Whether you’re buying a property to live in or to invest in, unfortunately, it’s not just the price on the tag you have to pay; there are some additional costs you’ll have to budget for.

#1 Transfer Duty (formally known as Stamp Duty)

Formally known as stamp duty, transfer duty can significantly add to the price that you’re paying for a property. You must pay transfer duty in NSW when you buy:

• property, including your home or holiday home
• an investment property
• vacant land or a farming property
• commercial or industrial properties, or
• a business, which includes land.

As with income tax, transfer duty is calculated using a sliding scale. You can calculate the duty on the sale of land or businesses in NSW here.

First home buyers may be exempt if they meet certain criteria.

This may change in the future. As part of the 2020-21 Budget, the NSW Government unveiled a proposal to change the NSW tax system to give property buyers the choice to pay stamp duty (and any existing land tax, where applicable), or alternatively to pay a smaller annual property tax when they purchase a property. The consultation period is now over, but you can download the progress report here.

#2 Legal and conveyancing fees

You want to make sure all the legal boxes are ticked when buying a property; it’s not just about handing over the cash – there is quite a bit of paperwork involved with transferring ownership of a legal title of land into your name. While you can do it yourself in some cases, most people hire a conveyancer to avoid making mistakes.

#3 Out of pocket expenses

The conveyancing process involves some additional, but necessary expenses. There are a number of searches which should take place to you know exactly what you are purchasing, and whether there are any special stipulations on the property/land you must adhere to. These include:

• council and water rates searches
• planning and heritage searches
• title and encumbrance searches
• road authority certificates
• land tax clearance certificates
• Environment Protection Authority (EPA) certificates

A good conveyancer will explain these additional expenses before you engage them, and give you approximate costs.

#4 Lenders mortgage insurance (LMI)

Some home loan providers insist on the borrower taking out this insurance policy as a condition of the loan. Usually, this condition is put on the loan when the purchaser is offering less than a 20% deposit.

This insurance is designed to protect the lender from financial loss; if for whatever reason the borrower doesn’t pay their home loan repayments, it provides a buffer in the event of a house price fall should the owner have to sell the property.

#5 Loan Application Costs

Some financial institutions charge a fee for setting up a mortgage or, sometimes for transferring the mortgage to a better deal.

#6 Valuation Fees

As part of the loan application process, the loan provider may charge you for an independent valuer. They will value the property to ensure the price you are paying is reasonable, and you are not over paying for the property.

#7 Building and Pest Inspection

A satisfactory building and pest inspection is usually a standard clause in the offer and acceptance form. And unfortunately, it’s the purchaser who has to pay for these.

#8 Insurance

Building insurance is the probably the minimum insurance you should consider when you purchase a property, although if you are buying into a strata or community titled scheme, this might be covered under the fees. For investment properties, we also strongly recommend taking out a comprehensive landlord’s insurance, which will often include building insurance.

If you are buying your property for residential purposes, as well as building insurance, you will need to consider taking out a contents’ insurance too. You may also consider some sort of income insurance, which would assist you in the event you lost your income and were unable to make the repayments.

As always, we strongly recommend you speak to a specialist who will advise you on what you need to budget for, and any other costs you may have to pay according to your financial situation.

Everyone needs somewhere to live, and investing in property really has stood the test of time. Why don’t you do a bit of a review of your finances, talk to a financial specialist and see what figures they come up with?

If you’d like to know more about property investment, or if you already have an investment property and you’d like to know how you can enhance it to increase rental return, please do get in touch.

Quality property management doesn’t cost you money, it makes you money; with over 40 years of experience behind us, we’ve helped thousands of people achieve their financial goals through property.

Give us a call on 02 4954 8833, send us an email to mail@apnewcastle.com.au or call into our Cardiff office for an informal chat.