The 10 biggest costs of real estate investment

New tax data reveals the 10 largest holding costs that landlords pay to maintain their real estate investments. While the biggest expense is an obvious one – interest on loans – the next biggest cost categories may be surprising. The second biggest expense was council rates and the third greatest cost was the fees landlords pay their property managers to collect the rent and organise repairs.

The Australian Taxation Office documents all 19 cost categories of real estate investment in the latest round of annual tax data just released for the 2022 financial year. Two of the cost categories are depreciation expenses, which do not come out of pocket but can be claimed by landlords as capital works and capital allowances to reduce their taxable income.

Landlords paid $15.76 billion in interest on their loans in FY22, along with $3.94 billion in council rates and $3.30 billion in property management fees. Property management is typically charged as a percentage of monthly rent, with other fees such as new tenancy agreements added on top.

Repairs and maintenance was the next biggest cost category with $3.19 billion shelled out to rectify issues. The fifth largest expense was body corporate fees at $3.12 billion. Body corporate fees are paid by landlords who own strata-title investment properties, such as apartments and townhouses.

The sixth biggest expense was insurance at $1.99 billion. Insurance costs may include protection against damage to the building as well as landlords’ insurance to cover rent defaults and contents. Landlords also paid $1.72 billion for water and sewerage services, with tenants in some parts of Australia like Queensland and Western Australia required to chip in to cover their water usage.

Land tax was next with $1.64 billion paid by landlords whose properties exceeded certain land values prescribed by their state or territory governments. Land tax has been a hot topic in Victoria in 2024 after the state government slashed the tax-free threshold from $300,000 to $50,000 from 1 January. The final two costs among the top 10 real estate investment expenses were $1.19 billion paid out to cover sundry expenses and $381.39 million for professional cleaning services.

In FY22, there were 2,268,161 landlords who owned investments either solely or jointly. This was one percent higher than in FY21 or the equivalent of 22,600 new landlords. FY22 was only the second year in more than two decades that a majority of landlords were cash flow neutral or positive instead of negatively geared. This was due to record low interest rates.

The official cash rate remained at an emergency low for the first 10 months of FY22, with the cheapest interest-only investment variable rates being about 2.5 percent at the time. Today, the cheapest interest-only variable rates are closer to seven percent, according to RateCity.

Former President Donald Trump said he would ban undocumented immigrants from obtaining home mortgages, a move he indicated would help ease home prices even though these buyers account for a tiny fraction of U.S. home sales.

Home loans to undocumented people living in the U.S. are legal but they aren’t especially common. Between 5,000 and 6,000 mortgages of this kind were issued last year, according to estimates from researchers at the Urban Institute in Washington.

Overall, lenders issued more than 3.4 million mortgages to all home purchasers in 2023, federal government data show.

Trump, the Republican presidential nominee, made his comments Thursday during a policy speech to the Economic Club of New York in Manhattan.

Housing remains a top economic issue for voters during this presidential election. Rent and home prices grew at historic rates during the pandemic and mortgage rates climbed to levels not seen in more than two decades. A July Wall Street Journal poll showed that voters rank housing as their second-biggest inflation concern after groceries.

Both major candidates for the 2024 presidential election have made appeals to voters on housing during recent campaign stops, though the issue has so far featured more prominently in Vice President Kamala Harris ’s campaign.

Trump has blamed immigrants for many of the nation’s woes, including crime and unemployment. Now, he is pointing to immigrants as a cause of the nation’s housing-affordability crisis. Yet some affordable-housing advocates and real-estate professionals said Trump’s mortgage proposal would fail to bring relief to priced-out home buyers.

“It’s unfortunate that given the significant housing affordability crisis that is widely acknowledged across most partisan lines, we are arguing about a minuscule segment of the market,” said David Dworkin, president of the National Housing Conference, an affordable-housing advocacy group.

Gary Acosta, chief executive of the National Association of Hispanic Real Estate Professionals, a trade organization, said, “It’s just another effort to vilify immigrants and to continue to scapegoat them for any issues that we have here in the United States.”

A Trump campaign spokeswoman didn’t immediately respond to a request for comment.

Undocumented immigrants in the U.S. can obtain an obscure type of mortgage designed for taxpayers without Social Security numbers, most of whom are Hispanic. The passage of the USA Patriot Act of 2001 allowed banks to use identification numbers from the Internal Revenue Service as an alternative to Social Security, extending a number of financial services to people without legal status for the first time.

Mortgage loans for undocumented immigrants are typically higher interest and borrowers include legal residents who have undocumented spouses, Acosta said. Lenders include regional credit unions and community-development financial institutions.

In his speech, Trump said that “the flood” of undocumented immigrants is driving up housing costs. “That’s why my plan will ban mortgages for illegal aliens,” he said.

Trump didn’t elaborate on how he would enact a ban on such loans.

Though mortgages for undocumented people living in the U.S. are relatively rare, residential real-estate purchases by foreign nationals are big business , especially in expensive coastal cities such as New York and Los Angeles. These sales have declined in recent years, however.

Close to half of foreign purchases are made by people residing abroad, while the other half are made by recent immigrants or residents on nonimmigrant visas, according to an annual survey by the National Association of Realtors. Many affluent foreigners buy U.S. homes with cash instead of obtaining mortgage financing.

In his Thursday speech, which focused mostly on other economic matters such as energy and taxation, Trump proposed other measures to bring down housing costs, including cutting regulations for builders and allowing more building on federal land. Similar ideas appeared in the housing policy outline Harris released in August .

The former president has spoken on housing-related issues in speeches at other recent campaign stops, including in Michigan last month, where he touted his administration’s 2020 overturn of a policy that had encouraged cities to reduce racial segregation .

“I keep the suburbs safe,” Trump said. “I stopped low-income towers from rising right alongside of their house. And I’m keeping the illegal aliens away from the suburbs.”

The 10 biggest costs of real estate investment

Data from the Australian Taxation Office revealed the hidden expenses of owning an investment property are significant

The Republican nominee says it would help bring down home prices, though these buyers account for a fraction of U.S. home sales