The extra costs of investing

PROPERTY’S not a foolproof investment, however, and if you’re not aware of all the pitfalls and extra costs involved you could even lose money. To make sure fledgling investors aren’t caught out, here are seven of the most commonly unexpected costs of property investment, from property group Ray White.

1. LEGAL FEES

When you buy property you’ll need to have contracts drawn up and inspected.

You’ll want professional legal advice to make sure you’re making the right decision, and you’ll need further help organising settlement and liasing with the seller’s solicitor and bank.

That’s where a conveyancer comes in, so it’s a cost that should always be budgeted for.

2. QUANTITY SURVEYORS

When you first purchase an investment property you may need a depreciation schedule.

This document lists all assets related to the property and calculates their depreciation, allowing you to claim that amount when you file a tax return.

The cost of hiring a quantity surveyor varies according to the size of your home and your location.

However, Onproperty estimates on average it will sit between $450 and $700 plus GST, depending on the size and age of your property.

3. ACCOUNTANT FEES

It’s not technically essential to hire an accountant when you buy an investment property, and you could get by filing your own tax return.

Therefore hiring an experienced accountant could save you far more than the cost in the long run by reducing your tax bill and making your property work for you.

4. LANDLORD’S INSURANCE

Landlord’s insurance is non-negotiable when buying an investment property.

Before you sign a contract of sale you should already have a landlord and house insurance policy in place.

This should cover you for things like:

Accidental damage by tenants or tenant’s guests.

Malicious damage by tenants or tenant’s guests.

Loss of rental income due to tenant default.

Legal costs related to eviction of tenant.

Liability cover and much more.

5. PROPERTY MANAGEMENT FEES

Property management fees can vary wildly from state to state and depends on which agency you select.

Usually it’s charged as a proportion of the rent collected.

What you should consider in this case is the cost of not hiring a local property manager from an agency you can trust.

If you do it yourself this cost will come in the form of hours out of your day, stress, rental vacancies and possibly even disputes with tenants.

6. COUNCIL RATES

Because this cost can be large you should always investigate it before buying and factor it into your annual budget.

7. SPECIAL BODY CORPORATE LEVIES

Body corporate fees vary from building to building and state to state, but you should always know the cost before buying an apartment or unit as an investment as they can number in the thousands.

One thing you can’t plan for is an extra or special body corporate fee.

Unfortunately these can be costly, and provided it’s a legal and reasonable cost, you may be required to pay it.

For that reason it’s always a good idea to keep some ‘just in case’ funds aside for any unexpected events that may result in extra body corp fees.

If you approach your first investment with your eyes wide open to the costs and possible pitfalls you’ll be far more likely to succeed.

For more help navigating your first foray into the property investment market get in touch with a local real estate agent you trust for expert advice.