Property investment in Melbourne can be incredibly lucrative, but unfortunately it’s not as simple as buying real estate then sitting back and watching the riches roll in. In fact, there are a number of costs associated with investing.
To help avoid any unwanted surprises when you set out to purchase your first investment property in Melbourne, we’ve put together a list of five costs that sometimes come as a surprise.
1. Body corporate fees
If your property is a unit or apartment, it’s usually part of a body corporate or strata – an organisation of owners who manage the common grounds of the building or property and charge fees to cover any expenses. In the wider Melbourne region you can expect an annual cost of around $2,500.
However, depending on your apartment’s size and location, you could pay as much as $35,000! Make sure you’re fully aware of what your strata fees are before buying, and consider commissioning a strata report so that you fully understand the ins and outs of any charges.
2. Vacant property
The wider Melbourne region boasts an incredibly low vacancy rate of 2 per cent.
Luckily the wider Melbourne region boasts an incredibly low vacancy rate of 2 per cent, according to SQM Research. However, many inexperienced investors forget that regardless, rental vacancies are a fact of life and they should be planned for.
The median rent in Melbourne sits at around $385 per week, according to the Department of Human Services, so losing a tenant could cost you a fair amount. Borrow and buy well within your means, so that in the event of a rental vacancy you can cover all your costs while you replace your tenant.
With the help of an experienced property manager, you may also be able to reduce the likelihood of vacancies and replace your tenants quicker if they do leave.
3. An accountant and taxes
Most investors will know that rental income on your property is taxed. However, too often people underestimate the size of their tax bill and forget to factor in the cost of hiring an accountant.
It’s difficult to estimate the cost of getting your return done by a professional accountant as it will vary hugely depending on what’s required. However, Service Seeking estimates that the average hourly rate for a Melbourne accountant is $66, so this cost could easily balloon.
Another cost that may surprise fledgling investors is land tax. The amount of this varies from state to state, but generally speaking it can be quite substantial particularly if you own valuable land.
4. Repairs and maintenance
Once again, this cost will vary considerably depending on the type of property you buy. Older, larger, properties in worse condition will generally require more maintenance, as will properties exposed to extreme weather conditions.
A good rule of thumb to use when budgeting for maintenance is around 5 per cent of your rental income, but at the end of the day, you’ll have to spend whatever the property demands.
5. Landlord’s insurance
As a landlord, you’re exposed to several risks that may not be covered by normal house insurance. According to Canstar’s Landlord Insurance Guide these include the following:
- Theft or burglary by tenants or their guests,
- Malicious damage or vandalism by tenants or their guests,
- Loss of rent due to tenant default, and
- Legal expenses required to evict a tenant.
Your insurance premiums will vary depending on your property, but it’s a worthwhile cost as the value of being protected under any circumstance is considerable.
What’s the good news?
It’s not all doom and gloom! With the right advice from a local real estate agent, you can select a property that’s likely to incur less costs and make more profit. Plus, if you know what to expect you can easily plan for it so that your investment property promises only good surprises.