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COST OF INVESTING IN PROPERTY
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Cost of investing in property
Before investing in property its crucial to organise some sort of budget. As well as the overall cost of the loan/property, there’s many upfront costs that must be factored into this budget such as:
Land transfer duty is a tax levied by all Australian territories and states on property purchases. It is based on the date of the contract for your property purchase, the dutiable value of the property. Land transfer duty varies, but can easily add 5% to the cost of a property. The bank won’t lend you this money.However, land transfer duty does not apply to off the plan investment, unless it is your primary place of residency This calculator can accurately calculate stamp duty
https://www.sro.vic.gov.au/calculators/land-transfer-calculator
A conveyancer is a specialist lawyer who specialises in the legal aspects of buying and selling property. They will help with ensuring that their client is meeting all legal obligation and that their client’s rights are protected during a transaction. In Melbourne and surrounding Victoria, the conveyancing fee typically ranges from around $600 to around $1400
It’s a good idea to have a solicitor on your side when purchasing an investment property to help you with contract signing, ensuring the settlement process runs smoothly, ensuring everything is conducted legally and saving you from anything that can affect you in the future by doing all the necessary due diligence.
They can charge anywhere between $1,000 and $2,000 for their services
To close on your investment property, you’ll need to pay the closing costs, which are all the fees associated with the mortgage. These range typically from 2 percent to 5 percent of the loan principal and can include:
- Application fee
- Appraisal fee
- Credit check fee
- Origination and/or underwriting fees
- Title insurance
- Title search fee
- Transfer tax
- Inspections
- Insurance
There are a number of insurance related costs associated with buying an investment property including:
- Lenders Mortgage Insurance: Insurance charged when the bank is not comfortable lending money to the borrower because the asset they’re buying will not cover the loan amount if the person defaults on the loan. It is charged to investors who have less than 20 per cent deposit.
- Landlords insurance
- Home and content insurance
Typically, there will be a search cost paid to investment groups for sourcing investment properties.
Check for structural soundness by doing a pest and building inspection before you buy
A quantity surveyor can help set up a depreciation schedule on your investment property to find out where you could be claiming deductions. While this may cost around $800, you should end up saving much, much more than that by claiming deductions and depreciations on your property
Strata property refers to apartments or townhouses (called a ‘lot’), strata fees are paid quarterly into strata plans bank account. These fees are used to fund the ongoing expenses of the scheme for things like cleaning, gardening, electricity and building maintenance, plumbing works etc. They are generally between about 0.3% and 0.7% of the property’s value but can be up to 1.2% if it has facilities such as a gym, swimming pool or concierge.
Obviously, investment properties incur wear and tear, meaning maintenance costs are a necessity. Moreover, renovation costs will help to increase the value of your investment property. Many experts recommend budgeting 1 per cent of your home’s value for home maintenance each year, as well as maintaining an emergency fund to address urgent, non-budgeted concerns as they crop up.
If you’re buying a condo or another kind of home overseen by the homeowners association (HOA), you’ll likely be required to pay a monthly fee. Fees are determined by the association and are highly variable
If you sell a capital asset, you will make a capital gain or capital loss. You need to report capital gains and losses on your income tax return and pay tax on your capital gains. Although it’s referred to as capital gains tax, this is actually part of your income tax, not a separate tax. When you make a capital gain, it is added to your assessable income and may significantly increase the tax you need to pay. Your main residency is generally exempt from capital gains tax.