The Cost of Holding an Investment Property
What an investment property costs to hold each year — interest, rates, insurance, maintenance, management and land tax, with a worked budget on a $650k rental.
Holding costs are everything a property charges you just to keep owning it: loan interest, rates, insurance, maintenance, management, and in some cases land tax. They arrive whether the property grows in value or not.
Most new investors budget for the mortgage and wing the rest. So here's the full annual budget for a typical $650,000 rental — every line in the open.
The monster line: loan interest
Interest dwarfs everything else. Borrow $520,000 — an 80% loan on our $650,000 property — and at around 6%, interest alone runs roughly $31,000 a year. That's about $600 a week before any other bill.
Two things make this line special. It moves: every 1% rate change swings it by about $5,200 a year on this loan, in either direction. And it's fully deductible — you subtract it from your income before tax is worked out — which softens it later but pays none of it now.
If you stress-test only one number before buying, test this one at a couple of percentage points above today's rate.
The steady drumbeat: rates, water, insurance
Council rates on a property like this typically run around $1,500 to $2,500 a year, depending on the council. Water service charges — the fixed supply charges owners usually wear even when tenants pay for usage — add several hundred to over a thousand more.
Landlord insurance — which covers tenant-related risks like unpaid rent and damage, on top of the building itself — commonly lands around $1,500 to $2,500 a year for a house, varying with location and cover. Skipping it to save money is saving on the parachute.
Call this cluster roughly $4,000 to $5,000 a year for our example house. Apartments swap some of it for strata levies (the shared-building fees), which can easily exceed it.
The unpredictable one: maintenance
Maintenance is the line everyone under-budgets, because most months it's zero — until the hot water system dies and it's suddenly $1,800.
A common rule of thumb is to set aside around 1% of the property's value per year for maintenance and repairs — about $6,500 on our $650,000 place. Newer properties often come in under that; older ones treat it as a floor, not a ceiling. Even budgeting half beats budgeting nothing.
The allowance isn't about precision — it's so surprise costs stop being surprises.
⚠️The trap
Budgeting maintenance at zero because nothing broke last year. Properties break on an average, not a schedule — hold one long enough and you'll meet the average.
Management, vacancy, and the state's cameo
A property manager typically charges around 5% to 10% of the rent, plus a letting fee of one to two weeks' rent when tenants change — roughly $2,000 to $3,000 a year all-in on $550 a week. Self-managing deletes this line and replaces it with your weekends.
Budget for vacancy too: two empty weeks a year on this place is about $1,100 of rent that never arrives.
Then land tax, the yearly state tax on investment land. It exists in every state and territory, but each sets its own thresholds and rates — many investors with a single modest property pay little or none, while others cop thousands. Check your state revenue office's calculator so it doesn't surprise you in year two.
The whole year on one page
The total for our $650,000 house with a $520,000 loan and $550 a week in rent:
- Loan interest: roughly $31,000
- Council rates and water charges: roughly $2,500 to $3,500
- Landlord insurance: roughly $1,500 to $2,500
- Maintenance allowance: roughly $3,000 to $6,500
- Property management and letting fees: roughly $2,000 to $3,000
- Land tax: $0 to a few thousand, depending on your state and what else you own
- Total holding costs: roughly $40,000 to $47,000 a year, against about $28,600 in rent
🧮Reality check
This property runs $12,000 to $18,000 short per year before tax. Deductions and depreciation claw a chunk back at your marginal rate — but the monthly bills arrive first.
FAQ
How much should I budget to hold an investment property each year?
Beyond loan interest, a rough guide is around 1.5% to 2.5% of the property's value per year for running costs — rates, insurance, maintenance and management combined. Add interest on top and stress-test it at higher rates before you buy.
Are all these holding costs tax deductible?
Most of them — interest, rates, insurance, management fees, repairs and land tax are all deductible against your rental income, and depreciation adds a paper deduction on top. But a deduction returns only your marginal rate on each dollar, not the dollar itself; the bulk of the cost is still yours.
Do I pay land tax on an investment property?
Possibly. Every state and territory levies land tax on investment land, but each has its own tax-free threshold and rates, and your own home is generally exempt. Many single-property investors pay little or nothing; check your state revenue office's calculator for actual numbers.
Run your own numbers
Sources: figures checked against ATO published rates and thresholds for FY2025-26 at the review date. See how we check our numbers.
⚠️ General information only — not tax or financial advice. Figures relate to FY2025-26 unless stated otherwise.