Holding costs
Everything it costs to own a property each year, whether or not it is earning rent.
Holding costs are the recurring expenses of ownership: loan interest, council rates, water rates, land tax, insurance, strata levies, management fees, and maintenance. They continue whether the property is tenanted or empty.
They are what turns an apparently attractive yield into a modest one. A 5% gross yield can fall below 3.5% net once every outgoing is deducted, which changes the investment case entirely.
On an income-producing property they are deductible against rent, and any excess creates the loss that negative gearing relies on. On an owner-occupied home, none of them are deductible.
Where the rent actually goes
Rent of $31,200 against $22,000 of interest, $2,400 rates, $1,600 insurance, $5,600 strata and $2,200 management leaves a $2,600 shortfall before a single repair is paid for.
The bit people get wrong
First-time investors routinely model interest and rates and forget everything else. Strata, land tax, management fees, vacancy and maintenance together often exceed the council rates people do remember to include.
Common questions
Which holding costs are deductible?
On a rental property, essentially all of them — interest, rates, insurance, strata, management, land tax and repairs — for the periods the property was genuinely available for rent.
What should I budget for maintenance?
A common rule of thumb is 1% of property value a year, though older properties and houses with gardens and roofs run higher than modern apartments.
Can I claim costs while the property is vacant?
Yes, provided it remains genuinely available for rent and you are actively seeking tenants at a realistic market rent.
Run your own numbers