangement they have with lenders. This means you may end up paying more for your mortgage.
