Practical Property Tips

The Cost to Buy a Property


Purchasing a Property

When purchasing a property, a commonly asked question is how much cash I need to purchase a property. To answer this question, we first need to understand numerous aspects of the purchase to calculate an accurate figure. However, there are several common costs associated with a typical property investment.

Property Deposit

Most people purchasing an investment property or a home for that matter usually purchase the property with a mortgage attached to the property. To obtain that loan, lenders will have the borrower pay a proportion of the purchase price to facilitate the purchase. This amount can vary depending on the lending requirements and purchase type; however, most purchases use between a 10-20% deposit of the purchase price.

Lenders Mortgage Insurance (LMI)

To protect the lender, they charge applicants a fee called LMI when their deposit is typically below 20% of the purchase price. This is an additional cost for an investor who is using a lower deposit amount which can be paid upfront or capitalised (added) to the loan. The cost of LMI can vastly vary from a couple to several thousand dollars. It is important to note how much this cost will be before proceeding with a purchase and whether you will be required to pay it upfront.

Did you know that some occupations can be used to waive LMI for lower deposits? Accountants, lawyers, professional athletes are just some of the professionals that can avoid LMI with certain lenders. If you are looking at purchasing soon then it may be worthwhile speaking with your mortgage broker to see if you qualify.

Stamp Duty

Stamp duty is another cost incurred in most property purchases. In some cases, this can be void but most times you will incur this fee which is paid to the government for the purchase/transaction of a property sale. Again, this fee varies but generally you will likely pay between 3-4% of the total purchase price in stamp duty fees. This fee is a once of fee but can be quite hefty for most property purchases.

Legal Costs

When purchasing or selling a property it is highly recommended to obtain legal advice and engage a qualified solicitor or conveyancer to assist in the legalities of the property transaction. This cost is one of the expenses you want to fork out for as it will ensure you know the ins and outs of the purchase and don’t get caught up while purchasing.

Buyers Agent Fee

For many investors these choose to elect a buyer’s agent to work on their behalf to assist with their property purchase. Engaging a Buyer’s agent takes the stress out of purchasing and ensures you have an industry professional working in your corner finding you the best investment for your goals and circumstances. The cost of a BA can vary depending on the acquisition and purchase price. Fees can either be a fixed fee or percentage base but usually start at around 15k for a full-service buyer’s agency all the way up to tens of thousands for for expensive acquisitions. 

Building and Pest Inspection Report

A building and pest inspection is a common service used by investors to view the property in its true light. It is a highly valuable service that reviews a property condition and illustrates any major and minor defects pertaining to the property. The cost of this service will be dependent upon the size of a property and the scope to which the inspector reviews the property. In most cases you could expect to spend between $500-$1,000 for a building and pest report.

Building and Landlord Insurance

Building and landlord insurance is another typical cost associated with purchasing an investment property. This protects the buyer from future damage caused to the property and numerous tenancy issues that could arise with being a landlord. The cost of this type of insurance varies based upon the amount the building is insured for but a typical quote varies between $1,000-$2,000 for a standard detached house.

Maintenance Costs

Established property typically comes with a small handful of maintenance costs which may need to be rectified. Depending on the property’s condition will dictate the extend of this but in most cases, there can be work needed to be completed particularly for older properties. During the negotiation phase of a purchase agreements can be made to rectify these issues or the buyer can accept the property as is and make any needed adjustments post settlement.

Case Study

As you can see there are numerous costs to purchasing an investment property. To give a clearer picture of what to expect, let’s take the following case study to determine the upfront cost of a purchase:

Mr. Investor is looking at purchasing a 500k property in Perth with a 20% deposit and wants to know the total upfront cost to make this purchase.

Property Comet Case Study

The Verdict

There are many costs associated with an investment property purchase. It is important to understand each of these costs and how much they may be for you. In doing so you will be greater informed on what you can expect to pay come settlement time. Noting that these costs don’t consider your borrowing capacity or ability to service a loan. To determine your holding costs of a property it is recommended you run a cash flow analysis to understand the ongoing costs of ownership.

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