The Hidden Costs of Property Investment

There are many hidden costs to property investment that have been slowly introduced over the years. Property investors have found it more and more difficult to anchor themselves in the property market. With support avenues dwindling and tax rates increasing, the feasibility of becoming a property investor in Australia is becoming a steeper hill to climb.

Property Club helps unveil these hidden costs for interested and established investors so they can thoroughly plan and prepare for the road they are about to take. After all, Australians invest in properties to generate a high-yielding income stream that provides them with the life they have always dreamed of. Why should those dreams be extinguished by large institutions that don’t have investor’s interests at heart?

Don’t stay in the dark any longer. Here are some of the common hidden costs of property investment and why you should take note of them if you want to get into the investment market.

An Increase in Property Tax for Investors Property tax is something all property investors must pay, yet they sometimes don’t realise the extent of its ever-increasing nature.

The first of these rates that all property investors have to pay is the stamp duty. This is a tax levied on all property purchases that must be paid before the document is considered legally effective. From July 1, 2021, a new top rate of duty was introduced for all properties in Victoria that are valued over $2 million. This new rate has increased to $110,000 plus 6.5% of the dutiable value exceeding $2 million. Similar increases have been happening all over the country.

You can use this stamp duty calculator to determine how much you will need to pay.

Property investors are now also expected to pay more for land tax. From January 1, 2022, the land tax rate for investors increased by:

• 0.25% for taxable landholdings above $1.8 million
• 0.3% for taxable landholdings above $3 million

In addition to this, local councils across Australia have been found to charge high council rates for investment properties than owner-occupied properties. This is largely due to rates on investment properties being eligible for tax rebates.

These are only some of the latest increases in property tax, and investors should be prepared to pay more as time goes on.

Property Investors Pay More on Loans As a general rule, lenders charge investors higher rates for investment properties than they do for owners. They do this for a number of reasons, including:

• An investor’s income depends on the investment property, and therefore is seen as a riskier investment return
• Investment properties have a higher chance of the investor abandoning ship, as there are fewer personal stakes involved
• Investment in a real estate property could possibly restrict your ability to pay back a loan

However, with the right assistance and preparation, each of these points can be nullified to bring down your interest rates.

• The vast majority of investors already have a steady income stream from their jobs or other investment ventures
• Likewise, the vast majority of investors have strong personal stakes in their investment properties. Investment is a significant financial and emotional decision and not one that is made lightly by people who only want to “dip their toes in”

Furthermore, the APRA and Australian banks have introduced principal payments onto interest only loans. While this is optional at the start of an interest only loan, once the interest only time has expired, borrowers will be forced to pay the remainder of the loan as principal + interest.

This transition can have a detrimental effect to investors who have budgeted to pay the loan how they originally intended – via interest only.

We work with investors to ensure they are well prepared to pay back their loans, whether that’s them already having a cash reserve, liquid assets etc.

Non Tax Deductible Expenses The final hidden cost that property investors have to look out for is the lack of tax deductible expenses that would be considered standard practice in purchasing a property.

Many of the upfront costs that need to be paid are considered a ‘capital cost’, and therefore not tax deductible. This can be a major roadblock for many first-time investors who discover that they won’t be getting any of their money back for these essential expenses.

These expenses include the stamp duty, conveyancing costs, building inspections and pest inspections.

Property Owners and Renters Party With all of these hidden expenses, becoming a property investor can seem like a daunting undertaking with few rewards. The good news is that Property Club is here to help. We support investors through giving them access to our nation-wide supply of resources and mentors.

But we want to go even further in giving investors a voice. That’s why we have decided to form the Property Owners and Renters Party. We want to provide real solutions to the crippling hidden costs that stand in the way of so many people and their dreams.

We will be sending more information out soon about this new party. If you would like to know more, please email us today at enquiries@propertyclub.com.au.