One of the questions that first time property investors often ask is how much will the ongoing maintenance and other expenses for their investment cost, and how much they should put aside in reserve for unforeseen expenses (such as a lengthy rental vacancy period). Having a small amount of money set aside for maintenance, repairs or other costs is one of the most sensible property investment strategies you can make when you’re starting on the journey of building a successful property portfolio.
Ongoing Operating Expenses
In general if you own a property as an investment you will have a number of ongoing expenses related to that property, including a mortgage, insurance and property taxes. Obviously working out your mortgage expenses will need to be part of your long-term strategic plan for investing, and the costs will vary depending on the type of property you buy and its location.
If you have purchased an apartment within a development as an investment then you will also be paying strata fees (also known in some states as owners Corporation fees or Body Corporate fees). These will vary depending on the type of services and facilities in the development such as gardens, swimming pools, lifts or gymnasiums, as well as the features of the unit such as its size and number of bedrooms. Obviously the more facilities the building has the higher the strata fees, however these buildings also tend to attract a higher rental income as they are more desirable, thus helping to off set the cost of the fees in the long run. In off the plan developments, strata fees are generally estimated before the property is completed so that prospective owners can plan get an indication of their ingoing costs. Getting professional assistance from a property investment company when considering buying an off the plan property will help to clarify these fees.
Having A Reserve Fund
Most property investors believe that one of the best property investment strategies is maintaining or setting aside some money for those unexpected expenses that crop up from time to time with a rental property. A reserve fund can be different from the money you put aside each month or quarter for your operating expenses, and really acts more as a contingency fund in the case of expenses such as one-off repairs. Having a few thousand dollars tucked away in a bank account or Offset account for your investment property can also be useful in the case of an unexpected rental vacancy. To some extent, protecting yourself against lengthy rental vacancies can simply be a matter of choosing desirable locations and developments that will always be appealing to tenants. While it is not always possible to predict the rental market and the fluctuations in rental demand, it is possible to purchase investment properties that will always attract high value, professional tenants – for example, brand new inner city apartments.
In terms of a reserve fund, many experts believe that having around 5 to 10% of the total value of your property is a safe way to ensure you will always be protected, although for many people this amount may be difficult to maintain. Another option is to keep a certain percentage of the monthly rental income for repairs and other unforeseen costs.
Ultimately, the success of your investments in property will be dependant on the research you have conducted, the amount of planning you have done as well as the quality of the help and support you receive as you go through the process. Experienced property investors such as Ironfish can provide you with timely, professional assistance that will help you build the property portfolio you’ve always dreamed of.