The hidden costs of being a landlord – and how to prepare for them

Being a landlord sounds like a breeze: let the tenants pay off your mortgage and watch your property value grow. But if you think your only expense is going to be loan repayments, think again.

”It’s extremely important to budget beyond just the mortgage,” says Steven Tropoulos, the group director at Sydney-based property finance and advisory firm Highfield Private.

“Property ownership comes with a range of ongoing and sometimes unexpected expenses. If you don’t plan for these additional costs, you may struggle to maintain the property, and that can lead to a decline in its value over time.”

For landlords, unexpected expenses can come with the territory. Credit: iStock

When expenses do arise, you really don’t want to be caught short. “Access to extra funds is essential to preserve the investment and avoid compounding financial pressure,” Tropoulos says.

Here’s our expert’s guide to what expenses to expect — and how much they’re likely to cost, so you can budget appropriately.

Maintenance and repairs

“Even well-maintained properties incur wear and tear,” Tropoulos says. “Emergency repairs, plumbing issues or appliance breakdowns can be costly and disruptive.”

The amount you should budget for maintenance and repairs depends on the type and age of the property, he says.

“Standalone houses generally require more maintenance than strata units, as you’re responsible for both the structure and the land. In strata-titled units, your responsibility typically ends at the internal walls, with external maintenance covered by the body corporate.

“As a general guide, budgeting around 1 to 2 per cent of the property’s value annually for maintenance is a prudent starting point, but this can vary significantly.”

Property-management fees

“Investors often forget to account for property-management fees, which typically range from 6 to 10 per cent of rental income, depending on the agency and service level,” Tropoulos says.

“You’re also likely incur re-letting fees every time a tenant vacates. This is typically one to two weeks’ rent to cover the cost of securing a new tenant.

“You should also consider potential tribunal representation costs, which can arise if a tenancy dispute occurs. These additional charges are usually outlined in the management agreement, so it’s important to read it carefully.”

Insurance premiums

“Landlord insurance is recommended for property investors,” Tropoulos says. “It provides coverage for loss of rental income, tenant-related damage, legal expenses and certain liability risks.

“While it’s tempting to skip this cost, the financial consequences of unexpected events, such as property damage or tenant default, can be significant.”

It’s important to do your research on the different nuances between home and landlord insurance cover and the variation in costs associated with these before choosing a policy.

Compliance and safety regulations

“Costs for smoke-alarm servicing, pool certifications and electrical safety checks are now mandatory in many states and can add up,” Tropoulos says.

“Compliance costs can vary, but you should budget at least $200 to $500 annually for safety checks such as smoke alarms, pool inspections, if applicable, and electrical or gas compliance.

“Non-compliance can result in serious consequences, including fines, legal liability and insurance claims being denied. Staying compliant isn’t just about ticking boxes; it’s about helping to protect your asset and the people living in it.”

Council rates and strata fees

“Council rates vary by local government area but typically range from $1000 to $3000 per year,” Tropoulos says. “Strata fees depend on the size and complexity of the building.

“Older complexes usually have lower ongoing costs and fewer special levies, as they were often built with fewer amenities. In contrast, newer developments with pools, lifts and gyms often carry higher strata levies and an increased risk of special levies due to the ongoing cost of maintaining these facilities.”

With strata fees typically varying from $2000 to $10,000 a year or more, and special levies potentially costing tens of thousands of dollars, it’s important to review the strata report and financials before committing to a purchase, Tropoulos says.

Depreciation schedule

“A professionally prepared depreciation schedule can be a valuable tool for maximising your tax deductions,” Tropoulos says. “It’s especially beneficial for newer properties or those that have undergone recent renovations. The cost of having one prepared by a qualified quantity surveyor typically ranges from $400 to $800, and the report is valid for up to 40 years.

“For most investors, the tax savings far outweigh the upfront cost, making it a smart long-term investment.”

Terri Scheer is Australia’s leading landlord insurance specialist. For more information, visit terrischeer.com.au.

Insurance issued by AAI Limited ABN 48 005 297 807 trading as Terri Scheer. Read the Product Disclosure Statement before buying this insurance. Go to terrischeer.com.au for a copy. Target Market Determination also available. This advice has been prepared without taking into account your particular objectives, financial situations or needs, so you should consider whether it is appropriate for you before acting on it.

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