When I first got started in property,
I didn't have a huge deposit. In fact, I had less than 5%, so I could only just afford the property
and I definitely couldn't afford any unexpected costs. So what's wrong with this? I got caught out.
After months of searching, I found the perfect home in the right suburb for the right price
and I was ready to jump on and sign my life away. There was just one problem. The place was a dud. Without a strategy to cover,
I would have gone ahead with purchase and it literally would have cost me over $9,000 in
special low fees and charges in the first year alone. It was just money I didn't have.
In fact, I've used strategies in this video to create my own property portfolios over six properties
in just a few short years.
Hey, I'm Jayden Vecchio
from Hunter Galloway Mortgage Brokers and in this video, you'll see the exact tips on how to
avoid the same mistakes I made, as well as 10 others you can start implementing today.
Let's get started. First up, this is everyone's favorite topic: insurance
but specifically, lenders mortgage insurance. Now, this is a type of insurance fee alone
but not necessarily type of insurance that covers you. Around 70% of households think lenders mortgage insurance
is there to protect them, rather than the bank but this is simply not true.
Lenders mortgage insurance allows the bank to lend to people with less than 20% deposit
and is there to cover the bank in case those people's loan goes into default.
So while it benefits you to buy a home with less than a 20% deposit and as little as 5% deposit,
it's there, ultimately to protect the bank and not to protect you.
Now, we've cleared that up, how much is LMI cost? The cost is effectively a sliding scale,
so the bigger the house, the bigger the lenders mortgage insurance premium.
For example, on a $600,000 house with a 10% deposit, the lenders mortgage insurance premiums
can be around $10,000.
Now, you might already know about lenders
mortgage insurance but did you know that LMI costs actually differ between banks.
The cheapest lender that's around $10,000, all the way to Lender G which is $16,000 can cost you
an extra $56,000 in extra lenders mortgage insurance. This is for the exact same borrower,
for the exact same purchase. Nothing else is different except for the bank.
Now, the best way around it is to look at different lenders or ask your mortgage broker to
not just compare rates but also compare lenders mortgage insurance premiums.
Remember, the cheapest rate doesn't necessarily mean
the cheapest one when it comes to LMI. Because imagine if you paid that $6000 extra on
a 30-year loan term, this can cost you up to another $27,000 of interest over the life of the loan.
Yeah, that's a lot of money. Our second tip on hidden costs is borrowing costs.
Now in property, lots of little things end up adding up to become big things and in my case, I went to
settlement thinking that the bank was there, have to cut a check for my loan, charging a big,
fat interest fee and that was going to be that. But that wasn't the case. On the settle on my first home, I just scrambled to
find another $1200 in cost just to cover my bank and application fees, which was just money
that I didn't have.
So I just to stick it on the credit card but realistically,
this could have been completely avoided if it been factored in upfront. Now, it might seem a little bit illogical for a lender to
charge you a fee just for the… you know, been out to apply for a loan but the fact is
that have processes and lawyers and different parts of the bank that actually costs them money to
process the loan application. These application fees range from $500 to $600
depending on the bank and depending on the type of loan that you're applying for.
These fees can include, like I said, loan application fees, annual fees, discharge of settlement fees,
settlement fees, or bank valuation fees, lots of different fees, all up, like I said
between $500 to $600. Make sure you factor that in there because it's there
but I've got some good news.
In a lot of cases, we've actually been able to get
these fees way for our borrowers. So talk to your broker upfront to make sure
you've factored than these fees, so you don't get caught up on settlement like I did. Tip #3, government fees.
Now, government fees I think are the complete secret sting that bit of a rip when it comes to property
but it's got to be paid. Now by government fees, I'm not talking about stamp duty.
That's something I have to come back to in a minute. These government fees can add up to a few hundred dollars.
So again, you don't want to get caught out. These government fees include register of mortgage,
registry of discharge and transfer of title fee. So in addition to stamp duty, you'll pay the privilege
of having your title formally stamped, unstamped, and then transfer at settlement. Thanks, government. Mortgage fees vary from state to state.
In Victoria, they're around $114 per title.
In Queens, they're about $180.
It's the same for the discharge fee. Now transfer of title fees are very different.
These can range from a few hundred dollars to literally thousands of dollars and tens of thousands of dollars,
depending on your property's value. For example, even if you're a first-time buyer in Queensland
and there might be some stamp duty benefits, which we'll get to in a sec, you still have to pay transfer duty.
So on a property purchase of say, $500,000, you're going to pay almost $1000 in transfer of
title fees to the government. Think of transfer duty like another tax.
Unfortunately, there's no way around this. It's not like the bank fees and you can't call your
local councillor and ask him to waive it. But just be aware of it and just be prepared for it
because you're going to have to pay that settlement. Tip #4 is stamp fee and I finally got some good news
for you but I'll start with the bad news first.
This is one of the few non-optional, non-negotiable fees
when you're buying a property in Australia. Stamp duty on a property purchase is
a government state tax and so as such, it varies from state to state:
Queensland, New South Wales to Victoria, it's all different but it's all dependent ultimately on
the purchase price of that property. And like I said, this can add up to tens, in some cases,
hundreds of thousands of dollars that needs to be paid on settlement in addition to deposit.
Now, the good news is that in some states, first-time buyers get some relief on stamp duty.
So for example, on a $500,000 home, first home buyers in Queensland, New South Wales
and Victoria won't pay any stamp duty.
But if you buy a second home, say in Queensland,
you might have to pay up to $8,000 in stamp duty on that second home.
So it actually, you know, as a first home base, $7000 to $8000 is pretty amazing.
Now, to estimate the cost, just go online and search for a stamp duty calculator online.
There's heaps of them. They're pretty straightforward.
Even the OSR and the Queensland government have one. We'll put some links down there to check it out
but it's quick and easy to calculate because like I said,
it can add up to thousands of dollars. For example, on a million dollar home in Queensland,
your stamp duty is going to cost around $55,000. Now, I'm not going to say you're going out there
and buy a million dollar home for your first home but I'm there to say, it can be expensive
and if you don't factor it in, you can get caught out.
Don't be alarmed, just be aware.
Tip #5, water and council rates. This is another government fee not like
there's already not enough. At the end of the day, council sends you the charge fees,
so there's infrastructure, there's parks and there's you know, stuff around your suburbs to do:
the bins get taken out, your streets are cleaned, each here as part of your council's budget process.
They basically go through this motions of checking if they're going to put up your council rates
and work out how much that's going to be increased by. The level of rate increase really is at the sole
discretion of the council but in my experience, it's around about inflation or CPI,
which at the moment is around 3%. Again, this is one of those ones that's are
non-negotiable but it's just important to be aware of it before you buy the property because it can add
another $1000 to $2000 per year onto the cost of owning and managing that property.
So the hidden cost is when you go to settle a property.
For example, if you're buying a property in say,
June and the other, the previous owner has paid the council rates up till July, at settlement,
you owe them one month's worth of council rates, so your solicitor or conveyance will actually adjust
and take money and ask you for that extra month's rate amount, which it could again, be a couple of
hundred dollars but you still have to pay it. So make sure you factor that in upfront.
You talk to your solicitor and you just make sure if you can see if there's any outstanding council rates
that need to be paid and rebate to the old owner. Tip #6, strata fee.
Now, another good news story on this for you.
You won't pay strata or body corporate fees
if you're buying a standalone house. We'll come back to this in a sec.
If you're buying a unit, a townhouse or an apartment in a complex, you'll need to pay strata
or body corporate fees to someone who manage that complex. Strata fees or sometimes called levies, are basically
a contribution that you make collectively as home owners in a certain complex to pay for things
like gardening, maintenance, building work, a cleaner, you know, someone to take the bins out.
It's all that sort of collective stuff that happens around the property but also, amongst that is
your insurance with the complex.
Now, you're probably asking why is
this hidden costs and why is this important? Well, strata or body corporate fees are important
because once you're the owner, you're going to pay for those fees all the time going forward
until the point that you sell the property. So how do you know a bit more about the strata
or the body corporate and what sort of happening around the complex if there's issues? You get a strata report.
Now, in Sydney in New South Wales, you actually have to pay for these reports and I know when I was
buying my first home, it was something that I often would really creamed and get annoyed at because it
cost $400 to $500 to get this report to basically give you a report that says what's happening in this complex,
if there's any issues, if there's problems and if they've got lots of money in
their collective sinking funds.
But believe me, you want these reports. When I was buying my first home, cheeping on
this report and almost cost me $9000 in special levies. Yeah, $9000. Long story short, I was buying into
a building that while looked really nice, had massive issues with water leaking, concrete cancer,
and basically was rotting from the inside out. It was all stuff that you couldn't see, unless you
actually saw the strata report where they'd been trying to deal with that problem for the last two years.
Not only that, the building was needing to raise money from all the building's owners
so while I've been quoted in certain strata fee, they'll look at doing a special levy or a special-
basically, raising extra money from the owners in the next six months.
So just remember, if the strata fees are already high
and they're looking in increasing them, that's going to come out of your pocket once
you're an owner of that property. Like I said, your lawyer can help you arrange
these strata reports or you can sometimes get it directly from the real estate agents depends on
your state but definitely, it's worth checking it out and getting a better understanding of not only
what the strata cost today and what those fees are, but what it's going to cost in the future
and if there any issues now in that complex.
The next tip is everyone's favorite, insurance.
But it's insurance that'll protect you and not the bank this time.
Now the reason you want to listen is because there's a lot of buyers out there that think they don't need
home and contents insurance but that's just not true. Home and contents insurance is
really divided into two parts. So think about if you've got a house, you took the
roof off, you tipped it upside down, the home insurance is for the part that would still be
in my hand: so the walls, you know, if it gets burned down, that's sort of stuff.
But all the stuff that falls out, you know, your possessions, your TV, your computer, your iPhone,
even the kitchen appliances are considered the content.
So even if you're in a unit for example, it's still
worth getting contents insurance because if your fridge… … you know catches fire and sets a light to
the kitchen, you're going to need contents insurance to replace all that stuff now. This is even more important and actually mandatory
if you're buying a standalone house that's not on a strata property.
One thing people always get tripped up on is who's responsible for the insurance.
So like I said, on a house in Queensland, once you sign a contract, even though you don't own
that property, you're responsible for the insurance at five o'clock from the day your contract is signed. Crazy law. Now, there's a standard provisions that are often
overlooked in contracts of sale in Queensland. So just make sure you get yourself protected,
there's a lot of providers out there like Allianz that are willing to give you 90 days free cover for home
and contents insurance, from once you sign the contract. And if you don't go ahead with that property, that's fine.
You can get it cancel and rip it up and move on.
So like I said, have a look online, make sure you
get yourself protected because if something would happen, you know, houses are expensive to replace
and you don't have insurance in place to cover you. Tip #8, legal costs. Now, unless you want to be like
my mate, Sam who tried to do this himself, which I do not recommend
because this is a pain in the ass. You have to run around with checks
and that sort of stuff, don't do it. Pay someone that's a professional. So unless you want to be Sam, you need to pay
a legal professional or a conveyancer, to basically do strata searches, to do property searches
and effectively, to hand out checks at settlement between your bank and the person
that you're buying a property from.
That's what a lawyer does in property, basically. So if you buy in an auction for example, you need to
have already worked out who your solicitor is before you sign a contract, so you go to put their name
and details on that contract. If you buy a private treaty under some normal purchase,
you can get the solicitor's details along the process because then once you sign the contract,
basically they go out and do searches for you and check that there's no issues with the titles
and they can do a whole rough of stuff for you.
In general, we find that a lot of solicitors charge
a flat fee or rather conveyancers of which property solicitors charge a flat fee, whereas some solicitors
in Sydney will charge a little bit more. In Melbourne, because the actually inspect their contracts.
Now like I said, you can be a Sam and be a DIY-er but I definitely suggest not doing this
because one small mistake on a contract can end up spilling hundreds of thousands of dollars in mistakes
and errors that you don't want to deal with.
Get professionals advice and get their help.
Now like I said, the legal fees usually cost between $1000 to $1500 in Queensland
and that includes a basic level of searches. My two suggestions on this would be just get
the minimum level of searches that your solicitor recommend, so they can do all sorts of searches they can check
with development overlays and that sort of stuff. You don't need it.
Get the minimum stuff, that's all you need.
The second one I'd suggest is try to avoid
one-man bands or small offices, you know? I've seen cases where the solicitor is sick or they go on
holidays or unwell and then that person can't settle their property because the solicitor is away. Number 9, building and pest reports.
Now, I hate to say it but this is one of the most common and always mandatory costs that you need to
pay for when you're buying a property. Especially in Queensland, you want to get
one of these reports. It looks like basically the structural soundness of
a property, they check the moisture or damp with instruments and stuff and they check for
even worse though is termites and white ants, which is quite the same thing.
But you know, you need to know- you want to know what you're getting into before you sign that contract. Now, a typical building report for say, a three
or four-bedroom home will cost between $400 to $500 and a pest report will cost $300 to $400 as well
but if you get a combined building and pest report, it usually costs between $400 to $500
and you get it all done in one go.
Now before we go on, I need to make an omission.
These building and pest reports have literally saved me five times from buying duds of properties.
Now I admit, I spent over $2000 in that year when I was looking at different properties and paying
with different building and pest reports to see if I could find the right one but I'm glad that
I didn't go ahead with four of those five properties because they all had issues: from concrete cancer,
from termites, some had mold and wet in the wall that you couldn't get rid of
and issues of pipes that have been… … you know, lots of issues that you
don't want to get involved in. Now this is my warning and this is something I'm sure
you don't know but you need to take note of this. Now, one thing you need to be wary of is
a real estate agent that's pushing their own mate that's a building and pest inspector.
Now, I don't want to say that they're going to do anything unethical or immoral but you really need to
have your own people because you know, if they're working together all the time,
you don't know what things they're glossing over.
You just want to yourself protected and have your
own independent experts that work for you and they're not working for the real estate agent.
Now, the second warning is I guess being a Sam again and getting your mate, Robert or John who's
a builder and who know how can sort of tap some walls and do the old looking under the sink
and saying that there's no leaking, moisture and that sort of stuff.
Don't do it. Trust me. Building and pest inspectors are qualified builders.
They have to be by trade in Queensland, anyway and they will look over it in fine detail.
They'll climb onto the roofs, they'll go under the cabbies, they'll check for asbestos.
It's all the stuff that your mate, Robert will miss. So my three tips for building and pest reports are one,
these reports will help you find out if the property is a lemon and if you need to walk away.
Number 2, with building and pest reports, make sure your building inspectors are qualified builder.
You can check on like on the Queensland Builders Association or on different website.
And Number 3, my personal favorite with building and pest reports is that if it's not too bad, if there's a
few small issues like a leaky toilet or you know, a broken tile on the roof, you can actually use the
building and pest report to chip a bit off the property.
So I've actually used this to save up to $5000
and renegotiate with the agent. Even though it's signed, it didn't matter.
I still was able to use and point out you know, those issues and those garbage in the roof actually
in this case, so use it because you paid for it. Tip #10, moving and connection costs. Now, I know this is
pretty straightforward one so I'm going to keep it quick. But the reality is moving does cost you money
and a lot of people forget to factor it in. You know, your removals cost can vary from
$300 to borrow your mates to several thousands of dollars if you're moving into state
or on the other side you city. My probably three tips on this one are one,
if you move into an apartment, just be aware that a lot of times, you have to actually have to
book out the lift before you move in. So you need to be a bit organized and plan your
moving day around the body corporate and the people that live there because
they might not let you get the lift and I have issues with that in the past.
Number 2, backloading is a great way to move stuff into state.
So I know when I moved up from Sydney to Brisbane, the cost to actually pay an individual removalist
was like $5000 or something crazy, so I use this thing called backloading which they basically put all
my furniture in the back of one of those road trains in amongst of bunch of other stuff
that's going up there. It takes about a month but it costs under $1000
and it was amazing. The downside was there a few cockroaches
and stuff when my things arrived but anyway, it was way cheaper, so it was worth it. And Number 3, negotiate. So you know with removalist,
these guys are often cash or if you offer them- whatever. You can usually get them negotiate down
and if you offer to help them, I guess as well, you know that should chip off that price,
so if they've quoted $1000, say if you can help them move stuff or you can you know,
box stuff up before, you might be able to chip a bit off that price and save something. Tip #11, deposit. Now tip #11 is deposit.
This is how much you're putting out front for the property and basically, the lenders putting in the rest.
Now, I'm going to skip over the how much deposit do you need.
You know, in general it's 5% minimum, some people
will say 20% but you can definitely buy a property with as little as 5%.
It's not so much about having an issue with the deposit but it's having the timing of the deposit
right and this is where the mistakes come in. So if you're going to need deposit gifted from parents,
if you've got them in the share market or if it's in an equity in other property, it's important to have
access to that money because you're going to need it at different times of the process.
In Queensland, the deposit is payable in two parts.
You usually pay a $1000 or $2000 deposit when you sign
the contract and that's still, if you sign a subject to finance or building and pest and that sort of stuff.
That $1000 to $2000 is refundable if you don't go ahead with the contract.
The second part of the deposit is payable on balance or basically, when you get your finance approved
or you say, "Yup, I'm going ahead and there's no backing out." This amount can be between 5% to 10% and usually,
the real estate agents will make you- well, ask for more because they want more security
there but here's the trick.
You can put as little as much as you want for
that second part of deposit. So in a lot of cases, I recommend only putting down
$10,000 or $15,000 because really, it's better to have the money in your account and the interest
than having the real estate agents giving them more money. The other life hack I have here is, you know,
for some people, if you've got money in shares or you brought a Brian or you get parents as guarantor,
finding that money at the last bit or getting $5000 or $10,000 or $20,000 might not be easy.
So a way to get around that is something called a deposit bond. That's basically a third part of you saying, "Yup,"
you're good for the money, here's the deposit and that gets held there in place your actual cash. These do come at a cost, so it's worth investigating
that but it's worth remembering that you might not necessarily need the full deposit.
When you go unconditional, you'll just need it definitely when you go and settle.
All right, that's our tips but I've still
got one bonus for you. So our bonus hidden cost that I bet you are expecting is potential changes to
your monthly loan repayment. Now, the reality is interest rates go up and they go down.
For the last few years, Sydney has been pretty stable and you know, in our recent lives, the last sort of
four or five years has been a fairly low interest rate environment but it was only 20 years ago
that home loan interest rates — today are at 4% — 20 years ago, they are at 17%.
So it's worth thinking about today what impact to your lifestyle a small increase in
interest rates could have. It's worth also remembering that if you're only
making the minimum repayment today, as interest rates go up, your repayments
going to increase a lot. So think about trying to put an extra $50 or $100
a week into your home loan to build a bit of a buffer against that.
So my two tips on avoiding those hidden costs: one, try to put a bit extra in.
You know, even on a $400,000 home loan, if you're paying $200 a week extra into the home loan,
you can actually reduce the term of that home loan by half, by down to sort of 15 to 20 years.
It's incredible how much a small amount can make on paying down your home loan quicker.
The second tip would be to look at fixed rates.
So if you worry about interest rates going up, protect yourself and really, just you know,
who knows which way they're going to go but at least with fixed rates, you've got certainty.
In the next three, four, five years, your repayments can stay the same.
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these strategies are you going to look at using first? Make sure you leave a comment below and let us know..