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Investing,Mortgages & Loans,Personal Finance,Property

What Are The Costs Involved In Buying Property?

18 Sep , 2015  

Nikhil (Nik) Sreedhar
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Nikhil (Nik) Sreedhar

Founder at ProAdviser
Nikhil's dream job is to be an exotic car salesman. His favourite colour is orange and it shows as he is the 23 year old entrepreneur behind ProAdviser. You should follow him, he gets lonely.
Nikhil (Nik) Sreedhar
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If you are looking to buy an investment property, it might be worth considering what kind of different costs there are as well the rewards. The costs include much more than just the interest repayments, so let’s take a look at what you may face with buying an investment property.

When your property offer has been accepted, the next step is to book a building and pet inspection. The inspection will cost between $420 and $700, but may end up saving you money in the long-term if an issue is found in the inspection before it becomes a monumental issue. Be especially aware that with older homes there may be even more issues not seen initially. Some of these issues may be quite minor such as needing to replace old lights or chipped knobs on kitchen cabinets. However, sometimes there can be quite major issues with an old house like mould or roaches. Another assessment of the property will be the property valuation, which is done by your lender or mortgage broker (in some instances hiring a mortgage broker comes with a fee, so be aware). The valuation is when they assess how much money the house is worth before they give you a loan, so that if for whatever reason you are not able to make the payments on the loan, the re-sale value of the house would be able to cover it. Without the valuation being completed, the lender or broker will not be able to improve any finances.

When you are making investments (including ones in property), don’t hesitate to ask for advice, and in doing so, hiring a very competent accountant will be of great help with tax returns and other matters. By hiring the accountant and heeding their advice, it is quite possible that they will pay for themselves a few times over, compared to the possibility of doing all of the accounting work yourself, and losing sight of potential benefits that would have saved you money. Alongside hiring help, you will also need to buy insurance for the property, including lender’s mortgage insurance (if you have less than a 20% deposit), landlord’s insurance (good to consider if you being the property as an investment), and home and content insurance (to help cover you for the structure and the items inside).

When you are first looking for the property and conducting your research, you will immediately discover that certain websites require a subscription fee to use their database. However, there are websites like Real Estate Investar or RP Data that have great data to inform your property decision, although using the data only works when you understand to a certain degree. Similarly, you could hire a buyer’s agent who will charge you a flat fee, or a percentage of the sale price of the investment property. A buyer’s agent is licensed, and they specialise in researching, evaluating, and negotiating the purchase of the property. If you are pushed for time, hiring an agent may be a great option. Once you have decided on the property, you will also need to have a solicitor (or a person known as a conveyancer) walk through the property, and they can charge upwards of $2,000, with extra money required for searches that you want them to do based on their recommendations. They will help with the signing of the contract, and make sure that the process runs smoothly without any legal issues. Their part in the process will hopefully ensure an easier future of the property.

After purchasing the property you will have to pay stamp duty, which can be one of the largest costs associated with the house, although it depends on the state and the price of the property. It is also of utmost importance to have a professional property manager, and they will take care of any tenants you may have, but will take a percentage of the rent as well. However, this percentage of rent taken out is negotiable, so feel free to discuss this with your property manager. And lastly, if you are looking to see if you can claim deductions or depreciation of your property, then hiring a quantity surveyor or depreciation tax specialist would be a good thing to do to save you money on your investment in the long run.

Now with considering all of the different costs associated with an investment property, it is your decision if you want to proceed.

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