1. Check Your Financial Baseline
Before you start looking at properties, you need to ascertain:
- How much of a deposit do you have?
- What is your lending capability?
- How much will you be able to borrow and therefore…
- What’s the maximum you can pay for a property?
- How much can you afford to service the loan?
Start talking to your lender or mortgage broker and get the ball rolling.
Many people order an independent property valuation on their existing properties at this time (or their parents’ property if their parents are assisting with finance) to enable them to gauge what their current properties are worth and what equity may be available. The equity in a property is the money available if the property was to be sold and the amount outstanding was repaid to the bank. This information can then be provided to the lender/or mortgage broker.
Getting this wrong at the beginning can lead to a myriad of issues down the track. If the equity in your existing property turns out to be less than originally thought, you may be required to borrow a higher amount (often meaning thousands of dollars in lender’s mortgage insurance) or you may not be able to borrow at all.
2. Be Aware Of All Costs Before You Start
There’s more involved than simply the purchase price. Can you afford to buy a property? Here are some of the associated costs:
- Finance application fees
- Stamp duty
- Legal and conveyancing fees
- Title searches and rate certificates
- Body corporate searches
- Building and pest inspection
- Valuation fees
- Loan origination fees
- Mortgage insurance premium
- Fees if using a bank guarantee
- Electricity bonds etc
- Moving fees… just to list a few
As a rough estimate, allow around $10,000 for these fees, not including stamp duty. Stamp duty has not been included as this figure varies depending on the value of the property and the type of transaction. Do a quick online search for Stamp Duty in your state.
3. Plan Your Purchase
What is the purpose of this purchase? The family home or an investment property? If it’s an investment, do you plan to:
- Buy, renovate and sell
- Buy, renovate and rent out
- Buy and hold
Does your portfolio require a cash flow positive property (where the income received from the property is more than the cost to hold) or a negatively geared property (where the cost to hold is more than the income the property is producing) with the potential of greater capital growth?
House or unit? Maintenance vs body corporate fees? You decide what best suits your needs. You will cut down on your search time if you know exactly what you are looking for.
This step stops a lot of people who just can’t decide at the outset what they plan to do. Talk to your partner. What do you want to gain? What experience do you have to achieve these aims? What professional help do you need to sort out a plan? A financial advisor can be a good place to start.
4. Ascertain The Best Purchase Structure (Individual, Company Or Trust) For Asset Protection & Tax Minimisation Before Beginning The Purchase Process:
This is where professional help is essential and not an area to skimp on costs and advice. Making the wrong decision at this step will cost you thousands of dollars down the track.
Will you purchase in your name, your partner’s name or both? Company structure or trust? Ask your advisor about a Discretionary Trust. This is often the preferred option for asset protection, but you still need to take into consideration if the property will be cash flow positive or negative as this will have an effect.
If purchasing in a company or trust structure you must get expert advice to suit your personal situation. If there’s the possibility you could become the subject of legal action (because of your profession etc.) then asset protection may be more important to you than the benefits of other options. For asset protection, it’s advisable not to purchase in your own name. However, you may choose to purchase the family home in your name to ensure you get the best outcome with Capital Gains Tax if you decide to sell the home down the track. Advice specific to your situation is essential when it comes to this topic.
5. Are You Eligible For Government Grants?
Each state is different but it pays to research this topic well to ensure you are getting every cent and not missing out on any opportunities.
6. Your Team Of Experts
When buying property having the right team of qualified and experienced professionals is essential, and may include:
- A financial planner
- An accountant
- A mortgage broker/financier
- Buyer’s agent
- A building and pest inspector
- A property valuer, and
- A solicitor for conveyancing
Following the purchase, you may also require:
- A quantity surveyor to prepare a Tax Depreciation Schedule
- An insurance broker, and
- Property manager
Engage your team in the right order – In general, you will require these specialists in the order as you see above. Be sure to order your building and pest inspection prior to arranging a property valuation. Often a valuation will not be required if a poor building and pest report is returned. Save yourself the additional fee. It’s also a good idea to provide a copy of the building and pest report to the valuer so he can take this into consideration
When choosing your advisors:
- Ask for referrals from family and friends
- Ask for referrals from other specialists in related industries
- Research your advisor, requesting qualification details
- Check their credentials with the relevant industry body
- Ask for examples of clients in your position they have
- Ask for recent testimonials
7. Get Pre-approval For Your Loan
So, you know how much you can borrow (from earlier in the checklist); now it’s time to get pre-approval for the loan. This is important so you have greater bargaining power when you find the perfect property. Often a vendor will be more willing to accept an offer when there are fewer delays.
But don’t take this step too soon. Often, to pre-approve a loan, the bank will need to do a valuation on any existing properties which will be lent against, to ascertain the equity available in these properties. A valuation is only valid for three months from the date the property is inspected (when you apply for the loan). If you do not find the new property you wish to purchase within the following three months, then the existing properties you own (if being lent against) may need to be valued again.
You need to have all finance approved prior to the expiration of the valuation on any existing properties. However, keep in mind, lending policy differs between banks. Some may rely on a valuation even after the three-month expiration date. Ask them at the outset.
8. Find Your Suburb
It’s important to hone in on one or two (maximum 3) suburbs.
- Target the best area you can afford
- Avoid suburbs with a prison or too close to the airport
- Find the last suburb to boom and look at suburbs nearby. As buyers get priced out of the more expensive suburbs they will move to cheaper adjoining suburbs
9. Become An Expert In These Suburbs
You need to know everything about your chosen area:
- Flood prone areas
- Proposed infrastructure – is your chosen property highlighted for resumption?
- What are the most sought after areas in the suburb?
- Know the best streets (and the worst)
- Look at the zoning – is the area in a Demolition Control Precinct or zoned for medium/high density residential development?
- If it is an investment property ask local property managers what areas are most sought-after, and determine those with the lowest vacancy rates?
10. Attend Inspections And Auctions
Attending inspections and auctions can be an effective way to gauge market conditions to better estimate the value of a property.
Follow up with agents to determine the sale price. This is difficult though, as agents cannot reveal the sale price until after the sale has gone unconditional, which can be months. If you don’t have months to spare, this is where engaging an independent property valuer can help. A valuer can quickly ascertain the price of a property you are keen to purchase. They are already familiar with the area and are entering five or six properties each day.
Also, conduct inspections at different times of the day – this is helpful to check traffic and noise, neighbour’s habits and exposure to the sun.
11. Find The Right Property
This is the challenging part and the next step of the process where most people get stuck and the process often ends. Some people spend so long looking for the perfect property, end up getting burnt out and never buy anything at all.
Register to receive alerts with www.realestate.com.au and www. domain.com.au. When a property matching your requirements comes on the market, you’ll be the first to know.
Also, connect with real estate agents in the area in which you are looking and keep in touch. Agents are keen to help prospective purchasers and will help where they can.
12. Do You Need A Buyer’s Agent?
There are buyer’s agents who can step you through this part of the process. A buyer’s agents’ services can vary and can provide as many or as few services as required. A buyer’s agent will ascertain your preferred property and location and will set about to find the property. They can then negotiate on your behalf to purchase the property and can assist with the preparation of documents. Their commissions will eat into your investment, but for the time poor, it can be worth the cost.
13. Check For Flooding
This is an essential search that you can’t afford to miss. The Brisbane City Council has a comprehensive flood search feature on their website as do most local councils.
14. Check For Possible Resumption
Call the local council and Department of Main Roads regarding infrastructure plans.
15. Check For Development Applications Nearby
Check for development applications nearby which could affect your property e.g. your view being built out by a large apartment block next door. If so, it’s particularly important to check the zoning and see what plans the owners next door may have. Call the local council and ask what developments have been approved in the suburb in the last two years.
16. Check For High Density Community Housing
Check for high density community housing in the immediate area. Community housing often comes in similar building materials with similar paint colours and designs which can be easily distinguished by a valuer familiar with these properties.