First time property investor FAQ’s
Looking at investing in property, but have some questions about how it all works? Here is a look at the some most commonly asked questions we receive from first time property investors
What is property investment?
Property investment is when real estate has been purchased with the intention of earning a return on the investment, either through rental income or through capital gain when the property is sold in the future.
Can I use equity in my home as a deposit?
Yes you can. If you have owned your home for a few years, you may have built up equity in your property. For instance, if your property is worth $600,000 and your home loan is $200,000 your property has equity of $400,000. Instead of saving for a cash deposit for an investment property, you could use this equity as the deposit.
What is negative gearing?
Negative gearing is the practice of investing borrowed money in such a way as to result in a loss that can be claimed as a tax deduction. For example if an investor generates $25,000 in rent each year, but has expenses of ownership totally $30,000, the investor can then claim the loss of the $5,000 as a tax deduction.
What are the costs of investing in property?
The main cost of investing in real estate is obviously the cost of the property. However, there are other costs that you need to factor in also: (please note these are approximate)
- Stamp duty - variable
- Mortgage registrations: $90
- Annual bank fees – normally not a lot of money but important to factor
- Establishment / application fees for your home loan: approx. $600
- Rate lock fee – approx. $400Settlement attendance fee: $100
- Lenders mortgage insurance: Variable
- Valuation of property: $200
- Interest on your investment loan: Variable
- Conveyancing / solicitor fees: $1000
- Building inspection report: $300
- Pest inspection report: $200
- Pest and strata reports - The general cost is between $400 and $600 for a pest and building report and approximately $200 for a strata report
- Strata fees: The scope of strata fees will vary considerably depending on the age of the building, facilities, and location but you should expect to pay around $70 to $80 for the lodgment of application.
- Advertising fees to attract tenants approximately $600
- Property management fees - approximately 7-10% of your total rental income, however the services and expertise offered by a good property manager is worth much much more than this fee, plus in many cases the agents service fee is tax deductable.
- General property maintenance – Variable but allocate approximately 2% of the property value annually for maintenance.
- Council rates - Variable
- Insurance - It is recommended that you take out landlord insurance to protect you from things like malicious damage caused by the tenants, a lack of rental income from tenants who have damaged the property or failed to pay rent etc. Expect to pay approximately $1500 annually for insurance.
- Accountancy Fees - Your accountant will help you complete your tax returns and the end of the year, assess things like depreciation, rental income and expenses. Make sure you find out how much they will charge to manage your property investment accounting needs.
What is stamp duty and do I pay it when buying an investment property
Yes you pay stamp duty on an investment property. Stamp duty is a charge that is applied to the purchase of residential property by state governments. It is not a fixed cost across the country - it differs in each state and territory and to find out the costs where you are read our state and territory specific articles.
Do I need a lawyer or conveyancer?
Buying an investment property is fundamentally a legal process so the help of legal experts, namely conveyancers and solicitors is critical. They will be an invaluable part of property negotiations and can help you through the paperwork. However, remember they will charge a fee so make sure you factor this in. Some conveyancers will charge a flat fee while others will charge a sliding fee based on the properties sale price. Make sure you discuss fees and charges before you engage their services.
What are strata fees?
Once a seller hands their property over, you immediately inherit all of the attached council and strata fees. While both owners of houses and units are obliged to pay council rates, it is only owners of units or apartments that will have to incur strata fees.
Strata fees cover the property’s grouped maintenance and building insurance fees and are collected by the building's owners' or manager. These fees are ongoing costs that will continue to absorb your finances, generally quarterly, even after your initial property purchase payment, so it’s important to incorporate these into your ongoing budget.
What is the role of a property manager?
- The key roles of an LJ Hooker Property Manager are:
- Advertising your property for rent
- Open your rental property for viewings
- Screening tenants including reference checks, rental history review
- Manage the condition report process
- Manage the tenancy agreement signing process and handling questions
- Manage your financial accounts for the investment property and provide regular reports
- Inspect the property on a regular basis
- Organise tradespeople for repairs and maintenance
What are the benefits of using a LJ Hooker property manager?
- Fewer problem tenants as property managers are experienced at screening applications
- Avoid unpleasant confrontations
- Tenants have someone to talk to right away
- Decrease tenant turn over as good property managers know how to keep their tenants happy
- On time rent. Good property managers will work to ensure your tenants pay their rent on time.
- Less stress as someone else is managing your property and tenants
- Property managers are across all legislative requirements and the constant changes of the legislation
- You may eligible for more comprehensive insurance if you have a property manager
- 10,000 Qantas Frequent Flyer Points - When you appoint LJ Hooker as your property manager
- Reduce your Risk - By engaging a property manager you reduce the chance of having a vacant property therefore lowering your risk of lost income.
How much does a property manager cost?
A property manager costs approximately 7-10% of your total rental income, however the services and expertise offered by a good property manager is worth much much more than this fee, plus in many cases the agents service fee is tax deductable.