Passive Partnerships is much easier for new homeowners to get started, and investors make more money too. The only way both of those can be true at once is if a large number of costs disappear. That is exactly how the system has been designed: align the incentives, and layers of cost fall out.
This article details all the unproductive costs that are completely eliminated or reduced, for both the investor and the homeowner.
Investor costs that disappear or reduce
The numbers here come from the online calculator and are based on industry averages. Every property will be different. If you have no property manager then the landlord time will be much higher. You may have no vacancies for years, and then a long period without tenants. All figures are based on a $700,000 property with a $560,000 mortgage (80% LVR). For a detailed look at why each of these landlord costs exists, see why renting costs so much.
| Costs of managing the property | Cost per year | Why the cost disappears |
|---|---|---|
| Property management fee | $2,288 | Replaced by the PP admin fee, which is lower because there is less to do |
| Property inspections | $286 | Disappears — no tenant/landlord relationship |
| Re-letting fee (annualised) | $286 | Disappears — no tenant/landlord relationship |
| Vacancy / lost rent (annualised) | $429 | Disappears — no tenant/landlord relationship |
| Accountant / tax preparation | $501 | Dramatically lower — you get a statement, like a bank term deposit |
| Legal fees (disputes, leases) | $143 | Disappears — no potential disputes, one party is completely passive |
| Healthy Homes compliance | $572 | Disappears — no tenant/landlord relationship |
| Smoke alarm servicing | $114 | Disappears — no legal requirement |
| Meth testing (annualised) | $114 | Disappears — no tenant/landlord relationship |
| Landlord insurance | $572 | Disappears — no tenant/landlord relationship |
| Contractor coordination markup | $143 | Disappears — not responsible for maintenance |
| Opportunity cost of capital reserve | $286 | No need to hold capital ready for repairs |
| Landlord time | $900 | There is literally no work or time required |
| Total — all costs of managing the property | $6,634 | Most of the administration overhead goes completely |
Along with no longer paying all these costs, investors also never have to think about any of these details or the hassles that come with them. Most investors will not miss any of it.
Share investing has shown over time that if you can dramatically lower the cost of owning while still getting the average return for the whole market, that cost saving compounds into consistently higher total returns. The same strategy as index funds, applied to property →
Homeowner costs that disappear or reduce
The two main savings are banking fees and maintenance.
Banking fees
Below are the typical annual costs embedded in a bank mortgage, broken down by component. The figures are derived from the bank's Net Interest Margin — the spread between what they charge borrowers and what they pay depositors — applied to a $560,000 mortgage. For the full story on what drives each of these bank costs, see why home loans are so expensive.
| Bank cost component | Cost per year | Why the cost is lower |
|---|---|---|
| Operating costs (staff, IT, branches, compliance, fraud) | $5,208 | PP administration is all online and much simpler |
| Credit loss provisions | $448 | No loan, so no credit loss provision |
| Regulatory capital costs | $840 | No loan, so no capital requirements or regulations |
| Net profit | $5,600 | Passive Partnerships is non-profit, so this is zero. Most of this bank profit heads to Australia |
| Tax estimate | $1,008 | Banks earn so much profit they pay tax on it — and that is ultimately paid by you |
| Total bank Net Interest Margin | $13,104 | Most of these costs disappear completely |
Some of these costs are remarkably high. $5,600 a year in bank profit alone adds up to $168,000 over a 30-year mortgage. In a Passive Partnership, bank interest is replaced by an equity-sharing arrangement with the investor — a different cost structure, but one that is lower overall and better aligned to both parties' interests. See the full weekly and lifetime breakdown →
Some of these costs are also quite revealing, like the bank tax. It is often said we should tax the banks more, but as this shows, banks simply pass that cost on, so borrowers ultimately foot the bill.
Maintenance
Maintenance can cost between 0.5% and 3% of property value per year depending on the state and type of property, and it can cost 15–30% less in owner-occupied properties, for a range of well-known reasons. Why maintenance is cheaper and better under co-ownership →
On a $700,000 property that is a saving of anywhere between $500 and $6,000 per year. A typical mid-range saving would be around $2,500 per year.
Total saving for both parties — up to $20k per year, every year
| Saving | Approximate value per year |
|---|---|
| Property management costs | $6,600 |
| Bank fees | $13,000 |
| Maintenance savings | $500–$6,000 |
| Total saving | $20,000+ |
One new cost — the Passive Partnership fee
All of these costs are replaced with a simple Passive Partnership Administration Fee, shared 50/50, of about $980 per year each. That means about 90% of the administration overhead of owning and investing in property disappears, and the savings can be shared by both parties. How we keep the fees so low →
How the costs realistically disappear
There are three main ways these costs disappear:
- The investor can own a property and get capital gain and an ongoing income without all the compliance and overhead of a tenant living in their property.
- The homeowner can start owning a property without all the overhead and compliance of a bank managing a massive, risky 30-year loan.
- It is much more efficient and cheaper to have one person, who lives in the property, doing and organising all the maintenance. As always, if you own it, you tend to look after it better.
The savings look large because the traditional model carries two entirely separate cost structures — the landlord/tenant relationship and the bank mortgage. Passive Partnerships removes both simultaneously, which is why the combined saving is so significant.