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
2 min
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.
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Buyer demand, seller confidence and the First Home Guarantee Scheme are setting up a frantic spring, with activity likely to run through Christmas.
2 min
The spring property market is shaping up as the most active in recent memory, according to property experts Two Red Shoes.
Mortgage brokers Rebecca Jarrett-Dalton and Brett Sutton point to a potent mix of pent-up buyer demand, robust seller confidence and the First Home Guarantee Scheme as catalysts for a sustained run.
“We’re seeing an unprecedented level of activity, with high auction numbers already a clear indicator of the market’s trajectory,” said Sutton. “Last week, Sydney saw its second-highest number of auctions for the year. This kind of volume, even before the new First Home Guarantee Scheme (FHGS) changes take effect, signals a powerful market run.”
Rebecca Jarrett-Dalton added a note of caution. “While inquiries are at an all-time high, the big question is whether we will have enough stock to meet this demand. The market is incredibly hot, and this could lead to a highly competitive environment for buyers, with many homes selling for hundreds of thousands above their reserve.”
“With listings not keeping pace with buyer demand, buyers are needing to compromise faster and bid harder.”
Two Red Shoes identifies several spring trends. The First Home Guarantee Scheme is expected to unlock a wave of first-time buyers by enabling eligible purchasers to enter with deposits as low as 5 per cent. The firm notes this supports entry and reduces rent leakage, but it is a demand-side fix that risks pushing prices higher around the relevant caps.
Buyer behaviour is shifting toward flexibility. With competition intense, purchasers are prioritising what they can afford over ideal suburb or land size. Two Red Shoes expects the common first-home target price to rise to between $1 and $1.2 million over the next six months.
Affordable corridors are drawing attention. The team highlights Hawkesbury, Claremont Meadows and growth areas such as Austral, with Glenbrook in the Lower Blue Mountains posting standout results. Preliminary Sydney auction clearance rates are holding above 70 per cent despite increased listings, underscoring the depth of demand.
The heat is not without friction. Reports of gazumping have risen, including instances where contract statements were withheld while agents continued to receive offers, reflecting the pressure on buyers in fast-moving campaigns.
Rates are steady, yet some banks are quietly trimming variable and fixed products. Many borrowers are maintaining higher repayments to accelerate principal reduction. “We’re also seeing a strong trend in rent-vesting, where owner-occupiers are investing in a property with the eventual goal of moving into it,” said Jarrett-Dalton.
“This is a smart strategy for safeguarding one’s future in this competitive market, where all signs point to an exceptionally busy and action-packed season.”
Two Red Shoes expects momentum to carry through the holiday period and into the new year, with competition remaining elevated while stock lags demand.
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