Buying an Investment Property: Key Costs

Key takeaways

Investors must plan for both the purchase costs and ongoing holding costs, not just the purchase price.
Loan interest on an investment property may be tax deductible, but the rules depend on the use of funds — get tax advice.
Rental income may not cover all costs; allow for vacancy, management fees, maintenance and strata or land tax.
Capital growth and cash flow often trade off — be clear on your strategy before buying.
Moving money in and out of an investment loan (such as redraw) can affect tax deductibility — keep records and seek advice.

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Buying an investment property is different from buying a home to live in.

The numbers need to work as both a property purchase and an investment.

Investors should think beyond the purchase price and consider loan costs, stamp duty, rental income, management fees, maintenance, insurance, vacancy risk, tax implications and long-term holding costs.

This guide explains common costs to consider when buying an investment property in Australia.

It is general information only and does not provide financial, tax, legal or investment advice.

Purchase price and deposit

The purchase price is the starting point.

The deposit affects the loan amount, loan-to-value ratio and possible lenders mortgage insurance.

For example:

Purchase price: $750,000
Deposit: $150,000
Loan before costs: $600,000
LVR: 80%

If the deposit is smaller, the LVR may be higher and LMI may apply, depending on lender policy.

Use the PurchaseWise Property Purchase Calculator to explore deposit and loan scenarios.

Stamp duty

Stamp duty can be a major upfront cost for investment property buyers.

Unlike some first home buyer purchases, investment purchases may not qualify for the same concessions or exemptions.

Rules vary by state and territory, so investors should check the current requirements before making an offer.

Related guide: Stamp Duty Explained in Australia

Loan costs

Investment loans may have different interest rates, fees and approval rules compared with owner-occupier loans.

Loan costs may include:

Application fees
Valuation fees
Settlement fees
Annual package fees
Mortgage registration fees
Lenders mortgage insurance, if applicable
Bank legal or documentation fees

Investors should compare both the interest rate and the loan structure.

Principal and interest vs interest-only

Some investors consider interest-only loans to manage cash flow.

Interest-only repayments may be lower during the interest-only period because the borrower is not repaying principal.

However, the loan balance does not reduce through normal repayments during that period, and repayments may increase when the loan switches to principal and interest.

Mortgage repayments

Mortgage repayments are usually the largest ongoing cost.

They depend on:

Loan amount
Interest rate
Loan term
Repayment type
Repayment frequency
Loan fees
Extra repayments

Investors should test repayments at different interest rates to understand cash flow risk.

Use the PurchaseWise Mortgage Repayment Calculator to run these scenarios.

Rental income

Rental income helps offset the cost of holding the property, but it should be estimated carefully.

Investors should consider:

Current market rent
Vacancy periods
Property management fees
Repairs
Tenant turnover
Advertising costs
Lease renewal costs
Seasonal demand
Local rental supply

A property that looks affordable at full rent may feel very different if it sits vacant for several weeks.

Property management fees

Many investors use a property manager.

Property management costs may include:

Management fees
Letting fees
Lease renewal fees
Routine inspection fees
Advertising fees
Statement fees
Tribunal attendance fees, where applicable

Fees vary by agency, state and service level.

A good property manager can help with tenant selection, rent collection, maintenance coordination, inspections and compliance.

Council rates and water charges

Investors usually need to allow for council rates and water charges.

Some water usage may be recoverable from tenants depending on state rules, lease terms and metering arrangements.

Investors should confirm local requirements before assuming costs can be passed on.

Strata levies

If the property is an apartment, villa, townhouse or strata property, strata levies may apply.

These can include:

Administrative fund levies
Reserve fund or sinking fund levies
Special levies
Insurance contributions
Maintenance costs

Investors should review strata records carefully before buying.

Special levies can be expensive and may affect cash flow.

Insurance

Investment property insurance may include:

Building insurance
Landlord insurance
Contents insurance for landlord-owned items
Public liability cover
Loss of rent cover, depending on policy
Strata insurance, where applicable

Insurance needs vary by property type and ownership structure.

Maintenance and repairs

Every property needs maintenance.

Investors should allow for:

Plumbing repairs
Electrical repairs
Appliance replacement
Roof and gutter maintenance
Painting
Flooring replacement
Garden maintenance
Air-conditioning repairs
Pest treatment
General wear and tear

Newer properties may have lower early maintenance, but no property is maintenance-free.

Vacancy risk

Vacancy is the period when the property is not producing rent.

Even strong rental properties can have vacancy between tenants.

Investors should allow for vacancy in their calculations rather than assuming 52 weeks of rent every year.

Land tax

Land tax may apply to investment property depending on the state or territory, land value and ownership structure.

Rules differ across Australia.

Investors should check the current rules with the relevant state or territory revenue office and speak with an accountant if unsure.

Tax and accounting costs

Investment property can have tax implications.

Investors may need help with:

Rental income reporting
Deductible expenses
Depreciation
Negative gearing
Capital gains tax
Loan interest
Repairs vs improvements
Record keeping
Ownership structures

A qualified accountant can help explain how the rules apply to the investor's situation.

Depreciation schedule

Some investors arrange a depreciation schedule from a quantity surveyor.

This may help identify depreciation deductions for eligible building and asset components.

Depreciation rules can be complex, so investors should seek tax advice.

Buyer due diligence costs

Before buying, investors may pay for:

Building inspection
Pest inspection
Strata report
Property valuation
Rental appraisal
Solicitor or settlement advice
Town planning checks
Insurance quotes

These costs can help reduce the risk of buying the wrong property.

Cash flow example

Imagine an investor buys a property and receives rent each week.

The rent may help cover the mortgage, but the investor still needs to allow for:

Loan repayments
Property management fees
Council rates
Water charges
Insurance
Maintenance
Vacancy
Strata levies, if applicable
Land tax, if applicable
Tax and accounting costs

A property can have positive cash flow, neutral cash flow or negative cash flow depending on the numbers.

Capital growth vs cash flow

Some investors focus on capital growth. Others focus on rental yield and cash flow.

A high-growth property may have lower rental yield.

A high-yield property may not always have strong long-term growth.

The right balance depends on the investor's goals, risk tolerance, borrowing position and time frame.

Common mistakes investors make

Mistake 1: Looking only at the purchase price. The full cost includes stamp duty, loan costs, maintenance, management, vacancy and holding costs.

Mistake 2: Assuming rent will always cover everything. Rent may not cover all costs, especially if rates rise or the property is vacant.

Mistake 3: Forgetting tax advice. Investment property tax rules can be complex.

Mistake 4: Ignoring strata records. Strata issues and special levies can affect returns.

Mistake 5: Underestimating maintenance. Even well-presented properties can need repairs.

Mistake 6: Borrowing without a cash buffer. Investors should allow for unexpected costs, vacancy and interest-rate changes.

Final thoughts

Buying an investment property is about more than finding a property and collecting rent.

The numbers need to be tested carefully.

Investors should estimate upfront costs, ongoing costs, likely rent, vacancy risk, tax implications and long-term maintenance before committing.

Use calculators as a starting point, then speak with qualified professionals before making investment decisions.

Related guides

Important disclaimer

This guide is general information only. It is not financial, credit, legal, tax or investment advice. Investment property involves risk. Speak with a qualified mortgage broker, financial adviser, accountant, solicitor, settlement agent or other appropriately licensed professional before making investment decisions.