Building a new investment property is exciting, but the months between settlement on the land and handing over the keys to a tenant can be an expensive blind spot. Loan interest, council rates, land tax and insurance keep accruing throughout the build, and it’s easy to underestimate how much these ongoing ‘holding costs’ add up to before a tenant ever moves in.
This general information only article for Australian investors focuses on the practical, budgeting side of holding costs while your investment property is under construction: what they are, why they can catch investors off guard, and how to plan for them financially. It is not tax advice, and this article does not attempt to explain how the tax law applies to your situation — for that, speak with a registered tax agent who can look at your specific loan structure, ownership entity and timeline.
What counts as a ‘holding cost’
Holding costs are the ordinary running expenses of owning land or a partly built property before it is tenanted. They typically include:
- Interest on the loan used to buy the land and fund construction
- Council rates and body corporate or owners corporation fees, where applicable
- Land tax
- Building and landlord insurance premiums during construction
- Loan establishment or account-keeping fees related to the holding period
These costs are real and ongoing, and they need to be budgeted for separately from your regular rental cash-flow forecast once the property is tenanted.
Why this catches investors off guard
Many investors plan their build-phase cash flow around their regular income and their eventual rental income, without setting aside a clear allowance for the holding-cost period in between. Because this period can run for many months, sometimes longer than expected if a build is delayed, the cumulative cost of loan interest, rates, land tax and insurance can be substantial before a single dollar of rent is received.
Treat holding costs as a real, out-of-pocket expense to plan for in your budget. How these costs are ultimately treated for tax purposes depends on your individual circumstances, so speak with a registered tax agent about your own situation well before your build begins.
Practical cash-flow takeaways while you build
- Budget for the full holding-cost period as a real, uncushioned cost in your cash-flow plan.
- Track key milestone dates — such as when the build is completed and when the property is first available for rent — since these matter for your overall financial planning.
- Keep clear records of your build costs, loan drawdowns, rates, insurance and land tax payments as you go.
- Talk to your broker about how your construction loan’s interest-only period lines up with your expected build and leasing timeline, so repayments and holding costs don’t collide with other financial commitments.
- Speak with a registered tax agent early in your build about your own situation, rather than waiting until tax time.
These observations are general in nature. Individual circumstances vary, and only a registered tax agent or qualified financial adviser can confirm how the rules apply to your situation.
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TL;DR
- Holding costs like loan interest, council rates, land tax and insurance keep accruing throughout a build, before a property earns any rental income.
- Many investors don’t separately budget for this holding-cost period, so costs can add up substantially before rent arrives.
- Budget for the full holding-cost period as a real, ongoing cash-flow expense rather than a cost you’ll only address later.
- Talk to your broker early about how your construction loan’s interest-only period lines up with your build and leasing timeline.
- How holding costs are treated for tax purposes depends on your circumstances; speak with a registered tax agent about your own situation.
Frequently Asked Questions
Holding costs are the ordinary expenses of owning land or a property under construction before it is tenanted, such as loan interest, council rates, land tax, insurance and related loan fees. They continue to accrue throughout the build regardless of when the property is finished.
Builds can take longer than planned, and many investors don’t separately budget for the holding-cost period between settlement and the first rent payment. Because these costs are ongoing and real, they can add up to a significant amount before any rental income arrives.
There’s no single figure — it depends on your loan amount, interest rate, rates and insurance premiums, and how long your build is expected to take. A useful starting point is to ask your broker or builder for a realistic build timeline, then estimate each ongoing cost across that period so you have a dedicated buffer rather than relying on rental income that hasn’t started yet.
Your broker can help structure your construction loan and its interest-only period around your expected build and leasing timeline, so you can see clearly what repayments and other holding costs to plan for at each stage of the build.
Important Information
General information only; this is not personal advice. Speak with a mortgage broker and a registered tax agent about your specific circumstances before making financial or lodgement decisions.
