What are the costs of investing in property?
We all know that investing in property comes at a cost, but you also need to remember that the cost of doing nothing far outweighs the cost of taking action.
By waiting and not taking the opportunity to buy, then you could find yourself priced out of the property market years later, simply by waiting for the ‘perfect property’ to come along, which let’s face it, is very unlikely to show itself.
Property is getting more expensive every day, so it is important that you invest in property as soon as you are able to do so, to ensure you are not left behind, especially as wages growth does not keep pace with property price growth.
So besides the cost of the actual property itself, what other costs do you need to bear in mind before you take the plunge? Here is an overview of everything you need to consider.
What property costs are involved?
1. 10% Deposit Buying a property off the plan will usually require you to put down a 10% deposit. However, if you don’t want to pay Lenders Mortgage Insurance (LMI), then you will usually require a 20% deposit of the property’s value. Also bear in mind, some lenders have become stricter with their lending to investors, so you might require a larger deposit than expected. Remember though if you buy off the plan you only require a 10% deposit upfront, you can then use the time from exchange until settlement to build up a larger deposit if required.
2. Legal Fees You also have legal fees to take into account and a good solicitor or conveyancer will normally cost you around $2,000. It is worthwhile spending more in legal fees so that you employ a reputable solicitor, as if things do go wrong, you want someone who is efficient and experienced behind you.
3. Home loan You also need to consider the costs associated with your loan including establishment and application costs as well as the ongoing interest repayments. View the loans carefully and be sure to know what is included and what is not.
4. Stamp Duty Another large cost is the stamp duty. The cost of stamp duty varies depending on which state you buy in as well as the price of the property. Buying off the plan and as a first home buyer can provide you with concessions which could save you thousands of dollars.
5. Buyer’s agent fees If you employ a buyer’s agent into helping you find a property then you also need to factor in their fees. Generally, a buyer’s agent will charge approximately 1-2% of the property purchase price, so a $500,000 property could cost you between $5,000 to $10,000. If you use Property Consultants such as iBuyNew, then we do not charge our clients anything – our services are free.
6. Insurance As an owner of a property you will want to take out different types of insurance to protect yourself if things go wrong. Building insurance will protect your investment property against theft, fire and storms, as well as many other things, whilst Landlord Insurance will provide you with cover if tenants damage your property or default on their rent. Insurance is one thing as an investor and owner occupier you definitely need to take out.
7. Property management fees When it comes to managing your investment property you can either choose to manage this yourself, or you can employ a Property Manager to look after all of this for you. Property Managers can assist with tasks including advertising and interviewing tenants, collecting rent, sorting out repairs and maintenance issues alongside other tasks. You can typically expect to pay around 7-10% of your rent in property management fees, but remember this is tax deductible.
8. Repairs and maintenance If your property is older then bear in mind that you may need to carry out some repair work or to replace some items. Buying a new property such as one off the plan will generally have lower maintenance expenses due to being new and appliances tend to come with a 5-year guarantee.
9. Strata fees Buying within an apartment development will also mean you will have to pay strata fees. This is dependent on the size of the development as well as the number of amenities and communal facilities included such as car parking, gym, swimming pool and the number of lifts. To avoid getting a nasty shock, it’s best to examine these fees before you buy. You can also reduce strata by purchasing within a smaller development that has limited facilities.
10. Council rates When owning a property, you will also have to pay council rates, which is generally paid on a quarterly basis. Check in advance with the local council to see how much this will cost you as this depends on the property size and the area you buy in.
11. Accountant fees Getting a great accountant is a must, and their fees are also tax deductible. When owning an investment property, there are plenty of things you can save in tax and a good accountant will be able to advise on this and claim these deductions for you. It makes sense to use an accountant if you own more than one property, and it is less stressful than doing your tax return yourself, unless you know what you’re doing of course!
12. Renovation costs You only really need to factor in renovation costs if you are buying an established property this is in need of repair. Remember to take into account the cost of hiring someone if you aren’t renovating the property yourself, as well as the tools, equipment and supplies required for the job.
Of course there are other costs you also need to be aware of when investing in property including pest inspections, legal transfer of ownership ($650 - $850), registration fees, quantity surveyor fees etc.
Typically, besides the actual property itself and the deposit, it will typically cost you another $10,000 - $15,000 on top.
However, if you’re on a tight budget, or you just want to keep your costs to a minimum, then there are a number of ways you can reduce your costs.
9 ways to reduce your property costs
1. Larger deposit to avoid LMI By saving a larger deposit of 20% rather than 10%, this means you can avoid having to pay Lenders Mortgage Insurance (LMI) which can soon add up.
2. Shop around for the best loan Make sure you shop around for loans and look for the best deal. However, the cheapest loan is not always the best loan to take on so make sure you choose the right loan, without any hidden penalties and charges such as break fees.
3. Interest only loan Many investors choose to take on an interest-only loan rather than a principal and interest loan. This means that your monthly repayments are kept to a minimum and you can claim interest payments as a tax deduction.
4. Insurance policies As well as comparing loan types, you should also compare different insurance policies as each one is different. Go for a policy that covers everything you need and related to your property.
5. Employ a good accountant A good accountant will know exactly what you can and cannot claim, allowing you to minimise the amount of tax you have to pay at tax time. Plus, you can claim their fees in your tax return too!
6. Stamp duty concessions if you buy off the plan If you buy a property off the plan then you might be entitled to stamp duty concessions which could save you thousands of dollars.
7. Manage the property yourself If you don’t want to pay Property Management fees for someone else to look after your property for you, then you can always take on the task yourself. However, bear in mind that you will be the point of contact for your rental tenants and may involve added responsibility so ensure you have the time to do this effectively.
8. Lower strata To reduce the amount of strata you pay, you can purchase within a smaller development which has lower strata fees involved.
9. Use a Property Consultant at iBuyNew Not only can you receive expert advice from iBuyNew, but our services are free. You can choose from our wide range of off the plan developments across Australia and get your hands on the latest research.
Buying within an off the plan development will also mean the earlier you buy, the more affordable the property will be compared to buying an established property. This, along with stamp duty savings and even the first home owner grant can help make a property purchase much more affordable. Plus, with longer settlement times, your property could have easily gone up in value by the time your property settles.
Find out more today about how much a property will cost you by calling the iBuyNew team today on 1300 123 463.
Published on 11th of January 2017 by Marty Stanowich