Property investment builds wealth providing you make sound decisions that create excellent financial returns. However, there’s an art to investing right. So, before you rush out and start buying property, you need to do your research and consider the upfront costs involved in property investment. Then, you can determine if property investment is affordable for you. Let’s look at the costs you may encounter and just how expensive these may be so you can adequately budget when looking to buy an investment property.
Know Your First Home Owners Grant Eligibility
Knowing whether you’re eligible for the First Home Owners grant could save you a considerable amount of money. Most Australian grants are more than $7,000, and this can cover some expenses such as stamp duty or associated fees when buying.
Generally, the grant varies in size depending on where in Australia you are seeking to buy. Additionally, the grant’s size changes depending on which government is in power, and on state and federal government budgets.
Also, there are a few rules that you’ll need to meet before you can receive the grant. While these are straightforward, it’s important that you read the full documentation, and then apply. This strategy ensures that you’ll have the best chance of approval.
So, who is eligible for the grant?
To be eligible for the grant, you’ll need to be:
- A first home buyer who has never purchased property in Australia.
- Residing in the home for 12-months or more.
- An Australian citizen or New Zealand permanent resident.
- A person aged 18-years or over.
- Buying a property that is under a specified value.
- Purchasing a new or extensively renovated home.
- A natural person and not a company.
- Buying the home with another person, if you have a spouse/partner, who also has never bought property in Australia previously.
Stamp duty is a government cost that differs from state-to-state. Though, in most cases, it is dependent on the purchase price of the property. Some states also offer first home buyers stamp duty exemptions. So, it pays to review your eligibility.
How does stamp duty affect me?
Stamp duty can:
- Add thousands to the purchase price of an established home or land.
- Be an unexpected cost.
- Get calculated as a percentage of the total purchase price of a property.
- Vary in cost from state-to-state.
If you don’t have home equity, then you’ll need to save a deposit before buying an investment property. Sure, you can borrow more than 80% of a property’s value, but you’ll have to pay Lenders Mortgage Insurance (LMI). This insurance can add tens of thousands to the cost of property and is an additional cost that you should look to avoid, if possible.
Who does LMI protect?
- LMI is lender insurance that protects the lender against loss.
- Should you default on loan repayment, LMI covers the lender’s costs.
- As a borrower, LMI is of no benefit to you.
Your primary place of residence is exempt from land tax. Nonetheless, an investment property may attract a fee. Once again, this tax varies from state-to-state.
What are the terms of land tax?
The amount of land tax payable depends on the state the property is in, and the value of the property. Other considerations are:
- Land to a certain value is exempt from land tax.
- After you reach the threshold, you’ll have to pay an annual fee.
- Tax is only payable on the land value, not the home.
Local council taxes apply to property you purchase. These fees vary depending on the council that governs your property and the estimated value of the home.
What does this cost cover?
This property investment cost typically covers:
- Road and footpath, kerbs, channels and drain maintenance.
- Rubbish collection – though some councils charge extra.
- Sewerage and light maintenance.
- Infrastructure and services.
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Corporate Body Fees
Should you purchase a townhouse, unit or apartment, this will attract a corporate body fee. This fee covers the costs of maintenance and insurance for the grounds and buildings. All complexes have varying fees depending on the property type purchased and the size of the actual property.
How much are corporate body fees?
- These fees can be anything from a few hundred dollars per quarter through to thousands of dollars.
- Fees typically vary depending on the size of the complex. So, the more apartments or units, the larger the fee.
- The more amenities offered by the complex – tennis court, pool and gym – the higher the fees.
When you first buy property, you’ll need to ensure the installation of all utilities. These include water, electricity, and gas, if available. While your tenant handles the connection and usage cost to all utilities, except water, you’ll need to manage the initial utility set-up.
What utility costs apply?
The costs you can expect to pay include:
- Initial water connection and ongoing sewerage fees.
- Gas and electricity installation and upgrades.
Emergency Services Levy
Any property attracts an emergency services levy. This fee pays for the metropolitan and country fire service, state emergency services and marine rescue.
How is the fee calculated?
The services levy is governed by:
- Investment property values as determined by your official council rate notice, not market value.
- Your property’s location – regional or city code.
- The fixed council fees.