Last Updated: 22nd January, 2018

The Initial Costs Of Property Investment

Published by Otto Dargan on February 17, 2011

Being the only economy unaffected by the Global Financial Crisis, Australia offers a variety of investment opportunities for interested investors.You should consider crossing the boundaries of your local neighbourhood and be more perceptive of the active real estate market.

Property investment in Australia can churn hue benefits if you know how to do it right.Before you go on a property shopping, you need to know what kinds of initial costs are involved.

Tina Pham, a successful mortgage broker who carries more than ten years of experience and knowledge in the field of credit assessment and mortgage broking, explains what we need to consider.

Which costs are free?

  • Brokerage fees: You do not need to pay your mortgage broker. Most of the mortgage brokerage fees are free of charge.
  • Accountant fees: Most accountants will not charge anything to give a professional advice regarding a property. However, some of them will charge. If you do have an accountant, he will be more than willing to share some great property investment advice.
  • Loan application fee: Almost all of the available loan products offered by banks and lenders do not have loan application fees. However, some might charge a fee up to $700

What do I need to pay?

The following is a list of initial costs you need to know before you buy an investment property.

  • Deposit: At the minimum, 5% of our deposit amount should be genuine savings. This means funds which have been accumulated in your account for more than last three months. These should not be gifted or borrowed from someone else.
  • Stamp duty: It is a tax paid to the government based upon the purchase price of the property. The rate differs from state to state since each state’s policy regarding stamp duty is different.
  • Legal fees: It includes the fees needed to pay for transferring the ownership of a property from one person to another i.e. conveyancing. This might cost you around $1,000 to $1,500. It can be done by either a conveyancer or a solicitor. The major difference being, a solicitor is eligible to provide legal advice regarding the property whereas a conveyancer does not necessarily need to be a solicitor.
  • Loan establishment fees: Some banks and lenders require a certain fee to be paid in order to set up your mortgage.
  • Mortgage stamp duty: It is a fee paid to the government to register your mortgage.
  • Connection fees: This is the total cost of utilities and services like fire alarms, security system you need to install for the tenants.
  • Lenders Mortgage Insurance (LMI): If the amount you are seeking to borrow is over 80% of the property value then you will have to pay the LMI fee. This is paid (by the borrower) to protect the lender in case the the borrower defaults.

Please note: All of the mentioned costs are once off payments.

Wait! Don’t get a pre-approval just yet

Having a mortgage pre-approval is always a wise decision because it lets you know exactly how much you can afford. However, you ought to be careful of certain aspects before you jump to get one.

Besides the on-going costs like monthly mortgage repayments, building insurance, repair and maintenance costs,you should also need to consider whether you can afford other major costs.

  • Land tax: When you purchase a land as an investment property, you are likely to pay the annual land tax.
  • Goods and Services Tax(GST): GST is the 10% tax we pay on the supply of goods and services. It is levied if you buy a newly established property, a land from a licensed builder, and applied on other services like inspection, conveyancing and solicitors.
  • Capital Gains Tax (GCT): GCT is the tax levied on the profit you make after you deduce the original purchase price (including other costs like stamp duty, legal fees) from the selling price. Many Australians are unaware that they would have to pay tax on the amount they claim as profit after they sell their property.

When you decide to invest in a property, calculate these costs and make certain that your investment reaps benefits for you.

First time investors should be aware of falling prey to marketing gimmicks as there might a number of reasons why a property is up for sale. A thorough research is the key to find a valuable property.

Invest in a property by keeping the emotions at bay as Pham puts it, “What matters in the end is how much cash you have in your pockets.”

labelCategory: Low Doc Loans