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Property Holding Costs

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By : Adam Pedley    99 or more times read
In almost all countries around the world, there are costs associated with owning a property. These costs vary from country to country, state within the country and even district, county, or council. It is essential to understand these costs before purchasing a property for living in, or investment, as you must ensure you have enough cash flow to support these expenses.

These are the costs each property has

Property Tax / Land Rates

Property taxes or land rates can vary a lot depending on your location and worth of your home. In the United states, each state county sets its own property tax. This property tax will pay for schools, transport and other basic infrastructure. The property tax is normally applied annually and is a percentage of the value of your home. This value can range from 0.1% to 1.5%+. So if your property is worth $100,000, and your county decided property tax is 1%, then your annual property tax bill is $1,000.

In Australia, they are called rates and again each state differs and each council determines the rates. Rates in Australia are a lot cheaper than America as they only apply to the value of the land, and they are a smaller % of the total value. Some councils charge a higher % but base it on the gross yearly rental income of the property. Most land rates are around 0.5% of the land value of the property, plus some additional costs such as emergency services and recycling programs. The reason for the lower rates is because income tax pays for schools and infrastructure, not the land tax. Income tax in Australia is far higher than in the United States.

In all countries the value of the land is determined by a specified agency. This value determination can be disputed if you think it is unfair. Most agencies that perform this valuation are government departments.

Utility Rates (e.g Water, Sewerage)

Utilities for each house that you must pay rates on include, water, sewerage and solid waste, if not charged in the council rates. Electricity, gas and phone in most countries isn't charged a compulsory tax and is up the individual providers to charge only for usage. The utilities rates that you pay can also vary greatly again, right down between different councils, or districts. In Australia they are mainly charged at a flat fee, or sometimes a % of the value of your house, just like land rates. In America they are normally a set price per month and can range anywhere from $10 to $60 per month for each water, sewerage and solid waste charge.

Maintenance (Carpets, Pest Control, Repairs)

While these aren't compulsory, they do need to happen to keep your house safe and looking good. Every few years to a decade you will need to spend out on many of these items.

  • Carpets about every 7-10 years

  • Curtains / Window Coverings about every 7-10 years

  • Pest Control about every 2 years

  • Something will normally always need a repair every month

  • Monthly maintenance on the lawns, (mowing, fertilising, watering)

  • and much more

Building and Contents Insurance

Insurance is compulsory if you take out a mortgage to finance the property. The banks want to see security on their money. Insurance varies again, even by suburb and is affected by, weather (possible cyclones, hurricanes, floods, earthquakes), crime statistics, distance from a fire hydrant, distance from emergency services etc. Yearly building insurance will cost hundreds per year, possibly thousands. I also recommend that contents insurance is taken out, so if the house is damaged any personal belonging can be replaced.

Possible strata or management fees if you live on shared land

If you live in apartments, units or another building that shares land, you will have to pay some form of fees, mainly for the management and maintenance of the land and shared utilities you may have.

If you borrowed money for the property you also need to take into account.

Mortgage Repayments

These are the costs most people focus on when purchasing a property. They are the highest cost when owning a property and must be taken notice of. When you take out a mortgage, effective the bank owns your property until you pay off the mortgage. If you default on your repayments, the bank can foreclose on your property, take possession of it, and sell it to make its money back. Find a mortgage calculator to determine the repayments you would need to make on your property.

And these costs are applicable if it is an investment property.

Management Fees / or Advertising, petrol etc if you are self managing.

If you have an investment property you must either manage it yourself or get a qualified property management agent to look after your property. Management fees vary per country, but it is usually around 10% of your gross rental income is taken as a fee. If you choose to manage yourself, take into account you need to spend money on petrol, driving to the house to inspect and advertising when you change tenants.

Vacancy Allowance

Many do forget, but you must continue to pay all these above property expenses even if your investment property is vacant. Ensure you calculate a small amount to put aside each week, so that it covers the above expenses when your investment property is vacant. Remember your property may become vacant for 1 - 2 weeks between tenants.

While tax benefits might help with the cash flow, it normally won't be applied until the end of the financial year, so make sure you can cover all the cash requirements until you receive the benefits.

Positive or even cash flow is essential when owning a home of your own. It is also wise to have reserve cash put aside incase you lose your job, your business doesn't make enough one month, or some of your investment properties are vacant. 6 months of living costs (so everything else, plus the above) should be saved up as soon as possible. Even putting $100 a week away will soon add up.

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