One of the most common and effective ways to increase your wealth in Australia is through real estate. It’s a lengthy commitment, though, and not everyone is up for that. To decide if it’s the best choice for you, take into account the following advantages and disadvantages.
Purchase costs –
You’ll also need to take into account other expenses related to the purchase. This includes stamp duty, the amount of which varies by state and is based on the value of the property. The price of an attorney or conveyancer, registration costs, and the cost of the legal transfer of ownership ($650–$850) must all be taken into account. Before the property is sold, examinations for pests and building conditions must be completed.
Deposit –
To avoid the cost of lenders’ mortgage insurance (LMI), a deposit of 20% of the property’s value is usually required. Compare loans and shop around because you may be able to find a mortgage with a loan-to-value ratio (LVR) as high as 95 percent, requiring a smaller deposit.
Home Loan –
Other costs are associated with your loan, in addition to repaying the principal amount borrowed. There are costs associated with the establishment and application process, as well as legal fees, valuation fees, and monthly or annual fees. There are ongoing interest payments on the borrowed amount. Other fees may apply, so read the fine print before applying for a home loan.
Council Charges –
Check with the local council to find out what the average quarterly rates are in the area for a property of your size. Calculate the potential return on your investment by incorporating this amount into your budget.
Other expenses. Additional costs to consider, depending on your circumstances, include:
- Fees for an accountant to assist you in calculating rental income and expenses when filing your tax return.
- Renovation costs if your property requires an upgrade to increase its ‘livability’ and appeal to prospective tenants.
- If you need to travel to inspect your property or oversee maintenance, you will incur travel and lodging expenses.
- The amount of investment property tax return payable to the government
Fees for property management –
If you have the time and knowledge, you can manage your investment property yourself, but most people hire a professional property manager to look after their investment home. Property managers are responsible for things like finding and screening tenants, holding open houses, and organising any repair or maintenance tasks that need to be done. In general, expect to pay between 7 and 10% of your rent in property management fees.
Agent commissions –
Buyer’s agents are increasingly being used by investors to help them find and purchase the right property. If you go this route, you must include your agent’s fees in your calculations.
Plan For Long Term and Manage Risk-
Keep in mind that investing in real estate is a long-term strategy and you shouldn’t count on price increases to occur immediately. Try not to get too greedy and find the correct balance between financial stability and still being able to enjoy life. The longer you can afford to commit to a home, the better. As you develop wealth, you can then consider buying a second investment property.
You probably aren’t aware of this, but mortgage insurers and lenders have useful information on various areas and real estate developments. You should try to get access to this data to help you avoid choosing the incorrect investment property. Whatever you do, never choose to purchase an investment property based on obtaining a tax benefit with a tax return advisor you can certainly reduce the taxable liability and secure maximum profit. Instead of this, always put an emphasis on selecting the best possible investment.