subject: Can You Afford To Invest In Property [print this page] For a residential property the bank lends you up to 90%. For every dollar you put in the bank lends you $9. Why would the bank lend you so much money? Because they see it as a low risk investment.
When you invest you need a minimum deposit of 10%. The other main costs include stamp duty, solicitor's fees, and bank application fees.
Let's take, for example, a $400,000 property in Victoria.
Assume the land price is $200,000 and the build price is $200,000. You will need to pay a 10% deposit of the value of the property which comes to $40,000.
If it's an off the plan house and land package, you only pay stamp duty on the land which is about $7,660. Off the plan house and land packages mean there is a vacant block of land and the builder builds a new house on it.
If it's a property that's already been built, you pay full stamp duty on the value of the property. So, on a $400,000 property, the stamp duty amount is about $19,660.
Solicitors' fees are about $700, depending on your solicitor.
Mortgage insurance: If you borrow above 80% you have to pay mortgage insurance, but most banks also lend you this amount.
There is also a bank application fee of around $600.
So, the total money you need is:
* off the plan house and land package = $48,960
* existing property = $60,960
If you haven't got enough savings, then here's what you can do:
1.You can start up a joint venture with a family member or friends to come up with the deposit
2.If you have owned an existing property for at least 2-3 years, your property will probably have grown in value and you may have some equity in it. You can then refinance this property and get the deposit for an investment property this way. Most people use this method.
Should you buy old or brand new off the plan?
If you buy a brand new, off the plan property, then apart from saving on the stamp duty, you get maximum tax benefits. You can claim for depreciation on all the fixtures and fittings inside the house, and within about 5 years you can claim back 100%. Plus you can also claim 2.5% tax back on the building cost every year for 40 years. So, buying brand new means you can claim the maximum tax benefits. You also get a 6 year structural guarantee and being brand new you have very little or no maintenance. Also You can rent it easier and quicker compare to an old property.
If you buy an existing older property, apart from paying full stamp duty, you can depreciate very little. If the building is over 5 years old, you cannot depreciate the fixtures and fittings, you can only depreciate the building component. As such, you get less tax benefit.
If you are paying lots of tax and you want to claim back maximum tax, then an off the plan brand new property would be ideal for you. In addition, if you haven't got much money for the full stamp duty, then an off the plan property would be better for you too as you pay minimum stamp duty.
