The following tips are provided in good faith on a on a no-obligation basis.
The first thing is to do your homework - it may be the biggest purchase you make and you should be looking at least a 5 year time frame.
CONTENTS:
Remember that property is a long-term investment
Pest and Building Inspection Reports
Termination of a Contract under the 5-business day cooling-off provision
Negotiation: Questions to ask when buying:
Appendix: Five basic principles in discussions
Your Budget:
Get a pre-approval for finance, so you ready if a bargain turns up. While you are there, ask who is on the list of valuers for your bank, as you may need to use their services they give you a push in the right direction if needed. Check your budget & allow for interest increases- you need to comfortably be able to meet the repayments. Cannex.com.au lists the home lenders by comparable interest rate. No CGT on owner occupied homes (see 6 year rule at ATO)
Choice of Property:
Establish a size: This doesn’t just apply to number of bedrooms, but size of kitchen, number of bathrooms and size of yards and garages
Identify what is your primary MOTIVATING FACTOR and then what type of properties are going to meet your needs - investment or as an owner/occupier; closeness to shops, public transport, schools, main roads, crime spots. Proximity to work and cost of daily travel needs analyzing: a dearer property may be justified on basis of saving non-deductible home-to-work travel plus the value of more family/leisure time vs. time driving. Check for negative impacts – new developments, roadways in the area. Lifestyle is a subset – closeness to cafes, sport, and similar professional groups/social. Emotion often overrules rationality!
Prime cost:
Find out what part of market cycle your chosen are is in. Consider re-sale appeal and likely resale value, after Agents fees/marketing. Check Stamp Duty and Land Tax obligations in your State.
A few days looking on the net/newspapers/ agents books/visiting agents/open days and inspecting will give you a "feel" for market values. Write these in a book/take photos/start a folder; as after you’ve looked at 10 or so, they tend to all look the same. In the unlikely event you spot a "bargain" you need to act quickly. A check in the private classifieds newspaper listings/net is worthwhile, as agents will only sell you what’s on their shelf. For houses, check what a new home will cost from a kit builder - quoted in dollars per sq metre and a general guide only. You can get RP data of actual sales on the net. www.rpdata.com (Agents sometimes you a copy for the suburb your buying) In
If you've narrowed it down to one property in your price range, you're ready to start negotiating. Offers should be made in writing (or in Qld) on the standard REIQ contract supplied by the Real Estate Agent. Many properties seem to be marked up from the acceptance price by 5%.
Be 100% aware, that the Agent is clearly working for the Vendor, not you. In Qld, there is a statutory obligation for the Agent to best serve the Vendor’s interests, by whatever means he can justify to the Department of Fair Trading.
Agents will be seeking to uncover your motivating factor and classify you into a physiological group to save themselves time. Similarly they will show males the "blokey" things- garage, shed, and the girls the kitchen/bathroom. Guys, be aware, the kitchens/bathrooms where you need plumbers and electricians are the most expensive to replace. Their broad objective is to talk you up and talk the seller down, so the deal is done.
Investment
Like any investment, direct property investment must suit your needs, both now and into the future. The choice of property for investment purposes is enormous, so here are five useful guidelines to help you make an informed decision.
Do your sums first
Work out how much you can afford to borrow and how much surplus income you have to support the loan and meet the expenses of holding the property (like rates, body corporate fees, insurance and maintenance). There will be a tax break if you negatively gear, but that’s a bonus. The focus should be on the quality of the investment.
Make realistic assumptions
Do your homework thoroughly. What rental will it attract? What capital gain is reasonable? Don’t forget to factor in potential interest rate rises. If you’re going to invest further by renovating the property, make sure you’re not over-investing your time and money.
Take independent advice
Many organisations that sell investment property will offer to make the process simple by bundling all the services you need together. Don’t be tempted – use your own trusted professionals. Do your own “due diligence” by asking other real estate agents in the area about the rental market, property sales and likely capital appreciation. Always seek unbiased advice (i.e. registered valuer)
Remember that property is a long-term investment
Investment in property is usually at least a five-to-ten-year commitment. The property cycle is quite protracted, and after a boom, prices often stagnate for many years. Buy smart and buy for the long term.
Consider how best to borrow
There is a huge range of loan facilities available. Choosing between interest-only and principal and interest loans is a key question for you as an investor. An interest-only loan means you minimise your costs and maximise the interest expense for tax deduction purposes. The return on your investment will come from the potential capital gain.
Principal and interest loans are more expensive, but like a forced savings plan you gradually increase your equity in the property.
Buying a home is often a once or twice in a lifetime expense and, apart from the obvious cost of the property, the buyer may incur other associated costs; Stamp Duty, Land Tax., conveyancing costs and other legal fees, building and pest inspection reports, a valuation report, and loan fees.
Buyers who terminate a contract under the five-business day cooling off provision may also have to pay a cost to the seller.
The REIQ suggests the following when budgeting the costs of buying real estate.
Price of the Property
You are able to put in an offer on a property that is less than the advertised price. The real estate agent then presents the offer to the seller and they will either accept or reject the offer. The price that the buyer and seller agree upon is countersigned on the contract of sale.
Borrowing Costs
When borrowing money from a financial institution, buyers are likely to encounter costs such as the loan establishment fee, mortgagee insurance (if borrowing more than a nominated percentage of the property’s value) and stamp duty on mortgage registration.
Buyers will also need to budget for ongoing fees and interest repayments on top of the loan amount borrowed. Fees will vary between financial institutions and buyers should shop around for the loan that best suits their needs. All financial institutions must now publish a comparison rate for their loans which takes into account all fees and charges and any introductory loan rates.
It is a good idea to obtain pre-approval (or at least have an idea of how much the bank with lend you) for a loan before starting the search for your dream home.
Valuation Report
An independent valuation report on a property can be valuable to the buyer to indicate a property's true worth. Sometimes the seller will obtain this for the buyer at his or her own cost. In
Transfer (Stamp) Duty
Stamp duty is a tax imposed on written documents that record or affect certain types of financial or legal transactions.
Stamp duty is chargeable on documents or statements if they are either:
- Signed or executed in
- Signed or executed outside
State Government charges the buyer stamp duty when they purchase a property - the percentage scale will vary according to the amount of the sale price and whether or not the buyer intends to live in the property or rent it out to tenants as an investment. Depending on the nature of the transaction, certain concessions and exemptions are available.
Your solicitor will obtain the appropriate rate. The buyer pays the solicitor the amount payable who then arranges payment to the Government authority.
The State Government introduced legislation in 2007 to ease the financial burden of stamp duty on first home buyers.
Under the legislation, from January 2007, first home buyers pay no stamp duty on:
- an established home valued up to $320,000 (current threshold $250,000);
- a vacant block of land up to $150,000 (this supersedes the $100,000 threshold announced at 2006-07 Budget which was to take effect in January 2007)
First-time buyers also pay less stamp duty on:
- an established home valued over $320,000 but less than $460,000; or
- a vacant block of land valued over $150,000 but less than $300,000.
Click here for the current transfer duties schedule or click here to access the Office of State Revenue's website, which includes stamp duty calculators for conveyance duty, mortgage duty and lease duty.
Alternatively, you may first wish to refer to Buying Real Property in Queensland which addresses specific provisions under the Act.
For more information about Stamp Duty, go the State Government's website at www.osr.qld.gov.au or phone 07 3227 8733 or 1300 301 342.
Land Tax
The Office of State Revenue (OSR) collects land tax in
For land tax purposes "land" includes vacant land, land that is built upon, building unit plans, group title plans, time shares and home unit companies.
Land tax is payable by the owner of any interest in freehold land in
There are various classes of taxpayers including residents (natural persons who ordinarily reside in
Depending on the use of the land, certain deductions may be available to reduce the taxable value of the unimproved land. Land tax is not payable on land used by the owner solely as their principal place of residence if a deduction has been claimed on the relevant form and allowed.
To see the current land tax schedule or for more detailed information, visit the website for the State Government's Office of State Revenue.
Legal Costs and Searches
The REIQ strongly encourages buyers to seek independent legal advice before signing a Contract for
Issues that need to be understood by the buyer are: the appropriateness of accepting or waiving the 5-business day cooling off period, seeking assistance with understanding the new State Government forms, the Selling Agent's Disclosure to the Buyer Statement (Form 27b) and the REIQ Contract of Sale. It is recommended that the buyer seek legal advice relating to these forms.
After a buyer has signed the appropriate forms and the Contract of Sale, they are advised to undertake certain searches. These include a Title search verifying the ownership of the property, a local government building report on the legality of existing structures on the property, and a local government search on the zoning of the property indicating any restrictions on the property and encumbrances on the property easements.
Solicitor's fees are negotiable. It is advisable to compare the fees being charged by a few different solicitors. Good referrals and past experience is valuable when choosing your legal representative.
It is possible for a buyer to undertake these activities on their own; however, the REIQ strongly recommends using qualified solicitors for conveyancing. Contact the Queensland Law Society for further details about how to contact a qualified solicitor: www.qls.com.au
Pest and Building Inspection Reports
Buyers can make their Contract of Sale conditional on the basis of a satisfactory building and pest inspection report from a licensed professional. See the Building Services Authority website www.bsa.qld.gov.au for more information.
The cost of these can vary but it is now required under
Termination of a Contract under the 5-business day cooling-off provision
If a buyer terminates a Contract of Sale at any time during the stipulated 5-business day period, they will have to pay the seller 0.25% of the property price on the Contract. There is no additional GST payable on this amount.
If the buyer has elected to waive the cooling off period provision they will not incur any cost and consequently cannot terminate a Contract.
Negotiation: Questions to ask when buying:
- Why are they asking this price?
- Why are they selling?
- How long has it been for sale?
- What will they take?
- Have the owners had any offers?
- Who set the price?
- How was this arrived at?
- Is there some comparison properties to see?
- What would you pay if you were the buyer
- What inclusions are they leaving?
- Why is it a good investment – will you guarantee any of my losses?
- Do you have a good record of property investment yourself?
Buying at Auction
- Ask Agent to put his estimate in writing
- Believe nothing
- Normal understatement is 20% i.e. $120,000 means $200,000
- Tell Agent nothing.
- Check RP Data
- Seek a valuation
- Do not bid until “it is on the market”
- Making an Offer
- In Qld, the Agents prepare the contracts, so sign the contract and present it.
- In other States, a written letter will suffice – make genuine offers only.
- State this is the most I will pay. IE first and final offer
- Be trustworthy
- Ask to be notified if there are other offers
Appendix: Five basic principles in discussions
- Be hard on the problem and soft on the person
- Focus on needs, not positions
- Emphasise common ground
- Be inventive about options
- Make clear agreements
Where possible prepare in advance. Consider what your needs are and what the other person's are. Consider outcomes that would address more of what you both want. Commit yourself to a win/win approach, even if tactics used by the other person seem unfair. Be clear that your task will be to steer the negotiation in a positive direction. To do so you may need to do some of the following:
Reframe
Ask a question to reframe. (e.g. "If we succeed in resolving this problem, what differences would you notice?" Request checking of understanding. ("Please tell me what you heard me/them say.") Request something she/he said to be re-stated more positively, or as an "I" statement. Re-interpret an attack on the person as an attack on the issue.
Respond not React
- Manage your emotions.
- Let some accusations, attacks, threats or ultimatums pass.
- Make it possible for the other party to back down without feeling humiliated (e.g. by identifying changed circumstances which could justify a changed position on the issue.)
Re-focus on the issue
Maintain the relationship and try to resolve the issue. (e.g. "What's fair for both of us?" Summarise how far you've got. Review common ground and agreement so far. Focus on being partners solving the problem, not opponents. Divide the issue into parts. Address a less difficult aspect when stuck. Invite trading ("If you will, then I will") Explore best and worst alternatives to negotiating an acceptable agreement between you.
Identify Unfair Tactics
Name the behavior as a tactic. Address the motive for using the tactic. Chance the physical circumstances. Have a break. Change locations, seating arrangements etc. Go into smaller groups. Meet privately. Call for meeting to end now and resume later, perhaps "to give an opportunity for reflection".
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