Surprise Expenses You Should Prepare for as a Property Investor

02 Oct 2024
Melinda Barnes

While owning an investment property can be a solid way to generate income and build wealth, it comes with various costs. It's essential to understand both the upfront expenses, like conveyancing and building inspections, and the ongoing costs involved in holding an investment property. Below are some unexpected expenses property investors should be aware of and how to prepare for them.

Mortgage Rate Increases Regardless of when you purchase your property—whether during low or rising interest rates—it’s wise to factor in the potential for mortgage repayment increases. Banks usually apply a serviceability buffer of about 3%, meaning they’ll assess your ability to repay at the current rate and if interest rates rise by an additional 3%.

If you have limited disposable income, you may want to target properties with a higher rental yield to help cover mortgage payments. Alternatively, if your disposable income allows, you might focus on properties with long-term capital growth potential, even if they offer lower rental yields. Always seek advice tailored to your situation before making decisions.

Maintenance and Repairs Regardless of the property’s age, maintenance and repairs are inevitable. Setting aside a buffer for such expenses is crucial to keep your property in good shape and reduce the stress of unexpected costs. A helpful guideline is the 50% rule—reserve 50% of your rental income to cover operating costs, including management fees, taxes, insurance, and repairs.

Insurance Landlord insurance is essential to protect you from unexpected costs such as tenant damage or missed rent. Beyond property-specific insurance, it's also wise to consider income protection and life insurance in case you're unable to earn enough to cover your mortgage. A financial adviser can help you determine which policies are right for you.

Strata Fees If your property is part of a strata scheme (like an apartment or townhouse), you’ll need to budget for strata fees. These fees cover the maintenance of common areas such as elevators, gardens, pools, and other shared facilities. The more amenities your building offers, the higher your strata fees may be.

Property Management Fees Hiring a property manager can help reduce the daily responsibilities of owning an investment property. They can ensure your property is well-maintained and compliant with regulations. While property management fees are tax-deductible, service levels vary depending on how much you’re willing to pay. Investing in a reputable property manager can pay off if they help secure reliable tenants and maintain the property.

Owning an investment property comes with a variety of expenses. By planning ahead, you can build a financial buffer to cover unexpected costs and ensure your investment remains successful. For tailored advice on insurance and financial strategies, it's a good idea to consult with a financial adviser.

Note: This content is general in nature and not intended to serve as financial or legal advice. Please consult your professional advisers before making any decisions.

We are especially pleased with Signature Property Agents as Melinda Barnes( Mel) put herself out to sell our Property. We also were pleased with her staff being very helpful & present at all times .
We have in the past sold 6 different homes in the St. George & Sutherland areas.
We would give all other agents around 5 to 6 out of a score of 10.
For Signature Property Agents we would give Mel 11 out of a score of
10 thats how good she was.
Therefore any person that requires their homes to be SOLD we would fully recommend the only agent being SIGNATURE PROPERTY AGENTS of 617 Port Hacking Road LILLI PILLI NSW contact (02) 95266233

- Greame and Marcia
Caringbah South

Luke was such a pleasure to deal with! Such a genuine and honest agent - something that is very rare to find! He was was always available to talk and constantly kept me in the loop of everything that was happening. He really made the whole buying process such an easy and enjoyable experience. Would highly recommend Luke to anyone looking to buy or sell!

- JulieanneBarbaro
MIranda

I knew from the outset that Ron was the right person to sell my home and he certainly didn’t disappoint.
His local knowledge and experience combined with his marketing expertise ensured a sale that was substantially above our expectations and well above other agents’ predictions.
Ron’s friendly and professional approach, along with his honest and genuine passion for real estate, relieved us of the stresses which usually come with selling a home, while at the same time maintaining constant communication every step of the way.
Ron’s negotiating skills allowed us to sell our property just two days after our first open house. Next time, I will definitely contact Ron and the Signature team.