Property
Ask the real estate agent:
- What was the last price the property sold for;
- What will the likely rental return be;
- What are the current annual council and water rates
- Are there heritage or other restrictions to renovations/changes made
- Are there any approved plans for renovations or changes
- Has council checked that current renovations are legal
- Have building and pest inspections been done
- What is the state of the plumbing and wiring is it documented
- Has a title search been done
- How long a settlement period are the sellers requesting.
Re: Houses
- Zoning
- Size of block
- Floor space ratio (building area to total land area)
- Floor space currently used
- Any plans for building on adjacent properties.
Re: Units
- If building is company title, is leasing permitted
- Is the building fire rated or being arranged?
- Current levies
- Any special levies and for how long?
- Check annual strata report to see what repairs, if any, have been carried out to common property.
Ask your Solicitor/ Conveyancer
- How much do you charge what must I budget for
- Does this include disbursements
- Does title of the property affect legal cost
- Do you charge a storage/holding fee to keep documentation
- Are you licensed to do this work
- Do you handle all correspondence once the sale has commenced
- What are your working hours?
The Costs of Buying (Article sourced from St George)
Stamp Duty
Stamp Duty is a State Government tax. As the amount varies from State to State, you should check the applicable rate with your local Stamp Duties office or legal representative. Your local stamp Duties office can also provide you with information on how much stamp duty you have to pay, how it is calculated and if you are entitled to a discount or to defer payment.
There are types of stamp duty payable in relation to purchasing a property:
- On the mortgage - the amount of stamp duty payable on your mortgage depends on how much you borrow.
- On the property - the cost of stamp duty depends upon the price of the property you are buying.
Your legal costs
Many of the costs associated with buying a property are non-negotiable. Your main legal cost will be for conveyancing, which is the transfer of property from one person to another Conveyancing fees vary from state to state and you can ask your solicitor or conveyancer for an estimate.
Searches and Inspections
You should not exchange contracts to purchase until you have had all the necessary searches and inspections done. If a cooling off period applies to your contract, you may be able to have the inspections and searches completed between the exchange of contracts and the end of the cooling off period. You should be advised by your solicitor/conveyancer/settlement agent as to what searches and inspections need to be carried out.
Searches and inspections may include:
- Building inspections - the cost depends on the detail required in the report. The written report should detail any flaws, including problems with damp and the structure of the building and roof
- Structural inspections
- Pest Reports - although this seems like an unnecessary cost now, it is a small price to pay when compared with the price of possible building repairs at a later date. This report should detail any evidence of pest infestation in the property, such as ants, and if required any recorded treatment.
- Surveys - this may be requested by your legal representative to check the position n the building and its boundaries, and confirm that the building is built on the correct block. It will also confirm whether or not it has been built in accordance with local council requirements.
- Title searches - this search is undertaken by your legal representative. It provides details of who owns the property and who else has an interest in the property, as well as noting restrictions and conditions which may need to be checked out. For a small fee, this is a good way to research who has an interest in the property which affects the title.
Lenders' Mortgage Insurance
You may be required to pay for Lenders Mortgage Insurance if you borrow more than 80% of the value of the property you are purchasing. It covers the lender if there is a shortfall after the lender exercises its right to sell the mortgaged property due to a borrower not complying with the loan agreement and mortgage. E.g., if you do not make your repayments, your lender has the right to sell your property. It does not protect you from having to pay what you owe on a mortgage. It does not pay out the loan in the event of the borrower's death or injury, nor cover loan repayments in the case of illness or unemployment, and therefore should not be confused with Life Insurance or Mortgage Protection Insurance. Remember, if you can contribute to more than 20% of the purchase price of the property, Lenders' Mortgage Insurance usually will not be required.
Rates
From the settlement date, you are responsible for all council, water rates and levies on a property. You may have to reimburse the previous owner on a prorata basis for any payments already made. Your solicitor will work these out for you.
Building Insurance
The responsibility for insurance and risk of loss can vary from State to State, so it is wise to check with your solicitor as to exactly the type of cover you will need. It's important to remember that, at the latest, you must have the building insured at the time of settlement, however, it's best to insure as soon as you exchange contracts to purchase the property as you have an insurable interest.
Body Corporate Fees, Sinking Funds and Liability Insurance
When purchasing into a property that may have one or more owners such as strata title units or townhouses, you need to make allowances for a range of additional costs involved with the maintenance and insurance of the property. These include body corporate fees, contributing to sinking funds and liability insurance to cover any damage to the property.
Your finances are in order and you have a pre-approval mortgage agreement so it is time to really start looking. Do you build or buy, go for a house or unit, buy off-plan or design your own, buy vacant land or knock down.
Build or Buy?
There are always different schools of thought around buying a new house versus an existing home which then needs to be renovated.
Elements to consider:
- Are there any first time home buyers grants for building your first home
- Costs to build often blow out, not to mention energy, time and dedication to manage the process
- The satisfaction of building your own home
- Versus the ease of moving in and not having to change much!
What are your options?
- Display Homes - you can see exactly what you will get although beware display villages often build to a higher standard than the actual project home. Little room for change and there may be extra costs if your block of land is not standard or difficult to access. Check the contract
- Off-plan apartments and townhouses - property sells based on your acceptance of the plan. This has been common in the use of high-rise, city apartments. You buy at today's price but do not have to pay until completion which could be 6-12 months out. Requires 5-10% deposit. Lenders are often reluctant to finance off-the-plan. Check the contract thoroughly
- House and land packages - developers offer a range of locations and house designs in new development areas. Usually require 10% deposit with balance on completion. Check the contract thoroughly and perhaps even get a qualified legal opinion on the contract
- Build your own design - usually more costly but gives more flexibility and often better finishes. Most important: make sure you have a reliable and good builder, good site foreman and an architect or draftsman to inspect completed work on a regular basis.
Checklists
If buying a house, remember to check for:
- Illegal building work
- Nearby, convenient amenities
- Plumbing in upstairs bathrooms
- Can you access all areas of the house for furniture delivery
- Are there any government development plans for the area/street/block?
While these should be considered no matter where you are buying they are especially relevant if buying a unit. Remember to check for:
- Can you have pets?
- Know what levies you will be in for
- Check noise and parking at different times of the day and night
- Check for theft in communal areas
- Is there enough storage space.
Tax Tips for Rental Properties
This article is produced by the Institute of Chartered Accountants in Australia. It provides general information current at the time of writing. It is not intended that the information provide advice and should not be relied on as such. Professional advice should be sought prior to actions on any of the information contained herin.
Rental properties are on the Australian Tax office (ATO) radar screen, and many thousands of taxpayers with rental properties can expect to be contacted to justify what they put in their return. If you have a rental property, here are some tax tips to consider.
1. Be able to justify your claim. Make sure you have receipts to justify the deductions you are claiming, and can justify the connection between the expense and driving the rental income (eg it wasn't also for private purpose). Low cost depreciable assets.
- $300 or less. You generally get an immediate deduction for depreciable assets costing $300 or less. However, if you purchased other items during the same tax year and together they form part of a set or are substantially identical, and the combined cost is more than $300, then each item must be separately depreciated.
- Between $300 and $1,000. Depreciable assets costing between $300 and $1,000 can (subject to certain conditions) be "pooled" and the total cost depreciated at 37.5%, which may be quite favourable compared to separately depreciating them.
2. Allocating total purchase price. If you purchase the property with depreciable assets (eg dishwasher, clothes dryer), you must allocate the total purchase price between the property and other items on a reasonable basis. If the sale contract does allocate the purchase price the ATO may challenge if the amounts allocated appear unreasonable.
3. Part of the building. Items such as built-in wardrobes, swimming pools, electric cabling and security screens are treated as being part of the building and are not depreciable assets. Expenditure on "capital work" - the building and surrounding structures, driveways etc. - is generally deductible over 40 years at 2.5%. There are restrictions on claiming it on capital works already constructed when you purchased the property.
4. Improvements. The cost of repairs to the property that amount to an improvement, and don't merely restore it back to its original condition, is generally capital and not deductible.
5. Repairing existing wear / damage. The cost of renovations or repairs to fix damage or wear in existence at the time you purchased the property is generally capital and not deductible.
6. Renovate and sell. If your intention is to renovate and sell at a profit, rather than long-term income producing investment, you may be taxed on the entire profit as a "profit-making scheme". If it falls outside the capital gains tax (CGT) rules you will not be eligible for a 50% CGT concession mentioned below.
7. Body corporate fees. Body corporate fees are generally deductible. However, if a component is for a special-purpose sinking fund rather than general running of the complex, it may be capital and not deductible.
8. Travel to inspect property. You can claim a deduction for the cost of travel to inspect the rental property. If there was also a private purpose to the trip - eg. a holiday or to visit family or friends - then you can only deduct a portion of the travel cost (potentially none if the property inspection was merely incidental to the private purpose for the trip).
9. Below market rent. If the property is rented to family or friends for below market rent, the ATO may treat this as a private arrangement and only allow you to claim sufficient deductions to offset the rent, but not make a tax loss.
Mortgage with redraw facility. If the mortgage to purchase the property has a redraw facility, think carefully before re-drawing to fund something private such as buying a car or a holiday. The interest expense must be apportioned between the "deductible" and the "private" portion of the total borrowings, and the calculation can be complicated.
Selling the property. Make sure you declare in your tax return any capital gain when you sell the property. If you owned it for more than 12 months (and it wasn't a "profit making scheme" as mentioned above), you are only taxed on 50% of the capital gain (after offsetting it against any capital losses). If you lived in the property at some stage as your main residence, speak to an Accountant about whether you qualify for the main residence CGT exemption (the rules can be complex). For capital gains Tax purposes the date of acquisition of the property is the date of exchange of contracts, not the date of settlement.
