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Cost of owning a rental property!!!

Discussion in 'General Property Chat' started by Cbrgirl, 24th Mar, 2016.

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Do you wish you had sold your PPOR rather than rented it out?

  1. Yes

    3 vote(s)
    11.1%
  2. No

    24 vote(s)
    88.9%
  1. Cbrgirl

    Cbrgirl Well-Known Member

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    As a newbie to all of this, I'm quite shocked by all of the costs involved in owning a rental property. I've made a list below. For my example below, for ease, I have estimated a rental price of $500 per week. I know some costs will be slightly different (e.g. there are PM who might do 5%), but this is just a rough estimate and I have tried to be reasonable in my calculations.

    Are there any costs I have missed? Please note these are just approximate costs and can vary a lot, but it's just a rough idea for what I am up for initially if I do rent out the property:
    • Property Management Fees and other costs for PM (9%) $2700
    • Rates $2000
    • Land Tax $2500
    • Landlord Insurance $300
    • Maintenance costs (approx. - can vary each year),smoke alarms etc. $2500
    • Accountant $400
    • Property depreciation assessment $800
    • Cleaner $400
    • Carpet cleaning $200
    So at an estimated rental income of $26,000 that's already $11,800 in costs before the tenant has even moved in! 50% goes to costs! I know lots of you claim it as a tax write off or negative gearing etc. But I don't intend to do that...

    I may have to consider selling as this is unbelievable :(
     
  2. York

    York Finance Broker Business Member

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    Expenses relating to IPs vary greatly from property to property. Factors such as which state, council, age and size of the property among other things determine differences in the costs involved. It is difficult to estimate costs based on vague information.

    A few of the items you listed seem a little out of the ordinary though. $400 for an accountant is high. If they are charging this purely for a rental schedule as part of your tax return consider changing them. That's not reasonable. Land tax is also a bit high strictly for one property unless it has a land value significantly higher than the land tax threshold. Although it wouldn't seem like it should given the rental estimate. Based on that rent, the property doesn't look like a premium property. Also need to consider you if own other IPs which would also form part of your land tax bill. You PM fee is also a little high. Why do you need a cleaner every year? Also why are cleaning the carpet every year? The depreciation schedule is only done once and lasts many years giving you great deductions. It is a must have for an IP.

    Just a few things to think about.
     
    Last edited: 24th Mar, 2016
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  3. samiam

    samiam Well-Known Member

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    you could hold the property at neutral; any sign of CG? how much interest are you paying?
     
  4. D.T.

    D.T. Adelaide Property Manager Business Member

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    Depreciation schedule is a once off cost that pays dividends for years.

    Land tax is different in Canberra than other states, charged per property there so can hurt a little bit.

    Accountant cost you'd have whether you kept the property or not.

    You wouldn't need cleaner or carpet cleaner every year.
     
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  5. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    • Congratulations on writing the numbers down and working out the yield.
    • The yield (assuming a healthy gross return of 5) that you are getting is about the average/median for Australia.
    • Personally I will not touch that property at that yield but will await the expected comments to follow with regard to Capital gain, depreciation, property cycles, structures, low interest rates....
    • Caution: Not claiming NG and tax write-offs is blasphemy (and Kerry Packer God) on this forum :). I tried it and was told to count the rocks in my head. Do consider the conflict of interest of the poster before following advice.
     
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  6. bob shovel

    bob shovel Well-Known Member

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    A rule of thumb seems to be 30% so it looks a bit high.

    Scratch off depreciation as DT said, land tax is the accountants problem,

    Cleaner and carpet cleaning is the tenants cost
    Maintenance can be lumped onto the loan (debt recycling??) so you'll only have the interest costs on that amount

    What is the plan? Why are you looking at renting the ppor?
     
  7. Barny

    Barny Well-Known Member

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  8. HUGH72

    HUGH72 Well-Known Member

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    Yes costs are high, here's a few thoughts:

    Depreciation schedule is a one off cost. Carpet cleaning and cleaner expenses are initially items you need to pay for but these will be the tenants responsibility when they vacate.

    Land tax? I'm not sure where the property is, if its not in the ACT land tax most likely wouldn't be payable.
    Your maintenance allowance is high but realistic as some years it will be much lower but then expensive repairs are required occasionally.
    You mention that you wouldn't claim expenses yet have included accounting costs, for your accountant to complete your tax return correctly these are required. Are you suggesting that you should pay extra tax on the $26000 rental income?

    Resi property does have a low net yield no doubt but think about the big picture, what will the rental income be in 10 years? It won't be $500 per week.
    How much will the property be worth in 20 years?
    If you do sell do you have a viable plan for the money?
     
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  9. samiam

    samiam Well-Known Member

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    some are one off costs e.g., cleaning, you did before you rent it out, after that every tenant should do/pay for end of lease cleaning
    Edit: already as above, I just type slow
     
  10. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Currently @ 9.5% but not in property.
    For me property is only for unlocking / adding value.
     
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  11. HUGH72

    HUGH72 Well-Known Member

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    Where is the conflict of interest? In a free market anyone is free to do as they please, pick your hand and roll with the consequences.
    A fully owned property returns a low net yield, I don't think anyone questions this, if it's not for you then don't do it.
    The only outcome which is assured is what will happen if someone doesn't invest in any asset class.
     
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  12. Cbrgirl

    Cbrgirl Well-Known Member

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    Oh, and don't forget all the yearly strata costs (if you have body corporate!). So add that in too - extra $2500-$3000 per year. Plus costs of water and sewerage supply, so that's another $500 per year too! Any other costs I may have missed? Thanks for your comments - the property is in a good area and is expected to go up in value. So that's the only advantage that I can really see as some of you have mentioned - holding onto it as a long-term asset and making a tiny bit of money in the meantime. I guess I need to approach it from that perspective or sell it...
     
  13. Nemo30

    Nemo30 Well-Known Member

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    In another thread the op has said the property is in Canberra. Land tax works differently in Canberra to everywhere else. It's not cumulative, you pay a set amount per property. You cant rearrange ownership to get out of it. It's paid in the same way you pay the rates for the property.

    The exact amount of the rates and land tax can be found on allhomes. I pay a little bit less than that for both, but I know others who pay substantially more.

    I would cross off the cleaning and carpet cleaning - perhaps a one off when you first tenant the place, however after that it's the tenants responsibility to return it in the same condition.

    As previously mentioned the depreciation is a once off. I'd get a few quotes I paid a bit less than that. I used 'write it off'. I've heard good things about Depreciator as well.

    Accountant I pay $275 in Canberra for a basic return with a few ip's.

    You'll have quarterly water service charges as well. You can pass the usage to the tenant, but will still need to pay the service charge.

    Insurance is likely to be over $1000 per year too.
     
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  14. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    What about interest ?
     
  15. willair

    willair Well-Known Member Premium Member

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    Seems to be a lot of outgoings on something like this,the only lows costs are the Accountants fees-and the landlord insurance,which both are on the slim side,but i know from experience
    long term held property on large land area's make the most money long term with the past as a indication of the future performance,maybe just target a different type of property next time..
     
  16. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Ummm....hate to say it but anyway ...Business members. Some do give wonderful free advice here but all ? But in fairness must include that their advise also contains expertise and experience.

    Are we in a cult (of Kerry Packer's Gospel) now ? Cannot have a differing opinion ?

    • Term deposits, cash bonds just for starters. Assured returns on investments.
    • Even in property, there are investments with assured returns much more than residential ponzi scheme (my opinion anyway).
     
  17. Cactus

    Cactus Well-Known Member

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    I also look to unlock and add value in my property investments.
    In doing this I generally spend money on things classified as expenses.
    When I sell and make revenue I deduct these expense from my revenue to determine my taxable profit. I assume you do the same or the rock counting will get hard for you as you may run out of fingers and toes...

    How is this any different to those running a rental property portfolio (read: Business) deducting their expenses (Read: Negative Gearing) on tax and when acknowledging the revenue paying the appropriate tax from the written down value?

    This is not an elaborate tax structure with transfer pricing to avoid paying tax in this country, NG is simply a deferral tool that is completely legal and was brought in by the government for the reason it is being used. It is not even exploitation of a loophole, it is the appropriate use of the tax system.

    I can accept your negativity around if its is from a policy point of view, but to not claim the deductions you are entitled to is completely 'rocks in the head' territory to use your words.
     
  18. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    • There are enough benevolents on this forum like yourself, to remind me about the rocks. Truly indebted for your psychiatric advise.
    • I am guessing that it is very smart to base an investment strategy on incurring a loss which can then be transferred to Negative Gearing and the Capital Gain (which also has an exemption).
    • NG=Deferral tool ? It is an annual tax payer's subsidy for economic misadventures of the entitled few. Privatise the profits socialise the losses.
    • I was not referring to NG as a structure, but the elaborate structures that form around property investment to redistribute the income, expense, profits and losses. How about this legal sandwich Double Irish With A Dutch Sandwich Definition | Investopedia
    • Business's quarantine the expenses and losses against business income and profits. Losses and expenses are not offset against personal incomes. NG is a bastardization of investment losses against personal income encouraging speculation in loss making unproductive assets in addition to contributing to social inequality. E.g. The issue was addressed in 1986 in USA where it was recognized as a problem. Read the links in my other post at Bill shorten poised to take negative gearing.
    Back to my count 1536 or 1436....must start again.
     
  19. TMNT

    TMNT Well-Known Member

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    This is life

    At least the next time you assume your landlord is a greedy money hungry loaded person. Youll think twice !

    You also havent included lease fee
    Vacancies
    Periodic inspection fees
    Lease prep fees
    Financial statement fees
    Monthly statement fees

    Welcome to reality
     
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  20. Cbrgirl

    Cbrgirl Well-Known Member

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    Thanks for your feedback. I have a private financial arrangement under which I cannot negatively gear as my declared taxable income is just too low. I can claim normal expenses and tax deductions (e.g. accountant fees), but I would probably only get back 30% of these costs in my tax, so I am still paying for the majority of expenses out of my income. A tax deduction is only a deduction - so it seems that I won't be reimbursed by the tax system for the full amount of what I have actually paid out.

    Based on the rough example and all the costs I mentioned above, I am only likely to bring in about $15,000 a year in income from this property - which isn't what I had hoped, and it's mainly because of all the high costs involved :(

    I just wanted to calculate all the expenses and highlight all the exorbitant costs involved in having a rental property and see if there were any costs I could have possibly missed. Grateful to all of you for your advice and opinions - it is how I learn more