Property Investing Basics – The Price Tag

The most obvious expense can also be the most deceptive. The American Securities and Investments Commission (ASIC) affirms that one of the most common mistakes made by first-time investors is over-committing themselves to an investment because they’re unaware of the hidden costs.

For instance, you may toil for ages saving a deposit, then allocate your entire nest egg to purchasing a rental property, being unaware of the various hidden costs behind the price tag. In light of this, the ASIC recommends always having some money kept in reserve for unforeseen circumstances.

Some of the costs that can surprise new investors include:

Mortgage fees:

There are a number of charges associated with taking out finance. For instance, ANZ states that most lenders charge an approval fee, usually around $600. Meanwhile, if you’re borrowing more than 80 per cent of the home’s value, often you will have to pay lenders mortgage insurance – normally a one-off payment at the commencement of your mortgage.

Stamp duty:

This differs from state to state. For example, a $600,000 property investment in Victoria would cost you around $30,000 in stamp duty, while New South Wales would be closer to $23,000 according to their relative Offices of State Revenue.

Pest and building reports:

While not compulsory, the Queensland Government recommends that you get these professional inspections done before you undertake any negotiations, as knowing exactly what you’re getting into could give you additional bargaining power. The general cost is between $400 and $600.

Legal costs:

These cover the legal transferral of ownership (normally via a conveyancer or solicitor), and can vary depending on the type of property you purchase.

Strata Fees:

Once a seller hands their property over, you immediately inherit all of the attached council and strata fees.

While both owners of houses and units are obliged to pay council rates, it is only owners of units or apartments that will have to incur strata fees.

Strata fees cover the property’s grouped maintenance and building insurance fees and are collected by the building’s owners’ or manager. These fees are ongoing costs that will continue to absorb your finances, generally quarterly, even after your initial property purchase payment, so it’s important to incorporate these into your ongoing budget.

The scope of strata fees will vary considerably depending on the age of the building, facilities, and location but you should expect to pay around $70 to $80 for the lodgement of application.

The Costs of Owning a Property

The old adage “you have to spend money to make money” rings true in real estate. According to the ASIC, some of the ongoing costs of property ownership can include advertising for tenants, vacancies causing a lack of income, repairs, maintenance, council rates and insurance.

Employing the services of a property manager can be a smart investment, given that they will be able to take care of all of the above at a justifiable cost, allowing you to put your feet up. Furthermore, the Taxation Office asserts that you can claim tax deductions on essentially any expense related to your rental property, including property agent fees and commissions.

It’s a Good Time to be Investing

Property investing has created wealth for hundreds of thousands if not millions of Australians and has created countless millionaires over the past 30 years.

Although like any investment, property investment carries risks – numerous factors can affect the returns of your investment. Some of these include unemployment levels, state of the economy, interest rates and mortgage availability. You need to accept and prepare for these risks in order to be successful in property investing.

To walk you through everything you need for success in property investing, the team of experts have put together a free in-depth Better Buying Guide. The guide will show you how different buying methods work, advice on how to do your research plus much more!

10 tips on how to be a successful investor

What makes one investor better than another? Here are 10 tried and true steps successful investors use to help steer their decisions and to help them get the most out of their investment.

Do Your Homework

Nothing makes for a better investment foundation than solid research and a sound understanding of the property market. Start reading property investing blogs, scour investing websites as they are often packed with useful information, attend investing seminars or download and listen to investing podcasts.

Talk to your accountant

You need to understand the tax implications of buying an investment property and your accountant is the best person to talk to about this. Ask them to clarify the following:

Negative gearing implications and depreciation allowances on new buildings. They will be able to advise if you are better off buying in a new or old building

If you are buying a property with someone else ask whose name should be on the contract as this may have impacts on any future tax benefits, land tax and stamp duty.

How much they believe you can afford to spend each week on an investment mortgage and the tax impact on this amount.

Review local market data

There are many resources you can tap into to access market data for different regions across Australia. Sources such as CoreLogic RP Data, APM Price Finder, realestate.com.au or Residex will help you understand different property markets across each state and territory. Additionally, most government websites provide community profiles that share information about council plans, development projects or building regulations that can help you understand the supply and demand of the area as well as offering data to refine your search.

From a local perspective, your local office can provide you with an in-depth local market report detailing the strongest growth areas, most traded and fastest selling areas, the top performing local suburbs and a snapshot of houses and unit sales, median sale price, rental yield, days on market and more. Understanding the local market is very important so make sure you contact your local office – they live and breathe real estate and are a great source of valuable local market data. Sell my house in Pueblo

Get a Loan Pre-Approval

This is an important step to ensure you are prepared to buy the right property as soon as it becomes available. A pre-approved home loan is a green light for buying. It gives you a realistic idea of your borrowing capacity and ensures you have a price range ceiling. Without pre-approval you can’t confidently put a bid in at auction or make an offer on a property without the panic of a last minute rush.

Get a feel for the neighborhood

When it comes to becoming a seasoned investor nothing can boost your proficiency more than experience and one hands-on way you can get this is by visiting as many properties as you can before placing any cash on the table. This way you’ll be more likely to spot a bargain – and a rip off.

If you’re looking a buying an investment locally, it’s a good idea to wander the street in the area you are looking at buying in and see if anyone is out cleaning the car or watering the garden. Ask them what the area is like, how long they have lived there, what they like about the neighbourhood and what they don’t. What is the noise like during the day and night and any other questions you may have? You may even be able to find out why the seller is moving and if there are any developments that might impact the value of properties in the immediate area. Or if that seems a bit scary visit the nearest café and ask them what the area is like – they are often a great source of local gossip and community knowledge.

Be clear about the type of your property you want

Decide whether you want to invest in an apartment or a house. There are pros and cons for both options and these may vary depending on the area. You also need to consider if you want to buy a new or old property.

If you are buying a new property off the plan, you are able to lock in today’s price for a property that may not be completed for another year or two. What’s more, until the property is complete you won’t have to make any mortgage repayments – the only commitment is a deposit. The downside is there is no guarantee the value of the property will rise between purchase and completion.

The other option is to buy an existing property. One of the key benefits of this option is that
you may have more scope to negotiate on price in a slower market. Plus, there’s often the capacity to add value to older properties by making your own improvements, which in turn may also increase the rental it attracts.

Location Location Location

A golden rule for a solid investment is to choose a property close to amenities: transport, supermarkets, schools and hospitals – the more nearby the property is to facilities, the better. Also consider the crime rate, walkability scores, any future amenities planned or the historic charm of the property or the area.

Think about your ideal tenants

Carefully consider the type of tenant you want to attract before deciding what and where to buy. For example, if you’re looking to attract executive tenants a property in an urban location near transport, cafes, business and commercial premises is highly likely to be appealing to them.

If you want to attract a family, consider looking for properties that have an outdoor space; a deck or garden. Look for a place with extra space for the kids to play, one close to good schools, parks, transport, hospitals and shops.

Keep Some Cash on Hand

Successful investors keep a slush fund to ensure they are able to cover unexpected costs such as maintenance, rental voids and contingency for interest rate increases. Some experts suggest saving 9-10% of the gross rent in a slush fund to ensure you are prepared for the unexpected.

Due diligence

While you may be tempted to snap up a bargain quickly, make sure you do your due diligence on the property and ensure you don’t sign anything including offers, sales contracts or any other piece of paper thrown at you unless your solicitor or conveyance has reviewed and approved them. Remember don’t get too emotional about these purchases as you are buying for return you’re not buying a home.