How to Get Ready for Property Investment

When you want to improve your general fitness, you need to get out and exercise. If you want to be a successful property investor, you need to work at it. Here’s what you need to do to become property fit and become a successful property investor.

Mindset

Property is expensive: you generally
must have the deposit to put towards the purchase price being 20%. Therefore, you will need to borrow money from the bank of up to 80%.

Here is the first shift in thinking. Don’t
be scared of debt; it can be your friend if managed correctly when you’re a property investor. I agree that some debt is bad like credit card debt, short term loans
 for cars and holidays. However, good debt is applied to gain leverage in a solid performing asset like property.

Deposit

Work hard and save, save, save. There is really no other solution to getting a deposit together which amounts to about 20%
of the purchase price. If you’re earning $45,000 after tax, you should be able to put aside at least $20,000 per annum, which means in five years you will have accumulated at least $100,000. If you have a partner, that’s a combined $200,000 that can be used as a deposit on your first property.

Bank

This is the most important partnership
in your quest to become a fit property investor. You will generally only have 
a 20% deposit of the purchase price, therefore, you will be asking your banker
 to lend you 80%. You need to convince your banker that you have a track record of steady employment and saving so they will feel confident in lending you the money, knowing you have a culture of saving and working and being able to make the monthly mortgage payments.

Establish a team

As a property investor, your team should be made up of a banker (assist with finance), real estate agent or buyers’ agent (assist with buying and managing property), lawyer (assist with purchase contracts), quantity surveyor (assist with depreciation write-offs) and accountant (assist with tax and structures and cash ow with tax savings). Negotiate on the purchase price of a property but don’t skimp on the costs of the services of your team. If you don’t get the right advice it could cost you thousands.

Research

Not all markets and properties perform the same. You need to understand how demand and supply works and look for areas that are in high demand with low supply. These are areas where the bulk of people want to reside, they are usually close to the centre of major cities with transport links, good schools and shops.

You will need to meet with your accountant before you exchange a contract so that he or she can explain how negative gearing will impact your cash flows.

Find the right manager

Once you have settled on the property, you need to secure ongoing cash flow by sourcing the right tenant and ongoing management of the property. The best property manager will manage your property on your behalf to ensure rents are collected on time, minor repairs and complaints are handled on your behalf giving you peace of mind.

This is general advice. Seek advice for your particular situation before acquiring an investment property to see if it will suit your current nancial situation.

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Buying a Property – The Hidden Extras

Buying a home especially for the first time can be overwhelming, not only do you need to save for the deposit but you also need to factor in the added costs of buying a property, ones you may not be aware of.

Failing to account for these extra costs can make settlement time an extremely stressful experience rather than the exciting time it should be. Here is a list of expenses you need to prepare for so you can avoid any nasty surprises:

Loan Application Fees

Loan application or establishment fees can range from zero to $1000. This is a one off charge by the bank when you apply for a loan. Sometimes banks decide not to charge this, although not always so make sure you check with your lender.

Independent Valuer Fees

Every lender will require an independent valuer to assess the value of the property you are planning to buy before they are willing to lend to ensure that the property is worth the asking price. A standard valuation generally costs between $300 to $500. Some banks waive this.

Lenders Mortgage Insurance (LMI)

If you’re looking at borrowing more than 80 per cent of the property’s purchase price you’ll need to factor in Lenders Mortgage Insurance (LMI). This one off premium provides coverage for the lender, should you default (be unable to pay) on your loan.

The cost of LMI will vary depending on the amount of money you borrow, size of the deposit you put down and the type of loan you select, but allow around $10,000 for this.

If you’re short on cash, some lenders will allow you to combine the LMI fee into your overall home loan.

If you want to avoid paying this you will need to save more for your deposit.

Protect Yourself

When you’re spending your life savings on purchasing property it makes sense to protect it. While building insurance is a compulsory requirement from your lender, there are other insurance policies that you should consider.

For example mortgage protection insurance will ensure your mortgage repayments are met should you fall seriously ill. Income protection insurance will also help pay the bills should you be involved in an accident, major trauma or illness.

Legal Help

Given the numerous legalities tied up in property transfer and purchase, the help of legal experts, namely conveyancers and solicitors, is a must.

A conveyancer specialises in the legal aspects of transferring property although it is worth noting you might need to enlist the services of a solicitor for any other legal issues you encounter.

Some conveyancers will charge a flat fee while others will charge a sliding fee based on the value of the property sale price. Expect to pay anywhere between $1000 and $3000, depending on the complexity of the structure.

Title insurance is essential to protect you from any claims against the title of your property. Expect to pay around $350.

Registration of Title is another necessary document which requires you to register the title with your state government, all for $75.

Stamp Duty

Stamp duty can be one of the biggest expenses property buyers may have to bear so it is crucial that you include these in your buying estimations.

Since stamp duty is charged by state and territory governments, the amount you will be charged will be determined by the state you buy the property in.

How much you pay will also depend on the price of your property with the levy generally charged on a sliding scale, with more expensive properties being charged at a higher rate. You can get an ideas of how much stamp duty is by using online calculators.

Building, Pest and Strata

Having a building and pest inspection carried out on any property is usually required by the lender but they are well worth investing in regardless of whether you are buying a new property or not, as trained specialists can often spot things other cannot.

If you are considering purchasing a unit or apartment, it is also in your best interest to have a strata inspection conducted – that is a report on the assets, liabilities and financial position of the apartment complex.

While having a building, pest or strata inspection completed on the potential property will cost you initially, it could be an invaluable safeguard against buying a lemon.

Expect to pay around $300- $400 for a building or pest inspection and around $200 for a strata report.

Council Rates and Strata Fees

When you buy a property, you will also be expected to pay the remaining yearly or quarterly council rates. These commence from settlement date so make sure you know what they are as each property is different. Allow for an extra $500-800.

While both owners of houses and units are obliged to pay council rates, it is only owners of units or apartments that will have to pay strata fees.

Strata fees cover the property’s grouped maintenance and building insurance fees and are collected by the building’s owners’ or manager.

Strata fees will vary depending on the age of the building, facilities, and location but you should expect to pay around $70 to $80 for the lodgement of application. As these are ongoing fees make sure you are aware of what they are so you can budget accordingly.

Allowing for a Bit More

Even though you may have done your research and restructured your finances to include all the major additional costs, you should always set aside a little extra for miscellaneous expenses that haven’t been prepared for but creep in.

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Expenses, such as moving, connecting water and electricity and even mail redirection, can seem irrelevant when compared to the large fees but they still have the ability to place unnecessary strain on your finances if not taken into consideration.

Everything Adds Up

Buying a home is an exciting time but make sure you factor in approximately an extra five to seven per cent of the purchase price, on top of your deposit, to cover fees and charges. It will help make the process enjoyable rather than stressful.