If you are looking for worthwhile and productive income-generating assets, then one of the most popular methods is to invest in real estate.
Property investing is an exciting experience whether it is your starting point to sound financial management or growing your investment portfolio.
The Australian Bureau of Statistics (ABS) reported that dwelling values in capital cities in 2015 went up by 10% in 12 months, which means that if you purchased an investment property in 2014 for $700,000, you were bound to earn an additional $70,000 the following year just basing it off on the value alone.
But property investing is not just simply about buying property and letting it run the money mill right away. There are several other things to seriously consider and plan for before getting started.
One of the most common yet often neglected aspects of the property acquisition process is the costs associated with buying real estate property that varies based on the value of the property, location, juridical regulations or obligations, etc.
Setting a budget for your asset purchase is one thing and the need to set aside another one for these other costs should both be incorporated into your property investment planning.
Here are some of the essential costs you have to consider on top of the property purchase price;
Building and pest inspection
Generally, this could cost from a low of $600 upwards of around $1000 depending on the size and location of the property. This is highly recommended for every home or property, especially with older ones.
If you purchase property under a mortgage or use it as collateral for a mortgage, lenders require an inspection report as a requirement of the loan application and critical in determining the value of a house or property.
Legal fees and conveyancing
Although legal requirements in buying property are usually shouldered by the property buyer, the need to engage the services of a solicitor or conveyancer would help to simplify the legal requirements, processes, and document preparation, including any legal advice regarding the property acquisition.
Legal fees can cost around $1,000 minimum and can be higher depending on the complexity of ownership issues and structure.
The stamp duty amount is dependent on the property value and in the state in which it was bought. It can cost the buyer thousands of dollars and even higher for more expensive ones.
Good news, though, most states provide stamp duty exemptions and concessions such as first-time homebuyers or commercial investors, which can help save thousands of dollars.
Mortgage registration fees
To avail of a home or property loan, buyers need to pay upfront to formally register and jumpstart their mortgage process. Mortgage registration fees vary among states, ranging from P100 to P300, on average.
As the new property owner, you are expected to shoulder the cost of ownership transfer fees ranging from around a minimum of $100 or higher depending on where the property is located.
In New South Wales transfer fees are fixed at $141.60 depending on current regulations but can surge to thousands of dollars in Queensland, Victoria, and South Australia.
This mostly applies to home or property buyers who shelled out less than a 20% deposit on a purchased property. The fee is calculated on a graduated scale such as the smaller deposit paid up, the higher the insurance rate.
For instance, if you make a 10% deposit of $70,000 on a $700,000-prized property, you could be asked to shell out around $9,000 in mortgage insurance.
This insurance allows buyers to purchase a property for as low as a 5% deposit and as a means of insurance protection for the lender should the buyer default from the mortgage process once the deal is closed.
Loan application fees
Mostly, loan applications could cost around $500-$700 but can go up to $1200 with some lenders.
However, some lenders can choose to waive this fee, so make sure that you have done your homework to be aware this option exists with your desired lender or if they can waive it in your favour.
Council and utility rates
After purchasing a property, you may be asked to pay the seller for the updated council or water rates. The seller, before selling the property, has paid already settled it as a standard practice across the industry and are usually calculated for a quarter period which is then added to the amount payable by the buyer on top of the property purchase price.
Moving and repair costs
Not all properties are sold in pristine condition, especially older ones. There might be some needed repairs which could add up to the costs that you have already paid for during the purchase.
The same applies when you purchase a new home or property since you need to spend extra when moving or transferring to a new house or redecorating commercial property to suit your investment needs.
Property owners and investors need to be aware of these fees that can impact your budget considerations, lease rates for commercial properties, and your ability to repayments on a mortgage. Remember to factor these costs in and if you hired a real estate agent, you can be made aware of these considerations beforehand and provide you with ideas on how you can better plan and manage your property purchase budget.