A rental yield can look neat on a spreadsheet until the holding costs arrive. For Victorian investors, the real test is not simply whether rent covers the loan. It is whether the property still makes sense after the ordinary, recurring and occasional costs are allowed for.

Start with loan repayments, but do not stop there. Interest costs may be the largest line item, especially in 2024, yet they are only one part of ownership. Council rates, water service charges, landlord insurance, owners corporation fees and property management fees can materially change the monthly position.

Maintenance needs its own allowance. A property that has been freshly leased can still need plumbing work, appliance replacement, heating attention, gutter cleaning or minor safety repairs. Treating maintenance as a surprise makes the property feel worse than it is. A regular allowance gives the owner room to act quickly when something breaks.

Vacancy should also be budgeted. Even strong rental areas can have gaps between renters, especially if a property needs cleaning, repairs or fresh marketing before the next agreement begins. One or two vacant weeks can reduce the annual return noticeably. For apartments, timing can be affected by lift bookings, move-in rules and owners corporation processes.

Taxes and levies need professional checking. Land tax, vacant residential land tax, income tax treatment and ownership structure can change the net result. Investors should not rely on a rough rule from another owner, because thresholds and circumstances vary. The conservative approach is to ask an accountant or tax adviser before purchase and again when circumstances change.

Compliance costs should not be treated as optional. Smoke alarms, heating, electrical safety, water efficiency, blinds, locks and general property condition all affect whether a rental is suitable and marketable. Even when a cost feels inconvenient, avoiding it can create bigger problems if a renter raises a repair or safety issue later.

A useful holding-cost budget has three columns: predictable costs, likely annual costs and shock costs. Predictable costs include rates and insurance. Likely annual costs include small repairs and vacancy. Shock costs include a failed hot-water service or urgent roof leak. If the investment still holds together across all three, the decision is more resilient than a yield calculation alone.

This article is general information only and doesn’t take your personal circumstances into account. It is not financial or legal advice. Before acting, consider seeking advice from a qualified professional such as a licensed broker, conveyancer or solicitor.