New property investors can get carried away by the belief that property prices only go up, positively affecting the investment. It’s important to remember that there are always the initial costs, coupled with ongoing costs and potential risks that you should consider and prepare for, too.
For a mortgage broker Auckland property investors can depend on, look to the experienced team at Mortgage Masters for independent expert advice. Below, we explore common costs associated with property investment and how to manage them.
Depending on your lender and how large your home loan is, you may be required to pay a loan establishment fee, a documentation fee or a low equity fee. These costs can be negotiable and/or added to the loan. Set-up costs differ depending on who you borrow from, how much you borrow, and the type of loan, so speak to your lender to find out more.
Other initial expenses include:
- Conveyancing fees
- A Land Information Memorandum (LIM)
- Registered valuation
- Building inspection
- Insulation installation (required by law from 1 July 2019 in all rental properties)
Whether you’re a first time property investor, a seasoned investor, or need a mortgage to buy commercial property as an investment, it’s likely your lender will require you to get insurance as a condition of your mortgage, adding an additional ongoing cost on top of the loan. Most insurance companies offer cover specially designed for landlords that insures against sudden accidental damage, hidden gradual damage, and legal liability. Some policies even include cover for methamphetamine contamination, loss of rent, and deliberate damage by tenants.
Other ongoing costs include:
- Council rates
- Body corporate fees
- Maintenance and repair costs
- Property management
- Professional services, e.g., accounting and legal
Understand the Risks
Most risks can be reduced by making well-informed decisions and avoiding financial over-commitment. If the market depreciates your property while you are financially over-committed, you may be forced to sell, losing significant amounts of money.
Many investors take advantage of the leverage they can access to purchase more investments, resulting in better overall returns. However, it’s important to remember that leveraging also intensifies risk if house prices drop.
Get the Right Home Loan
Not enough property investors are thinking about how to structure their mortgages, potentially causing them to incur more costs than necessary. Finding the right mortgage structure for your personal circumstances is essential, whether it’s principal and interest, interest only or revolving credit.
Consult an Auckland mortgage company before purchasing your next investment property to determine the right home loan option for you. You can also explore options for refinancing to reduce the overall costs you incur.
Free Consultation from the Best Mortgage Broker Auckland Has
At Mortgage Masters, the independent advisors at our Auckland mortgage company can help you find the right mortgage for your unique situation and goals. From finding a mortgage to buy commercial property through to general advice on property investment, you can get in touch today for a free consultation.