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It's easy for investors to get swept up in the idea of pulling in large rental returns, but it's important to keep an eye on your outgoings and remember how much it costs to hold your properties.
Blogger: Amanda Segers, principal and buyer's agent, Amanda On My Side
It was reported recently that after a brief lull, Sydney rental prices are on the increase yet again, rising to their highest average ever. The cost of renting is now about $500 per week and in some parts of the city that amount is just for a studio apartment.
The reason behind the high prices is the rising cost of property, which is seeing potential first home buyers having to wait longer and longer to save enough of a deposit to enter the market. It’s Catch 22 that younger buyers have to pay more rent while they try to save, but unfortunately that’s the reality at this point in time.
If you’re an investor, however, it’s not quite so difficult to acquire a smaller place to rent out. But while that $500 per week looks pretty appealing, there are some costs involved with being a landlord that will reduce what goes into your pocket.
Agent fees. While you can manage a property yourself, you might find yourself getting late night phone calls or hearing from the tenant with something urgent while you are away on holidays, so it is worth your while to enlist the help of an experienced property manager to keep an eye on things on your behalf. The cost of this is six to 10 per cent of the total rent, but it is an expense you can mention to your accountant at tax time and claim some rebate on.
Landlord’s insurance. Heaven forbid you get the tenant from hell, but if they do a runner and you are left with a giant hole in the master bedroom wall that isn’t covered by the security deposit you will be out of pocket for the repairs if you don’t have insurance to cover it. There’s also the possibility of fire or storm damage that you should mitigate against the same way you would with your own house so the monthly expense is worth considering.
Maintenance and miscellaneous costs. The beauty of being a tenant is that when the sink blocks up you just put in a call to your property manager, sit back and wait for it all to be fixed at the cost of the owner. As well as those kinds of repair expenses, a lot of apartment blocks have mandatory smoke alarm inspections which you will be required to pay for. Then there are strata fees, which are still up to you to pay for as the property’s owner.
If you factor in negative gearing you will also be paying some of your own money to cover the repayments, but at the end of the year you can claim a tax return and of course the financial benefits of carefully expanding your property portfolio speak for themselves.
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