What are property holding costs?

If you’re looking at purchasing an investment property there are some key costs related to that property you should be prepared for. Before you sign on the dotted line, factor these in to your budget so there are no surprises. Also have a listen to the episode where John talks through all of these costs:

Tip from John: if possible, aim to have at least 3 months worth of holding costs prepared when going in to the purchase. You need to understand what these costs are for your property.

Interest only or principal and interest on your property 

This varies greatly depending on your loan terms and details. Do some forecasting to have even a general idea of what interest and/or principal amount you’ll be paying moving forward. On these details it’s helpful to chat with your mortgage broker to talk through expected costs however if you are looking at advancing your portfolio or have your own mortgage debt, interest only is a common option.

Insurances

You must insure your property to provide some protection. Get some quotes from insurers to gain an idea of what’s ahead for you in insurance costs. These include landlord, building and contents insurance. Do your research.

Council rates 

Council rates are a cost of doing business. These rates are paid by homeowners within a municipality to help provide services within that area, maintain roads and public spaces. Get acquainted with the local council specific to the property you’re looking at to gain a sense for the services they provide and any questions you have about their council rates.

Property management fees

You might choose to have your property managed by a local management business, or a friend or family member who is skilled in this area, however personally I would outsource it to a specialist property manager. Factor in any costs that are associated with their service. 

Strata fees 

These vary significantly based on who is managing your property and what the property is – apartment, townhouse etc. Ask for the details of the strata management organisation and make an enquiry about what they look after and how much they charge each quarter. You must also check how much is in the sinking fund which is the bank balance that runs the complex.

Vacancy

Another big variable – you can’t guarantee you’ll have a tenant in your property every week of the year so have some buffer up your sleeve to allow for this potential. Check before you buy in a particular location but always factor in at least a few weeks of vacancy per year.

Buying land 

If you’re looking to buy land without an existing property, be aware you have to cashflow these costs throughout construction. Make room in your budget for potential delays due to supplier issues or things like bad weather impacting the build. On the flip side, your stamp duty will be less than buying an existing house.