Property investment holding costs are the ongoing expenses required to own and operate a rental property. These costs directly affect cash flow, tax outcomes, and whether a property is positively or negatively geared, making them essential to assess before and after purchase.
Key Takeaways
- Holding costs go beyond the purchase price and directly impact investment cash flow
- Mortgage interest is usually the largest ongoing expense for investors
- Many holding costs are tax-deductible and can improve after-tax returns
- Vacancy periods and unexpected repairs must be budgeted for
- Understanding holding costs helps investors avoid financial stress and poor returns
What Are Property Investment Holding Costs?
Property investment comes with various ongoing expenses, known as holding costs, that investors must consider beyond the initial purchase price to accurately determine cash flow and profitability. These costs are a necessary part of managing a rental property and ensuring it remains compliant, functional, and attractive to tenants.
For investors assessing affordability or gearing outcomes, understanding holding costs is just as important as the purchase price itself. This is especially relevant when structuring finance through investment property loans.
Major Ongoing Holding Costs Investors Face
Mortgage Interest Payments
For most investors, interest on an investment loan represents the largest single expense and a major factor in determining whether a property is positively or negatively geared. Interest rate changes can significantly alter cash flow, which is why loan structure and lender choice matter.
Property Management Fees
Many investors engage professional property managers to handle tenant selection, rent collection, inspections, and maintenance coordination. These fees are usually charged as a percentage of gross rental income and can vary depending on location and service level.
Council and Water Rates
Local council rates and water charges apply to most properties and vary based on location, land value, and property type. These are unavoidable holding costs that continue regardless of whether the property is tenanted.
Insurance Premiums
Investors should budget for building insurance, which covers the physical structure, as well as landlord insurance. Landlord insurance protects against tenant-related risks such as accidental damage, theft, legal liability, and loss of rental income.
Maintenance and Repairs
All properties require ongoing upkeep, from routine maintenance like plumbing or electrical repairs to larger, unexpected expenses such as hot water system replacements or roof repairs. A common rule of thumb is to set aside around 1 per cent of the property’s value per year for maintenance.
Strata or Body Corporate Levies
For apartments, townhouses, or units, strata or body corporate levies are mandatory. These fees cover common area maintenance, shared facilities, building insurance, and administrative costs.
Land Tax
Land tax is a state-based charge that generally applies once an investor’s total land holdings exceed a certain threshold. Rates and thresholds vary significantly between states and should be factored into long-term holding costs.
Additional Costs and Considerations
Vacancy Periods
Even well-located properties can experience vacancies. During these periods, holding costs continue without rental income. Budgeting for a vacancy buffer of two to four weeks’ rent per year is a sensible risk-management strategy.
Legal and Accounting Fees
Professional fees for tax returns, compliance advice, tenancy disputes, and legal documentation are ongoing expenses that investors should not overlook.
Tax Benefits and Depreciation
While holding costs can be significant, many are tax-deductible against rental income. Depreciation deductions can also materially improve after-tax cash flow. Engaging a qualified quantity surveyor can help maximise depreciation claims on both the building structure and eligible fixtures.
Investors often combine tax planning with broader property investment strategies to optimise long-term outcomes.
Why Understanding Holding Costs Matters
Accurately assessing holding costs helps investors avoid overextending financially, plan for interest rate changes, and maintain confidence during market fluctuations. It also plays a critical role when deciding whether to buy, hold, or sell an investment property.
For tailored advice on structuring finance and managing investment risks, speaking with a specialist mortgage adviser can make a significant difference. Learn more about our approach on the About Perry Finance page or Contact our team to discuss your investment goals.
