Investing in real estate offers a number of advantages over investing in other asset classes. These include being relatively easy to understand and easy to finance compared to, say, investing in shares. Despite this, there are still hurdles you need to overcome, and the first question that many aspiring property investors ask is: "how much money do I need to start investing"?
So what are the costs involved in buying an investment property? Here are some things to consider.
Upfront costs to buy an investment property
The size of the deposit you need will depend on the value of the property you want to buy. Most lenders will accept a deposit of 10% of the purchase price. So, if the property is priced at $400,000, you will need to put down $40,000 of your own money. Bear in mind that if you only have a deposit of 10%, you will need to pay for Lender’s Mortgage Insurance (LMI), which protects the lender if you can't repay the loan.
If you have a deposit of 20% or more, you can avoid LMI.
Lender’s Mortgage Insurance
The cost of Lender’s Mortgage Insurance will depend on the size of your deposit and the amount of money you are seeking to borrow. Usually, LMI is a one-off charge which you can add to your home loan.
Stamp duty is another upfront cost when you invest real estate. Stamp duty is a tax imposed by the state government. The price of stamp duty will depend on the price of the property you’re buying, where you’re buying, and the purpose of the purchase. You will need to pay stamp duty within 30 days of settlement. You can get an estimate of how much stamp duty you’ll need to pay by using our online stamp duty calculator.
You should also factor conveyancing fees into your investment property budget. Conveyancing is the legal process of transferring land or property ownership from one person to another. Conveyancing can be done by a licensed conveyancer or a solicitor. The average cost of a conveyancer is between $500 and $800. You may pay more for a solicitor which can range between $600 and $1,000 including disbursements.
Building and pest inspection
An investment property that has structural or pest issues will cost you thousands of dollars to repair. To avoid this, you should get a building and pest inspection report. This can cost you $300 to $1,000 depending on your area and the size of the house.
Sample upfront cost to invest in real estate
Let’s say you’re investing in a house that’s worth $400,000 in Queensland. If you put down a 20% deposit so you don’t have to pay for LMI, your deposit will be $80,000. Your stamp duty is priced at $13,535. Conveyancing fees cost $800. Building and pest inspection cost $500. Considering only the upfront costs, you will need $94,835 to invest in a property.
You can start your real estate investing journey with us by checking out our investment loan products here.