What are the setup costs involved with buying a property?

Reading this thread in more detail it is a great example of what an excellent community this is. You've got experienced investors with a wealth of knowledge politely trying to point out risks to someone, dare I say, 'young and impetuous'. I wish I had been able to access that sort of advice when I was 21 (although like most 21 year olds I probably wouldn't have listened )

Sketchy, one worrying comment you made back there is "I think people are beginning to miss the point here". In fact I think it is the other way round, and that you are either missing or can't see the point because your adrenalin is pumping in the thrill of the chase for your first purchase. That adrenalin is second only to lust in terms of things that affect your brain's ability to make sensible measured decisions.

Whatever you decide, print this thread and keep it 10 years. Then pull out the bit of paper and read some of the earlier comments and see if you still think people were "missing the point".



Long live the community-minded helpfulness of InvestEd we have all come to expect as a right !

 

haha thanks rod! hopefully be hanging around the site alot longer! seems like a good community!

 

Thanks for all the replies, I've tried my best to thoroughly read thru them all and understand them as best I can, and have tried to take in what everyone is trying to say.

As I had assumed, the main point everyone has brought up is the Leasing contract. Whether the $230 is Gross or Net, whether all the outgoings are paid for or not, whether rent is garuntee'd or not etc.

So, I've emailed the Real Estate agent and will be trying to get a copy of the current owners Lase Contract.

Once I've looked into it a little more, I'll re-post and give a bit more information.

Thanks for all your opinoins and feedback.

 

Sketch, not to flog a dying horse, but never 'assume'. I think most people are trying to point out that 'guaranteed rental' deals are often a red flag for "crap property not worth what we're asking so we'll use the inflated price to prop up your rent then wave goodbye to you in a year or 2"

Try going to some local agents who have a large rent roll and describe the studio you intend to buy and ask what the likely rent return is. If there is a huge gap between the market expectation and your 'guaranteed rent for 2 years assuming we don't go bankrupt or take over Christopher Skase's lease in Spain' then honestly you need to think about why these people are being so 'kind'. Have you looked at yields for the suburb using Residex or a good source of stats ? Is the yield they are guaranteeing way out of whack with that ? If so, how can that be ? Are you just lucky you fell across an awesome deal ? Buy a lotto ticket now ...

If you think a tourism or accommodation property won't go bust because it "looks" solid, have you been watching the MFS debacle lately ?

Reading this thread, I don't think anyone's major concern is the 2 year management agreement or rental guarantee - 2 years is a p*** in the bucket in property terms. The concern is you might be relying too much on what the person who wants to SELL YOU SOMETHING is telling you, versus the caution and common sense of people who have been investing for years are telling you could be wrong in general.

Mate, you honestly seem convinced you need to buy this studio and you'll make a huge financial decision (it IS huge as you will affect your future equity and borrowing capacity, even if you are prepared to accept limited growth) as long as the RE agent tells you what you want to hear.

So, tread carefully. No one can make your decision for you ... but if you haven't pulled this thing apart 3 times and put it back together twice before you sign anything, you only have yourself to blame. Some agents live by "a fool and his money are soon parted" - lets hope this isn't one of those.

Cheers
Carl

PS I have a property worth $500K currently, it easily returns $450 per week rent. I will happily sell it to you tomorrow for $790K with a guaranteed rent of $1,250 per week for 2 years. I'll throw in $500 of landlord insurance per annum, and a monthly maintenance deal which will cost me a total of $1,500 for 2 years with the local handyman. The figures are real and the offer is genuine. I'd be mad not to ! (The $80K-$100K I spend to prop up your rent will come out of the big fat cheque your bank sends me on settlement). If you ask me for anything guaranteed in writing, you'll have it on your fax in less than 2 mins.

If you're keen, email at [email protected] ;-) I can guarantee we'll be best mates for 24 months. After that, maybe not so much.

 

Well I saw another apartment available in the same building, it was basically the same thing, a studio.

Anyway it said that it had been rented out by the same tenant for quite a while at $250pw, so I'm guessing even if the company didn't renew the lease after 2 years I'd still be able to rent the place out for a decent bit of money.

 

why dont you look as an interested buyer in the other one. THis will give you the opportunity to see how long the lease is for and to who? (maybe a dummy 3 months lease to a related party to make it look better)....

it would also give you an opportunity to speak to the agent or owner about the mgmt on the building....

any chance this investment is in pyrmont?

remember ull only get a 50-60% LVR on a studio.. i know its not ur money but still something to consider

 

Not necessarily, it depends on the size, location, whether it's true residential, and type of loan. Not all lenders will come to the party, but most of the majors will, especially if the applicant can service the loan (e.g first property purchase with good serviceability).

As an example, I recently re-financed a 36m2 studio on the lower north shore to 90% LVR, full-doc loan, with the studio as sole security.

 

No, but I'm also actively looking for something in the Pyrmont area also. My main goal is to try and grab a 2br apartment in Parramatta, as close to the station as possible. Of course this would probably take me another 6-12 months, perhap more, which is why I was considering something small like this.

http://www.domain.com.au/Public/PropertyDetails.aspx?id=2006484384&prevChan

This was one of the apartments I was looking at. The other one was the same thing in the same building, however it had a tenant in it who has supposedly been there for quite a while, happily paying $250pw.

Anyway, I spoke to the real estate agent via email and found out the following;

In light of the $230pw being gross, I'm not interested anymore. I lose over $4000 of it to outgoings.
Back to hunting.

 

Answering the initial question, my last IP on 85% lend.

Stamp duty 2.91%
Legals 0.44%
Option fee 0.13%
Application fee 0.15%
Settlement fee 0.12%
Valuation fee 0.08%
Mortgage stamp 0.34%
Mortgage registration 0.04%

Total entry costs = 4.21% of purchase price.

I've found 4% is a good rule of thumb to use.

 

Many thanks.

So is stamp duty always 2.91% regardless of price..?

 

Well done Sketchy.
You've done your homework, read the fine print and come up with an answer.

I reckon there's a lesson in that for us all. Sometimes it feels like we're under pressure to do something, but it's far better to sacrifice a few days or dollars doing our own due diligence on any investment. If it's good, we can enter into it very confident, if it's not all we hoped, we may save $1000s in the long run.

It's very easy to feel like the market is getting away from us, but don't worry, opportunities present themselves. Do you buy the first car you see? No, you shop around and maybe test drive a few, to get an understanding of value. All that work for a crap depreciating asset.

Do you buy the first house you see? No, you spend weekend after weekend walking through open homes and attending auctions, and you spend night after night reading realestate.com.au and domain.com.au. That way, you know the market and feel confident about your plans.

Introduce yourself to RE agents. Tell them exactly what you're after, and they'll help you find it. Who cares if you have to take a few phone calls and see a few dud properties that they show you, if you nail what you're after a few weeks down the track?

Remember that you might hold such an investment for 40 years, it'd better be a good one!