Understanding the costs of your investment plans is key to the success of every investor.
It is not difficult to surmise that awareness and the knowledge of the costs for investments play a vital role when considering your budget and capital for building your assets.
For those investing in property, their primary goal is to generate revenues from their investment assets such as a highly profitable property.
Here’s a picture worth looking at.
The Australian Bureau of Statistics (ABS) reported that the combined values of dwellings in capital cities have seen an annual average increase of 10% since 2015. For instance, in that year alone if you purchased a rental property for $500,000, you are entitled to a $50,000 additional value to your property simply by just owning it.
Furthermore, if the average yearly income of that investment asset, for example, is $100,000 you can surely consider that add value as a very substantial income flow.
Steady forecast and great outlook
With the economy picking up from coronavirus pandemic lockdowns with the reopening of businesses and trade, consumer spending has seen a steady and remarkable increase since the previous year.
The current housing finance climate is starting to create a steady supply pipeline in Australia with the resumption of economic activities as well as the increasing demand for housing as more people are going back to work and fuelling the economy.
But wait
Before rushing in to take advantage of the bustling real estate market, it is important to be aware of the risks and costs involved when considering your budget and investment portfolio.
The key to taking the step towards investing is knowing how you can avoid making costly errors.
According to the Australian Securities and Investments Commission (ASIC), the most common mistake of first-time investors is over-committing to investment because they failed to conduct due diligence and were surprised to find out about hidden costs while they are already deeply involved in their investment ventures.
For instance, a would-be property investor has already saved up the capital to make a deposit then push all available funds, not realising other incidental duties and costs on top of the property price.
As such, real estate investors need to ensure that they set aside extra cash as a reserve for incidental costs and for unforeseen circumstances.
Additional costs on top of the property purchase price
Hidden and incidental costs can eat up a huge chunk of a budget and are something that investors need to seriously consider and prepare for.
Stamp duties
Depending on which state the investment property is located, stamp duties are mandated as a legal requirement by the Offices of State Revenue. For instance, stamp duty in Victoria would cost investors around $30,000 and around $23,000 in New South Wales.
Mortgage fees
This is paid when taking out finance and in ANZ states, for instance, most lenders usually charge an approval fee of around $600 to $1,000. In other states, if an investor is loaning more than 80% of the property’s value, mortgage insurance is charged as a one-time payment to take out the mortgage.
Legal costs
These are usually paid to process the legal transfer of ownership, usually undertaken by a solicitor or conveyancer. Rates may also vary from state to state and on the type of property purchased.
Pest and building reports
While these are not compulsory, some states strongly recommend having such professional inspections conducted on the property as a way to ensure the state and condition of the property. Most lenders also require these as part of their requirements from borrowers for a more accurate appraisal of the property.
The rates depend on the type of property or the extent of inspections but usually range from $700 to $1,200.
Strata and council fees
The moment an investor is handed over the property, they also inherit any and all attached strata and council fees.
Owners of houses and apartment units are required to pay council fees, while strata fees are added to those who own apartment units.
Strata fees vary depending on the facilities, location, and age of the building. The fees cover grouped maintenance and building insurance fees that are paid to the property owner and expect to pay around $70 to $90 for a one-time lodgement of the application.