UPDATED: December 08, 2022

Property investment can be a highly lucrative method for growing your wealth. For those who already maintain a strong investment portfolio outside of real estate, becoming a landlord can also help diversify your investments, allowing you to enjoy additional streams of income both in the lead-up to retirement and even during your retirement years. 

Although property investment can help you live comfortably during your retirement years, there is actually a lot more to being a landlord that may meet the eye. Contrary to popular belief, not all the costs associated with maintaining investment properties are entirely tax deductible. And even those that are must still be paid during the financial year, meaning landlords are required to have enough capital on hand to cover maintaining their investment properties. 

As such, aspiring property investors are encouraged to maintain an awareness of these costs to ensure that their investments are feasible. We’ll be outlining some of the costs that all prospective landlords should be aware of prior to taking the plunge into property investment.

Landlord insurance

Like tenants are urged to secure renter’s insurance to protect their own assets, landlords must consider securing landlord insurance to give their investment property the best possible chance of being protected in the event of any damage caused by tenants. Depending on the nature of your cover, your landlord insurance may also help cover the costs associated with organising the replacement of locks for your property, unexpected lease breaks or tenants abandoning the property, or in the event that tenants are found doing anything unlawful on the property itself (i.e. drug distribution or storage). 

Be sure to consult with your accountant or preferred financial adviser before finalising your landlord insurance policy, just to make absolutely certain that the cover you’ve secured for yourself is suitable for your investment property. 

The costs of finding tenants

Landlords are expected to cover advertising costs with their property management provider in between tenant leases. All elements of advertising a property come with their own costs, ranging from the costs of developing street signage for your property, to the costs of hiring a professional real estate photographer, and keeping property listings published online. 

It’s important to note that some of the costs associated with finding suitable tenants for your investment property may be tax deductible, depending on federal taxation legislation in your country. If you are at all uncertain about what rental expenses you can claim back on tax as a landlord, we recommend consulting with your property manager for their own insights if applicable, or with your accountant. Government resources may also be available to landlords who are looking to file their tax returns independently. 

Mortgage repayments

Of course, landlords must make mortgage repayments just like all other homeowners, but for investors who are managing multiple properties, staying on top of your mortgage repayments can require some serious financial planning. This is why it’s a common practice for property owners to leverage their existing equity generated by maintaining other properties, to help fund securing additional loans for the purpose of taking on an investment property. 

That being said, leveraging your equity as a property owner doesn’t come without its own share of risks. For example, in the event that the real estate market experiences a decline, your equity could be negatively affected as a result, which could then impact your ability to make a profit off your property investment. And if your rental rates aren’t able to cover your mortgage repayments, you may find yourself losing money fast as a landlord rather than building your own equity even further.

Simply put, maintaining an awareness of these inherent risks is just as essential as staying on top of the costs you’ll have to bear on a routine basis as a landlord.

Home repairs and maintenance 

Speaking of routine costs, home repairs and maintenance issues are guaranteed to be an evergreen concern for virtually all landlords, regardless of whether or not your property is currently tenanted. The costs of home repairs and maintenance can even range between scheduled maintenance appointments (i.e. annual maintenance of smoke alarms and air conditioning units, etc.), to unforeseen maintenance costs arising from damage or unique circumstances like natural disasters. 

Once again, securing the right insurance policy for your investment property may also help remove the burden of maintenance and repairs caused by a number of factors, such as in the event of adverse weather causing property damage, or due to tenant negligence, vandalism of the property, or other occurrences. Some maintenance costs such as professional cleaning services, may also be tax deductible. 

Strata rates and council fees

Like all homeowners, property investors have a responsibility to pay rates to their local council offices annually, alongside any special rates or levies allocated for funding particular local schemes or development projects. Your annual council rates typically cover the costs of council services like curbside waste disposal, the maintenance of local roadways, council-operated facilities, and park spaces, on top of general administration costs. 

If you’re looking to invest in a strata title, then you’ll also need to allocate funds for covering annual fees and any special levies provided by your body corporation. Be sure to also keep in mind that body corporate fees can be dictated by the size of your strata scheme. For instance, whilst inner city apartments are generally valued lower than units or townhouses, the upkeep of complexes can result in strata fees being comparatively higher.

Taxation

Finally, taxation is a paramount concern for many prospective landlords, as owning property can naturally complicate what considerations you’ll need to make when filing your personal tax return at the end of every financial year. For many seasoned landlords, however, tax time can bring a certain amount of financial relief, as they’ll be reimbursed for all the tax deductible costs they’ve had to bear throughout the year. For this reason, it definitely pays to be thorough and outline all the deductions you’re eligible to make as well as develop a depreciation schedule with your dedicated accountant. 

Landlords are also advised to consider capital gains tax when maintaining their investment properties. Be aware of any concessions or exemptions available to you that may inhibit you from having to pay capital gains tax when looking to sell your investment property. 

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Keep in mind that the costs we’ve outlined above are just some of the costs you can expect to bear as a landlord, and that this is by no means an exhaustive list. You may find that you bear additional costs, such as covering select utility bills. These additional costs are dictated by the nature of your lease agreement and perhaps even by the investment property itself.

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