image

Costs Involved in Investing in Australian Real Estate

The Australian property market is dynamic in nature. It means it is constantly changing. Understanding and leveraging the true potential of the market is essential to stay at the top of the game. But if you are someone who is new to the market or if you are unable to learn about the frequent changes that the Australian real estate market goes through, then you need a professional, licensed, and dedicated agent by your side. To learn and seek answers about any real estate needs, contact Carlton Vaz, the best real estate agent, offering his expertise in Hampton Park, Lynbrook, Lyndhurst, Cranbourne and nearby suburbs.  

 

 

Having a seasoned professional with you will help in getting to the depth of the matter. You will get clarity over things that otherwise you may not understand – the most common of all is costs involved in investing in Australian property market.  

 

Other than the changing laws, it is the statistics and the figures that make people go crazy. So, to help you out, we have come up with this blog. It will tell you everything about different costs involved while investing in Australian real estate market.  

So, let us get started! 

 

There are many costs associated with property investment such as upfront loan costs, upfront buying costs and the ongoing costs of owning the property.  

 

Investing in Australian property is enormous. The stats with the Australian Taxation Office (ATO) show that there are more than 2.15 million property investors throughout the country.  

 

The ATO’s stats show nine out of 10 of those 2.15 million people own just one or two rental properties at most. Only less than 1% of investors fit into the category of having six or more rental properties. Even though investing in property brings in good wealth, it is at the same time a risky and expensive process.  

 

There are different costs involved in Australian property investment such as;  

 

Home Loan Costs for Australian Real Estate  

Home Loan Costs for Australian Real Estate

 

Unless you have enough cash to purchase an investment property, you will need a good value home loan to make such a big purchase.  

 

Most home loans come with fees and mostly all of them will charge interest after all a loan is not a charity. 

 

Other home loan fees involved in investing in Australian property are as follows; 

  • Lenders mortgage insurance 

  • Ongoing fees 

  • Loan establishment fees 

  • Break costs 

  • Interest payments 

 

We will briefly explain these below. 

 

Lenders Mortgage Insurance (LMI) 

Lenders Mortgage Insurance

 

Lenders mortgage insurance (LMI) is an insurance policy which covers lenders against losses in the event that the borrower can no longer meet their loan repayments / defaulting.    

 

You can avoid paying LMI if you have a deposit of about 20% of the property’s value or greater, or if you use a guarantor. But if you have to pay it can cost you thousands of dollars. 

 

Loan Establishment Fees 

 

It is also known as an application fee. It is an establishment fee, basically a one-off payment at the beginning of the loan to pay for the processing documentation. Not all lenders charge this fee, but those who do will often charge around $250 and the maximum can be as high as $800-$1,000. So, be aware!  

 

You can also be charged a valuation fee but at times it is bundled into the establishment fees. 

 

Even the state governments charge mortgage registration fees to register the property as a security on a home loan.  

 

Ongoing Loan Fees 

 

Just like an application fee, your home loan may also come with an ongoing fee. It is usually charged annually. Yet again, not all lenders charge this fee but common costs can be around $100 to $180 per year. On the other hand, some can even charge up $400. 

 

Interest Payments 

Interest Payments on home loan

 

Although not a fee, interest will generally be your biggest cost of a home loan. A low interest rate on your property investment can save you tens of thousands of dollars Investment home loans usually carry higher interest rates on an average than an owner-occupier loan, which means a higher interest cost.  

 

Home Loan Break Costs 

 

This cost is only applied to the fixed home loans. Also, they occur when you leave the loan before the fixed-rate term is up. These fees often cost a couple of thousand dollars. Some experts may even quote instances of $30,000+ fees. So, you must think long and hard about it that whether a fixed-rate loan is a good option for you or not. 

 

Your lender may even charge an early exit fee in case you fully pay off your mortgage earlier than the originally mentioned home loan term. Also, discharge fees may apply once the loan is completed so as to cover the corresponding paperwork. 

 

All or none of these may apply for any home loan. So, make sure you check the terms and conditions and see what fees they are charging. 

 

Property Buying Costs 

Property Buying Costs

 

While the above-mentioned fees apply to the home loan, there are some other costs too that you must consider while making an investment in the Australian Real Estate. The fees are as follows:    

  • The deposit 

  • Solicitor and conveyancing fees 

  • Stamp duty 

 

Property Owning Costs 

 

Other than all of above, there are some more important investment fees such as: 

  • Land tax 

  • Home and landlord insurance 

  • Council rates 

  • Property manager fees 

  • Body corporate fees 

  • Repair and maintenance fees 

  • Advertising fees (for tenants) 

  • Depreciation 

 

Landlord Insurance  

landlord insurance

 

This insurance policy is to protect the interest of those who own the investment property (landlords). This policy works in conjunction with homes and contents insurance. But it also has a coverage to protect against loss or any damage that may arise from tenancy issues such as loss of rental income, theft or damage to the property. 

 

Council Rates 

 

Also referred to as government rates, the council rates are the annual or quarterly fees collected by the local governments. It is collected to maintain the council area, provide bin collection services, plumbing, electricity and so on.  

 

 

Land Tax 

Land Tax

 

This is another cost that you have to pay in order to buy a property. What is a land tax? It is an annual cost levied on the owners of the land and not the property itself. This tax is levied by the state governments, excluding the Northern Territory. So, the cost can vary depending on the worth of the land.  

 

Body Corporate Fees 

 

This cost is often charged quarterly. The body corporate fees sometimes also called strata fees are rates charged on apartments, townhouses and the units. This fee covers the maintenance of the shared areas of the properties such as balconies, lifts, gardens and the management of the block 

 

You must know the exact cost of the body corporate before making a big investment.  

 

Property Manager’s Fees 

 

This is equally essential because if you own an investment property in Australia, you are likely to employ a property manager to take care of it. For that you will have to prepare the budget accordingly. Having a good property manager by your side means everything from collecting rent, finding tenants, maintenance of the property etc., is taken care of by the professional you hire.  

Property Managers Fees

Depending on your state and the property manager you choose, a property manager can cost from around 5-12% of your weekly rental income.  

 

Repairs and Maintenance 

 

As a landlord it is your responsibility to ensure that the property is in a livable condition for your tenants. This means, if something breaks or anything serious happens, you will have to get it fixed unless it is covered by the insurance.   

 

There is no set cost for repairs and maintenance because it totally depends on the situation. But it is advised to keep a yearly budget aside for the same. In case any untoward incident takes place, you will already have a set budget for that.  

 

Depreciation 

 

There are many elements that will lose its value with time such as carpets, curtains, air-conditioners, appliances and furniture. So, you should factor this as well into your budget 

 

Anything that is out-of-date will lower the value of your property as well.   

 

Advertising for Tenants 

 

This is probably the final cost you will have to factor in while investing in Australian property real estate. This is especially when you want tenants to live in it. Unless you do not want to receive a rental income, you will need to find a tenant and for that you may have to advertise extensively. 

 

Doing a little research or hiring a good real estate agent in Hampton Park or nearby suburbs will always be of great help to you. A good real estate agent like Carlton Vaz will guide you throughout the journey. So, whether it is to know about different costs involved in Australian Real Estate or anything else in terms of real estate, do not hesitate to contact us. Jasmine Real Estate is here to meet all your real estate needs. Call now.

Do you own a home?

Prepare for profit. Download our top tips on how to get the highest and best price when selling.