Investment Property expenses

I am new to invetsments in property markets, would like to know from experts what is the percentage of govt. and other costs to the purchase price of property in different states. Are any of these expenses are tax deductible or only the ongoing expenses are tax deductible. What factors are generally considered for valuing the property.

 

Hi Aviraj and welcome to the forum

Property has many costs attached, the main ones including:

Property stamp duty
Loan stamp duty
Conveyancing/solicitors costs
Building/Pest and other pre-purchase inspections
Other purchasing costs
(could include BA fees, independent valuation, data costs etc)

For specifics on differing stamp duties this table is pretty easy to use:

How much stamp duty will I pay? - Home Loan Calculators - eChoice.com.au

Don't forget, however, that there are concessions for first home buyers, should you qualify, in terms of grants and stamp duty concessions. Check these out at your state's Office of State Revenue site. For NSW read here:

First Home Owners

Tax deductible costs vary but have a read of this article to glean further information. Capital costs are not immediately deductible but do reduce your capital gain when you sell, so records need to be kept. An accountant will be able to provide you with more specific information here as well.

http://yahoo.domain.com.au/Public/Article.aspx?id=1153166420674&index=qa

What factors are considered when valuing a property? Are you referring to valuers methods here?

If so, I can tell you that valuers use a mixture of methods to arrive at a valuation for property. These include:

Comparable sales
Summation (adding values of various component parts of a property such as building, landscaping, features such as pools etc)
Capitalisation (based on rental income and usually applies to commercial)
Replacement cost (value calculated on cost per sqm of building component)
Hypothetical Development (used for developers to calculate acquistion cost of land and holding costs etc)

Hope this helps.

 

Good summary Jacque.

Also worth considering is what type of property, commercial or residential (and further - residential or new-residential for GST), and how you own that property ie. in your own name, super fund, trust etc.

 

How does ownership affect the taxes? and where to get information. Also didnot understand residential & new residential - GST. Please explain

 

The way a property is owned - unfortunately its a small question with a very large answer, which I can't do justice now. However, who holds property,( eg via an individual, trust, company, super fund, or combinations of these ) can affect the way certain taxes such as Land Tax and Capital Gains Tax is calculated. Specific information - I'd recommend speaking with an accountant and solicitor.

Residential property is GST free and would include most property transactions from an individual to another individual. New-residential propery is generally property sold by a developer/builder in the business of constructing and selling property, and as such is subject to GST. So when looking at buying this "new" property you need to factor that you will be buying a property with an "additional" cost which other similar "older" properties may not have. Its neither good or bad, just something you need to consider.

GST on property can be incredibly complex. I raised the issue becuase you seemed to be wanting to know of possible things that could affect property.

 

Hi Aviraj

Matt has given you some great info to go on, and I would also suggest your visit your accountant to discuss ownership issues. If you don't already have one, make sure you hire a property-savvy (preferably one who invests in property themselves) accountant.

 

I am also a beginner to the world of property investment.
I have been googling for information about this topic but have found that the results vary.

Some sites say that the upfront costs for purchasing a residential investment property would equal $60,000 where as others quote at least 10% of the purchase price of the house.

As I understand it, you have:
- Stamp duty on property and on loan
- Conveyencing fees
- Loan application fee and other associated loan set up fees
- Inspections (pest, building)
- Property valuation
- Lenders insurance (if borrowing greater than 80% of house cost)

Plus you then have to pay
-council rates and strata (if unit)
- ongoing bank fees for loan
- real estate agent fees (to manage the property)
- house and landlords insurance
- repairs
- rates for utilities

I'm aiming to get a house around the $350,000 mark and hoping to save on some of the upfont costs due to the fact that my dad is an engineer and my partner is a builder.

We were planning on saving $100,000 which would include $70,000 for a deposit and $30,000 for the costs but I now believe we will probably need another $30,000 or so as a buffer for the ongoing costs.

 

Greenstripes,
Presuming the following:
$350k established house in NSW as an investment property, $100k of your own funds and borrow the rest.
Borrow $262k = LVR 74% (no LMI unless low doc)

An estimate of the costs involved:

• Stamp duty $11.2k
• Govt costs $200
• Your Conveyancing fees $1k
• Lenders application fees - most lenders will be Nil for this size loan, some up to $700. Normally includes valuation for bank purposes.
• Inspections around $500 to $700
• Quantity surveyor depreciation report - to $650

We are talking about up to $15k, say 5% of purcahse price for this type of property and loan. Most of these are taken out at settlement, you should only need to allow another perhaps $3k for the non settlement costs above.

Normal annual ongoing costs include:

• Landlord and building insurance $800 to $1k
• Bank fees - up to $375 pa depending on lender and loan type
• Property manager fees - could be to 8% of rental income
• All others depend heavily on council area.

Annual cash costs normally run around $5 to $7k pa depending on level of repairs and maintenance required and body corporate fees.

I hope this helps. Any good mortgage broker should be able to provide more specific information as to the cost components before you purchase or apply for a loan.
Greg

 

Another kind of ongoing annual "cost" that you should factor in is the vacancy factor. In these cases, you should know the vacancy rate of the area of your property and try toconsider it while doing your calculations. The reason is because if you property will be vacant a number of days or weeks (or even months) in a year, then you are effectively losing money, or at least not getting rental income.