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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The typically busy spring season for the housing market was a dud, and the summer isn’t looking much brighter.
Housing services companies like Zillow Group and Rocket RKT +3.78% were loud and clear last week on earnings calls: Rocket CEO Varun Krishna called the quarter through June “one of the toughest spring housing markets in years.”
Jeremy Hofmann, Zillow’s chief financial officer, said on a conference call that the company predicted earlier this year that the market for mortgages would be flat. “We actually now think it’s going to be down low-to-mid-single digits,” he said.
The rest of 2026 will remain challenging for mortgage origination volume, says KBW analyst Bose George. The question now is what happens in 2027. “If mortgage rates remain [around] 6.75%, I think that’s going to be challenging even for next year,” he says.
But what’s bad news for mortgage companies could be a positive for bargain hunters. Buyers can expect prices to grow more slowly—or mildly decline—with less competition as long as mortgage rates remain unpredictable.
Mortgage rates at the beginning of the year were solidly below year-ago levels, notes Zillow senior economist Kara Ng. But they surpassed last year’s levels recently, she adds, referencing Freddie Mac’s weekly survey of 30-year fixed mortgage rates. Last week’s reading, at 6.69%, was higher than year-ago levels for the first time in 2026.
“From the affordability point of view, it’s going to get more challenging in the second half of the year,” she says. “And when affordability gets more challenging, that impacts sales and home price appreciation.”
Mortgage application data tracked by the Mortgage Bankers Association has cooled since the beginning of the year. The trade group expects that the number of mortgage originations in the remaining two quarters will lag behind last year’s levels, after exceeding 2025 levels in the first half.
Rocket’s early-stage data—which the company told Barron’s it derives from its brokerage Redfin, demand for its mortgage products, and signs in its servicing portfolio that a homeowner is preparing to refinance or move—“leads us to expect the third quarter mortgage market to be smaller than the second,” Chief Financial Officer Brian Brown, said on the company’s call. He added that such an occurrence is “something the industry has not seen since 2022.”
Prices will be about flat nationally, Ng says. Zillow’s most recent forecast, which shows how values are expected to change in the year ending June 2027, show them dropping in roughly half of the 100 largest U.S. metros for which data is available.
Buyers aren’t rushing in at a time when mortgage costs are rising and unpredictable. But those with the right combination of patience and cash could stand to benefit. “If you are financially qualified to buy a starter home, you are facing less competition and you’re more likely to get a price cut,” Ng says.
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