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Budgeting for an investment property

23/12/2019

Understanding the costs involved in property investing.

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Investing in real estate is a popular option for Australians when choosing how to invest. Depending on your financial circumstances, it could be a great long term investment to increase your wealth and build a portfolio for future financial security.

However, when looking at purchasing an investment property there are more costs to factor in than just the purchase price. If you plan to budget for your investment in advance, it will help you sustain your cash flow and manage your expectations when it comes to costs. That’s why we decided to put together this handy guide to help you understand what you need to consider when budgeting for an investment property.

Saving for a deposit

To get your foot on the investment property ladder, you’ll need to save for your deposit. This is typically 5-20% of the property value, if your deposit is less than 20% you will also need to consider Lenders Mortgage Insurance (LMI) costs in your budget.

Ahead of setting your savings goal, it’s also a good to get an idea of how much you could borrow to understand the amount of deposit you need to save for. Once you have your goal in place it’s time set a weekly budget, which may mean cutting back on your spending to help you reach your savings goals.

To avoid any temptations of dipping into your savings, it may be wise to open up a separate account that isn’t linked to your transaction account. Once you’ve become a master of your budget spreadsheet, you’ll find you’re one step closer to your investment goal.

Buying costs

When buying an investment property, it isn’t just the property price that you have to take into consideration. There are many other costs associated with buying real estate. One of the most significant upfront costs is the stamp duty. This can vary from state to state and is calculated on the purchase price of the property.

You’ll also need to factor in the investment loan interest rates and decide whether a fixed or variable rate loan is right for you. You can use our mortgage repayment calculator to understand these outgoings too.

Other costs that buyers tend to forget are the legal and conveyancing fees, valuation fees, land tax and LMI. By catering for these extra expenses in the beginning, you can make the purchase process less stressful.

Ongoing costs

Once you have purchased your investment property, it is a common mistake to think the costs stop there and money will start coming in through rental income. However there are ongoing costs which you should consider to avoid any nasty surprises. There are maintenance costs for general upkeep, council rates, utility bills and potentially body corporate fees if your property is in a building that is managed.

Although the rental market can be a lucrative one, there may be times where the property is vacant. This means you could find yourself responsible for these ongoing expenses without the rental income to help pay them so it’s wise to budget accordingly. You may also like to consider taking out landlords insurance  - shop around to give yourself peace of mind look at covering things such as loss of rental income, tenant-related liability, or damage to the house itself.

There is a lot to think about when it comes purchasing an investment property. Our friendly team are more than happy to guide you on the various investment loan options, saving for a deposit, landlords insurance, and more. Enquire today to begin your journey to becoming a property investor.

This article is intended to provide general information of an educational nature only. This information has been prepared without taking into account your objectives, financial situation or needs. Therefore, before acting on this information, you should consider its appropriateness having regard to these matters and the product terms and conditions. Information in this article is current as at the date of publication. Terms, conditions, fees, charges and credit criteria apply.

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