Do you know the real cost of investing?

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When saving for an investment property, beginner investors assume they will need just a 10% deposit to purchase a property. They work hard, pull double shifts, and scrape together $30,000 – chuffed that they have enough to begin their portfolio. But these aren’t the only costs when investing, says Sam Saggers, CEO of Positive Real Estate Group. Others include:
 
Stamp duty:
When purchasing a property, you must pay a duty to the state.
Cost: $8,000 to $14,000, and varies wildly between states.
 
Solicitor/Conveyancer fees:
A smart investor will have a solicitor assist with the property transaction, to read over the contracts and ensure there are passages to protect the purchaser (such as a ‘Subject to Finance’ clause).
Cost: $1,000 to $4,000.
 
Land tax:
Land tax is another state based tax, and varies across Australia. Each state has a different threshold, so if you diversify your properties, you may not have to pay this tax at all.
Cost: Varies with each state. In the New South Wales, can be up to $10,000 to $15,000 per annum, whereas land tax is exempt in the Northern Territory.
 
Lenders Mortgage Insurance:
Lenders Mortgage Insurance is only applicable if you are borrowing more than 80% of your property’s value. This insurance ‘insures’ the lender if you default on your loan, and shouldn’t be confused with Mortgage Protection Insurance, which protect the buyer if they are unable to repay the loan.
Cost: Varies, dependant on the size of your loan and of your deposit. Upwards of $6,000.
 
Building and Pest Inspections:
An important part of due diligence, Building and Pest Inspections are a must. They can save you thousands as they’ll help you to avoid properties that are structurally unsound or that have unseen termite damage.
Cost: Between $300 to $800.
 
Insurances: building (if you don’t have body corporate), contents, landlords and mortgage protection insurance:
When purchasing a property, you will need insurance to protect yourself against further costs. While it can be expensive, it may save you several thousand more.
Cost: can come to over $1000 per year
 
Property management costs:
This will be a percentage of your weekly rent, but there are extra costs so make sure to ask each prospective property manager for a full break down of the fees they charge.
Cost: $300+ per year, as well as up to 10% of each months rent.
 
Body Corporate:
Is your property part of a body corporate? Most units are. There are lots of benefits to having a body corporate, but it can come with a hefty price tag.
Cost: a few hundred – but will vary depending on the style of building and what’s included. If you opt for all the extras (lifts, covered parking, pools, spas, gyms) you can be looking at a few thousand per annum.
 
Vacancies:
In a perfect world, your property is never vacant – but in most cases you should prepare for a minimum of two weeks vacancy.
Cost: Two weeks of rent or upwards of $500
 
Ongoing property maintenance:
Plumbing, electric, broken appliances… you can expect the unexpected with this one!
Cost: Ongoing.
 
Total: $16,610+
 
The good news is that all of the above are tax deductable, and a lot of the costs can be included in your mortgage loan. If you’re a low-income earner, however, be wary that you don’t bite off more than you can chew.
 

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