What you need to know before investing in your first property.
There are many items to tick off your list when investing in your first property. Not only are there questions to ask through your due diligence period and purchase of the property but additionally after in order to attract a tenant. In order to help we have segmented the investment property process into three check lists, we hope it clears up any questions you may have and are here to assist you further.
Due to the strong demand across every buyer type it may seem like it takes a long time to find and buy a townhouse.
Searching for an investment property is different to searching for a property to live in. It is a financial decision, fact and figure driven, rather than an emotional one, be focussed and flexible.
How much can you borrow? This will depend on a variety of factors, historical and current. How much do you have saved in the bank, our employment history, savings, credit score and ability to repay, the bank will grant you a loan towards buying your first home. However, before setting your mind of the type/size/location of the property, it is important to clear with the bank how much you are able to borrow. Once you know this, it is easier to start thinking about the type of investment you would like to purchase. It is better to do this than be disappointed later on. Having said this, make sure to research all your borrowing options. You may have been a customer of one bank for many years, but the interest rate and repayment scheme of another bank could be better suited for you. So ensure you check all your bases before zeroing in on a bank.
Prices for off market, off the plan, under construction and newly built townhouses are fixed. That is the list price is the asking price, so, unlike an auction where the end price is measured by market demand and perceived market value on any day the price of townhouse developments is done with a little more science and research from comparison of similar designed townhouse product and inclusions in close proximity. Buying an investment property at auction or by negotiation means the price is driven from market interest so the property will be advertised with a price estimate and can end up selling for more or less. Townhouse Developments tracks the pricing, size and number of bedrooms in every development we come across and have a map with the average price per square meter and also list prices updated daily so you can always ask us and we can send you this report.
There are costs to purchasing a property that you will also have to take into consideration, these vary from State to State so it is always best to seek professional advice, costs include legal/conveyancer fees, disbursements, stamp duty to transfer of land.
There are costs to maintaining an investment property also, annual body corporate fee, insurances, council rates, land tax to name a few so always important to understand the outgoing costs to help you determine your rental yield after taking into consideration your revenue.
Your search criteria will really be determined by your finance and therefore budget. It is best to get a broad idea of property available for sale in the market, make plenty of inquiries to get an idea of prices in different suburbs and size of the property.
Buying at auction or through negotiation you will need to remember you will typically be asked to have 10% of the end purchase price available for deposit and the settlement time will be nominated by the vendor, this can be anywhere from a week to 3 months but again varies so you will need to check with the agent before bidding at auction or commencing negotiation and it is sensible to always show you conveyancer or solicitor a copy of the contract of sale prior to and including a building inspection.
Once you have picked a property you like you will be asked to reserve the property with a reservation form and holding fee which varies from builder and developer but usually around $2,000.00. This takes the property off the market and gives you a few days to review the contract of sale and ensure it is right for you before proceeding to contract of sale
It is at this time that you will want to show your conveyancer or solicitor the contract of sale as they will review the paperwork and give you any recommendations or feedback should you wish to proceed.
For 14 days after you have signed the contract the 10% deposit of the sales price is due which can be paid in cash or bank guarantee, then when the townhouse is built, that is complete, you pay the remaining 90% of the purchase price at settlement.
Construction updates allow you to follow the progress of your property and will typically include photos and commentary.
Varying from State to State a contract is a document of offer and acceptance. You will be asked to sign two or even three copies of the contract this is to ensure all parties have a copy of the paperwork.
Settlement day involves a bit more than just handing over keys. A busy time involving both you the purchaser and the vendor and your respective representatives, finance/bank and solicitors this process starts with you completing a final inspection of the property, noting any items that need recifying, prepare money for settlement, check the registration fee that needs to be paid to the land titles office, settlement statement, you will need to check your conveyancer/solicitor tax invoice to see if there are any additional disbursements incurred as a result of additional services necessitated by settlement as well as adjustments for local council rates and other services such as gas or water.
Once you have settled your bank will register the transfer and mortgage to the Land Titles Office and the bank or mortgagee will hold on to the certificate of title as part of security for the loan.
Don’t forget to insure your investment property. If you have an annual body corporate fee it may include some form of insurance to the public areas of the facility, always check as this will affect how much you need to cover.
There is going to be a lot of information, emails and paperwork from your research to settlement of your property, we recommend keeping everything on file so you can quickly refer to it if needed
There are always plenty of things to keep in mind like depreciation schedules for calculating tax depreciation.
There are a few costs you need to be aware of and again these can vary from state to state and also from one rental agency to another.
Connection service provider fees vary depending on which provider you use for gas, electricity or water, some companies provide all three now which makes life a little easier to pay bills.
Advertising photography fee, this will depend if you have decent enough photos but usually agents will recommend these are professionally done and this price will vary to who you use.
Let out fee, this is like a signing on fee or success fee and can be 1 or 2 weeks rent, basically once an agent has opened the property for viewing they will receive applications, review and investigate the townhouse applications and review the potential tenants rental history, professional and social references, salary or income and then once you have picked and or approved on signing of the lease this releases a fee. You will not need to pay this upfront – it will be taken from your rental income.
Management fee, this fee is the day to day, month to month fee of managing the property, such as invoicing your tenant, fielding telephone calls if any maintenance needs to be carried out and so on.
If your townhouse needs any maintenance and it is brand new or off the plan if may be under warranty or guarantee so always check this – if the townhouse property fixture and fittings are not under warranty then this will be an out of pocket expense for you.
Tribunal fees again vary to what the issue is and if you are representing yourself, with your agent or lawyer, hopefully you will never have to go to your local tribunal should you have a dispute with your tenant but always good to ask in advance so there are no unexpected charges.
Phew! Finally, when you have completed all of above successfully, don’t forget to celebrate owning your investment property!