The Hidden Costs of Homeownership: What You Need to Know Before You Buy
There seem to be no end of factors to consider when looking at buying your first home, or adding to that property portfolio.
Yes, buying that first home is considered a significant milestone that can offer a sense of financial freedom, stability and independence for so many.
Yet many first home buyers will sometimes rush into buying a home without considering all the implications and risks in doing so.
This includes the hidden costs of buying a house – the ones that can be easily overlooked, or not properly evaluated before purchasing that first property.
These costs are separate to regular mortgage repayments and can often catch buyers off guard.
Not minimising these costs, or at least managing them can leave you vulnerable.
In this blog, we are going to expose these hidden costs, so you’re in the best position to manage them and improve your financial position.
1. Property Taxes
Property taxes are a cost that will need to be taken into consideration depending on your circumstances.
While you don’t usually have to pay land tax on your home, if it is your permanent residency, you will have to pay land tax based on the unimproved value or capital involvement of the property.
These taxes vary between states and territories, with each local council within that jurisdiction having its own rates and assessment procedures.
The amount of tax you pay will also depend on whether you are a resident or non resident of Australia. Non-tax residents of Australia will have to pay capital gains tax when selling the property, for example.
Australian residents are exempt from this tax.
Stamp-duty is also a cost to consider , whether you’re a resident or not. States have imposed an additional stamp duty to be applied when purchasing a property.
Stamp duty is calculated based on the purchase price, and is certainly something that any potential buyer should factor into their budget when looking to buy.For more tips on how to save on hidden costs associated with tax, check out the property investment education videos.
2. Property Insurance
While minimising these hidden costs where possible is important, there is one cost that shouldn’t be avoided: Property insurance.
It’s vital that you protect the property with the right insurance cover. This will mean your property is protected against any unpredictable circumstances.
Building insurance can cover the physical structure of the property against damage, while contents insurance is critical for protecting what’s in the home.
House insurance costs can vary depending on the type of cover you purchase, the location of the home, and the type of property.
This is why it’s a good idea to consult an insurance broker, who can help you acquire the right deal for your circumstances.
An insurance broker compares cover types and finds a product that is tailored to your situation.
Yes, there are some costs involved, but they’re a professional who ultimately acts in your corner and can end up saving you a lot of money in the long run.
Alternatively, carry out thorough and in-depth research to find the right type of cover for your situation to ensure you minimise this hidden cost.
3. Conveyancing and Legal Fees
Purchasing the property can sometimes be a long, and often complicated process.
Using a solicitor or conveyancer to help you through this process and handle the legal aspects of purchasing a property.
From title transfers to property inspections, these processes are best managed by the experts.
But of course doing so means incurring fees for these professional’s services. Minimising these costs is really about researching the services on offer and gathering a range of quotes to find the most accessible option.
4. Body Corporate Fees
This one really only applies to those purchasing apartments or townhouses, as well as any other properties with a complex or shared facilities.
Body corporate fees are designed to cover maintenance and management for these shared areas. These include pools, gardens, stairways and lifts.
Minimising this hidden cost can really only be done by avoiding properties with these shared facilities.
A good idea is to do your research and be aware of the costs before purchasing a townhouse or apartment. Then, assess whether you are in a position to pay these regularly.
5. Lenders Mortgage Insurance (LMI)
When purchasing a property with a deposit of less than 20%, you may be susceptible to LMI. This is a fee added to the purchase price by lenders as an extra bit of cover in case the borrower defaults on the loan.
This cost can change, depending on the amount borrowed and the financial profile of the person incurring the loan.
This cost can be minimised by making sure the amount being borrowed is less than 80% of the property’s purchase price.
For example, if the property price is $600,000 make sure you have at least $120,000 for the deposit, so that you’re only borrowing $480,000.
6. Maintenance and repair cost
This is a hidden cost that will continue to be incurred throughout the time in which you own the property.
These costs can include general upkeep, such as plumbing or electrical problems, or larger renovations to address an issue that affects the liveability of the property.
The best way to minimise this cost is finding these issues early on and quickly fixing these problems. This may require regular inspections and quick maintenance work to solve issues before they become costly.
7. Inspection costs
A hidden cost that many have to face is those involved in carrying out inspections prior to buying the home.
These are largely associated with a building inspection, engaging certified inspectors to determine the structural quality of the home, and pest inspection.
These costs are certainly necessary when looking to invest in any property, as they ensure the building is of livable quality.
Carrying out these inspections should be seen as an investment, as they can lead to savings associated with repairs down the line.
While buying a property is an exciting and important milestone for so many, it’s vital to know you’re in the best position to do so.
This involves understanding all the hidden costs associated with purchasing a property. Once identified, these costs should be minimised where possible and managed appropriately.