Part of any investment is weighing up the resources you pour into an asset against what you get out of it. You have to know how much you might potentially have to spend before you can figure out whether or not that investment property is ultimately worth it.
When it comes to real estate investing, there are two main types of costs: Money and time.
Monetary costs
Within this category itself, there are also two further ones. The first is the expenses that come with the initial purchase of the property.
For instance, very few people pay the full price of a property right off the bat. Instead, they take out a home loan which they slowly pay down over time. However, even with a mortgage in tow, you need to put down a deposit for the home - which is typically at least 20 per cent of the sale price - to avoid paying lenders mortgage insurance.
There's also the matter of paying any loan establishment fees and various types of insurance, such as landlord, building and contents insurance. Don't forget about stamp duty - according to the Housing Industry Association, for all states other than Queensland, the tax adds at least 3 per cent on to the price of a house.
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After this, there are ongoing costs associated with running an investment property. These include:
- property management fees
- council rates
- water rate charges
- maintenance costs
It's important to budget for all of this when receiving a passive income from a cash flow positive property.
Time costs
Along with these monetary expenses, it's important to note that property investment is also an endeavour that will take up a significant amount of your time. You have to be willing to invest hours of your life as much as money.
For instance, there's the time you will spend researching property options and engaging with service providers like lenders, accountants and property managers. This is why it's often helpful to have a team of property experts behind you who can provide you with a property investment plan and assist you in taking care of this legwork.