Cost of Investing in Real Estate
As with owning any property, there are costs associated with investment properties. Making sure you understand these is important as they will have a direct effect on your budget and your overall net profit. While some of these expenses can be claimed not all of them can, so discuss each of them with your accountant or financial advisor.
1. Property purchase costs
This is the most obvious of all costs, but make sure when you are setting your budget you don’t spend your entire budget on the property purchase as there are many other statutory costs you need to be aware of
As you have likely taken out a loan to purchase your investment property, you are going to be charged interest on that loan. Talk to your lender to work out what this is and the best option for you.
3. Mortgage fees
There are a number of charges associated with taking out finance. For instance if you are borrowing more than 80% of the property’s value you may be asked to pay extra charges such as lenders mortgage insurance – this is normally a one-off payment at the commencement of your mortgage. The cost of LMI will vary depending on how much you borrow and the type of loan you select. Talk to your lender about any other charges they have.
4. Bank Fees
A lot of lenders charge an annual fee. This is an ongoing expense that you need to take into account. It normally isn’t a lot of money but still important to know exactly what you are up for.
5. Survey Fee
Survey fee is a charge that is applied to the sale of a property by state accredited surveyors. It is not a fixed cost across the country – it differs in each state and territory.
The cost is usually calculated based on the price of the home you purchase, but each state has its own system.
The rate often differs depending on several factors:
- Whether you are purchasing vacant land
- If you are using the home as your main place of residence.
6. Percolation and soil test reports
While not compulsory, it is recommended that you get these professional inspections done before you undertake any negotiations, as knowing exactly what you’re getting into could give you additional bargaining power.
7. Legal costs
Buying an investment property is fundamentally a legal process so the help of legal experts, namely conveyancers and solicitors is critical. They will be an invaluable part of property negotiations and can help you through the paperwork. However remember they will charge a fee so make sure you factor this in. Some conveyancers will charge a flat fee while others will charge a sliding fee based on the properties sale price. Make sure you discuss fees and charges before you engage their services.
8. Documentation Fees
Once a seller hands their property over, you immediately inherit all of the attached council and strata fees.
Documentation fees cover the property’s cost of application and securing the documentation for the property. The owners would first apply for an excision and when a Gazette is confirmed in the papers, they would have to put forward another application for a C of O and then a Governor’s consent can be pursued if needed.
9. Property management/Developmental fees
A property management fee is always required especially for a property residing in an estate. This fee usually covers provision of electricity, road network, security, CCTV cameras, Water supply, Fencing and other basic amenity needs.