Walker Hill Group

Upfront Costs To Consider When Purchasing An Investment Property

When buying an investment property, there are some additional costs all buyers should take into consideration. Some are not always as obvious as others. We have listed a few ‘hidden’ costs that will arise when looking to buy.

  1. Types of loans to consider, and what scenarios they are applicable for  

Depending on your strategy there are different types of loans to consider when buying an investment to aid in maximising your return on that investment.   

Typically, borrowers want to focus on paying down their debts as quickly as possible. However, some investors look to consider an ‘Interest Only’ loan for their properties in which during the interest only period, payments are made only on the interest of the principal debt you borrowed, the overall debt on the property does not decrease. 

This can be of benefit for investors who have thought about their investment plan as this strategy can assist with cash flow to work towards their next investment. Using this style of investing, investors are relying on the capital growth of their property to then sell the property when it increases in value. This can be either a short term or a long term strategy but is ultimately reliant on the increase in the assets value. 

Another benefit of an interest only loan is that you are entitled to claim any interest charged during the year as a tax deduction while the intent of the property is to be used as a rental. This is typically beneficial for investors who may have owner occupied property debt that they can prioritise to pay down first. 

In any case we would recommend you speak with your advisor or accountant as to which strategy suits yourself.

  1. Things to look for when choosing a finance provider  
  • Do they understand your goals?  
  • What types of products do they offer? 
  • Response times  
  • Location   
  • Upfront/ongoing costs   
  • Deposit/equity required 
  • Could you qualify for any special waivers? 

While this list may seem like a lot of things to consider and perhaps overwhelming, a mortgage broker can be of assistance in ensuring you have the best suitable loan product for your next investment purchase.

Mortgage Brokers have the added benefit of having access to multiple banks and lenders and help take out a lot of the guesswork when it comes to applying for finance.  

  1. Other costs to consider – outside of purchasing the property – upfront vs ongoing   

When buying an investment property there are some extra costs all buyers should take into consideration when looking to buy a property, some are not always so obvious. Below are a few ‘hidden’ costs that will arise when looking to buy:  

Stamp Duty 

Stamp Duty is a state government issued tax on property purchases. As an investor, unfortunately there are no exceptions or concessions available to purchases and the dollar amount fluctuates with the value of your property. On a $500,000 home in QLD, you would expect to pay $15,925.00 in stamp duty as an investor. 

Lenders Mortgage Insurance 

If you do not have the full 20% deposit saved up for your purchase, then Lenders Mortgage Insurance will be payable on your loan. There are some exceptions to this rule for specific industry fields where some lenders will waive (such as qualified accountants/solicitors) so best to check with your mortgage broker if you may qualify for these. 

This insurance is designed to protect the bank, not the borrower in the event you default on your loans. This is not to be confused with Mortgage Protection Insurance.

This fee works on a sliding scale, dependent on your loan amount and contribution. Based on a $500,000 purchase price with a 10% deposit you can expect your LMI to be roughly around $9,000. 

Government Fees

In addition to your stamp duty there are fees associated with registering your property with the government correctly under your name. Mortgage Registration ($197) Mortgage Discharge registration ($197) and Mortgage Transfer Fee which similar to stamp duty varies depending on your purchase price. Based on a $500,000 property this would be $1,381 regardless of if you are investing or plan to live in the property.

Conveyancing & Legal Fees

Fees associated with engaging a solicitor or conveyancer when buying a property. 

While it is not technically a requirement when buying a property to have a solicitor/conveyancer we would highly recommend engaging on as soon as you find a suitable property as they will certainly aid in making the transfer of ownership from the vendor to yourself a much smoother one, ensuring your new home is clear of covenants, caveats, and any easements. We cannot recommend this enough and estimate these fees being around $1,500-$2,000.

Building & Pest Inspection

Another extremely important expense when buying a property. This will help provide you with comfort that the property you are purchasing is a sound investment and will help you understand the overall condition of the property or identify any structural issues with the property. We would estimate these costs to be around $500.

There are also some additional ongoing costs you can expect to incur as a new property owner. 

  • Council Rates – Typically charged every quarter  
  • Water Rates 
    • As a property owner you can pass on the water charges to the tenant while they occupy the property. The property must meet certain standards such as being individually metered and water efficient and it must be clearly outlined in your tenancy agreement. 
  • Body Corporate Fees (if purchasing a unit) 
    • Payment to body corporate help cover the overall maintenance fees of the complex. A tip, properties that have higher maintenance items such as pools, gyms, elevators will typically attract higher body corporate fees. 
  • Insurances (Home Insurance/Landlord Insurance)  
    • To protect your new investment you want to ensure you have suitable insurances for your property. Landlord insurance is a form of cover that covers you for additional items such as damage to the property by tenants, loss of rent if you tenant can’t pay and legal expenses to evict a tenant in addition to your standard fire/storm/flood covers. 
  • Upkeep & Maintenance
    • As a landlord you are now responsible for any upkeep and repairs of the property. This could be something like a leak in the roof, fiddly locks, roller doors not working etc. General care of the property such as mowing, cleaning will remain at the tenants expense. 
  1. A timeline of the steps to take (from organising finance, viewing/purchasing the property, preparing it for your first tenant, selecting a property manager, maintaining the investment from there)  
  1. Make the decision to buy!   
  2. Determine your budget & affordability    
    •       Your mortgage broker would be able to assist 
  1. Get Pre Approval  
  2. Find the right property (do your research)  
  • Line up your team (solicitor, buyers agent, leasing agent)  
  • Location  
  • How long do you plan on holding?  
    •       Can you afford the repairs i.e. is it old and will require regular upkeep?  
  1. Make an offer  
  2. Sign the Contract of Sale  

    Things to consider  
  • Deposit to pay  
  • Approval timeframes dates  
  • Settlement dates  
  • Building and pest   
  • Getting building insurance within 24 hours  
  1. Approval process  
  • Provide the signed contract of sale to your mortgage broker  
  • (If investment) arrange for a rental appraisal to be carried out on the property  
  1. Sign your loan documents  
  2. Engage a rental agent to find a tenant  
  3. Settlement  
  4. Enjoy your new investment  

If you would like to discuss purchasing an investment property with our Finance team, contact us today!