The Real Cost of Being a Landlord

As a landlord, you usually stand to make money if the rental market is kind. Nevertheless, there are some upfront and ongoing costs that chip in to your profits. 

If you’re only starting your journey as a property investor, you may need to get familiar with the concept of ‘spend money to make money’.

“You need to have good cash flow to cover yourself,” says Michelle Valentic of Advantage Property Consulting. “As an investor, you’re looking to make a profit down the track, but in the interim it’s like a business.”

“By the time you actually factor in your mortgage, the interest, all the expenses, there’s definitely a shortfall. So you have to budget for that monthly and make sure you’re covered.”

In order to execute that fully informed budget, here are some important landlord costs to consider.

1. Landlord insurance

Landlord Insurance is one risk mitigation tool that can help you to protect your property and the income you earn from it. Terri Scheer ­Insurance provides policies for landlords that can help protect both your property and rental income.*

Depending on your coverage, landlord insurance can provide financial assistance in the event of some building damage not directly caused by the tenant.

Perhaps more importantly, it can also help protect your rental income if your tenant damages your property, or if you have a tenant who has left the property and defaulted on their rent. This can be a vital life raft if you’re relying on a string of tenants to service your mortgage.

2. Repair and maintenance costs

You can expect regular repairs or small maintenance jobs quite frequently. This could include small leaks, electrical issues or broken drawers. However, you might not anticipate the dent in your wallet caused by much bigger issues.

“This is where a lot of people get caught out,” Valentic starts. “If a hot water system bursts, that might be $1500. A gas heater or air-conditioner unit could cost anywhere up to $2000.”

If you own a unit, there will also be general ongoing maintenance of the property as a whole,

3. Costs of finding a tenant

Here’s another cost you might not have considered: securing a tenant.

Not only do you have to cover your mortgage, there’s the added costs of listing and marketing your property to new prospects.

While searching for a tenant, some costs may include:

• Listing and marketing the property for lease;
• Professional photographs;
• Power, even if you’re only using it to turn the lights on during an inspection;
• Your mortgage payments, and
• Council rates, strata fees or other standard home ownership costs.

Fingers crossed you find someone quickly!

4. Property owner rates

If you’ve only ever been a tenant and never a property owner, you might be surprised at the regular rates you’ll have to pay, including water rates and, if you’re in an apartment block, owner’s corporation levies.

“A lot of people just look at the base levy but there could be a maintenance fund as well,” Valentic says.

“People don’t realise there could be urgent repairs or large maintenance works in an owner’s corporation – say the roof or communal hot water. Again, you need to be aware that that could happen throughout the year.”

*Insurance issued by AAI Limited ABN 48 005 297 807 AFSL 230859 trading as Vero Insurance. In arranging your insurance, Terri Scheer Insurance Pty Ltd ABN 76 070 874 798 AFSL 218585 acts under authority given to it by Vero Insurance. Read the relevant Product Disclosure Statement before buying this insurance. Go to terrischeer.com.au for a copy.