Renting out investment properties can be a lucrative source of income, but there are expenses involved other than just the purchase price, and we’ll take a look at some of those associated costs in this post.
Investors put their money into the property market with the hope of renting those properties out and earning regular passive income. It’s actually one of the more common wealth building tactics among Australians. And even if someone isn’t necessarily looking to get wealthy, rental properties can produce fantastic income streams.
On the surface it all sounds very easy:
It can certainly work out that way, but let’s look at what kind of expenses you might need to consider in the equation.
It’s obvious that you’ll need to insure your rental property, just like you would the home you own and live in. Landlord’s insurance is a good choice as it covers you against tenant damage and failure to pay rent, among other things.
It doesn’t matter where you own a property in Australia, there will be council rates to pay. The amount will vary from place to place and property to property, but rates are just another expense to consider when working out how much rent you’ll charge.
Body Corporate Fees
Apartments and homes in certain property developments will have body corporate fees to cover every week or month. This fee helps with the upkeep of the common areas, such as gardens, lawns and swimming pools.
Most property investors will have an agent take care of their listing, but even if you did rent your home out yourself, there are still advertising costs involved in trying to find a tenant. There are both free and paid resources online, but you still might go the traditional route and place an ad in the classifieds section of your local newspaper.
Property Management Fees
When a property manager takes care of your rental property for you, they take a percentage of the rent money for their troubles. The amount will vary from agent to agent, but it can be as high as 10%. If your asking price is $500 a week, the property management team might collect as much as $50 from that amount.
Maintenance and Repairs
Good tenants will really take care of your property, but even still, things do break down, wear out and need ongoing maintenance. Unless a tenant causes willful damage, most repairs and maintenance are covered in their rent. It’s up to the landlord to pay for repairs, replacements and maintenance.
Generally, it’s at the expense of the property owner to conduct regular pest control of your investment properties.
There are other potential costs involved in owning rental properties as well, such as factoring in taxes on profits, mortgage and interest payments, possibly water bills and more, but the main ones have been covered here.
To have your property positive geared so you make money on your rental income after expenses, you need to charge enough weekly rent to more than cover all the operating costs.