All things finances around property

Upfront costs, ongoing costs, and how returns work if you're buying to rent out.

The purchase price is the number everyone quotes. It is not the number you need. Here is everything else, up front and forever after.

Upfront costs

Deposit. 5% to 20% of the price, depending on which schemes you use and whether you're paying LMI.
Stamp duty. The largest single cost after the deposit, unless a first home buyer concession removes it. Check your state's threshold.
Lenders mortgage insurance. Charged on loans above 80% of the property's value, unless a guarantee or guarantor removes it. It insures the lender, not you, and can run to tens of thousands. It is usually capitalised onto the loan, so you pay interest on it too.
Conveyancing and legal fees. Typically $1,000 to $3,000, plus searches and disbursements. Ask whether the quote includes them.
Building and pest inspection. A few hundred dollars per property, and you may pay for more than one before something sticks. The cheapest money you will ever spend.
Loan fees. Application, valuation and settlement fees, and an annual package fee if your loan has one.
Moving and connection. Removalists, utilities, and the first council rates notice.

As a planning figure, allow 3% to 5% of the purchase price for everything other than the deposit, and less where you're exempt from duty.

Ongoing costs

Repayments. Model them at a rate two to three points above today's.
Insurance. Building insurance from the day you exchange contracts, not the day you move in. Contents separately. Strata levies already include building cover for apartments.
Council rates, and water rates where they're billed separately.
Strata or body corporate levies for apartments and townhouses, quarterly, and sometimes a special levy for major works. Read the minutes before you buy.
Maintenance. A common rule is 1% of the property's value a year, averaged. Some years nothing, then the roof.

If you're buying to rent it out

The economics change. Rent covers part of the loan, more costs are deductible, and two things you won't meet as an owner-occupier come into play.

Capital growth and yield

Growth is the rise in value over time. Yield is the annual rent as a percentage of the value. High-yield properties pay their way month to month; low-yield ones tend to be where growth is expected. You rarely get both, and which you want depends on whether you need cash flow or patience.

Negative gearing

When the costs of an investment property exceed the rent, the loss reduces your taxable income. It is a consolation for losing money, not a strategy on its own. The property still has to grow.

Depreciation

You can claim the declining value of the building and its fittings. A quantity surveyor's schedule costs a few hundred dollars and usually pays for itself.

Capital gains tax

Applies when you sell an investment property, with a 50% discount if you've held it more than twelve months. The home you live in is generally exempt, which is a large part of why owner-occupied property is treated so favourably.

Rentvesting, buying an investment property while renting where you'd rather live, is increasingly common where a home in your own suburb is out of reach. It gets you into the market earlier. It also costs you most first home buyer concessions and brings capital gains tax into your life. Run both versions properly before choosing.

Do this in HomePlannerYour finances Put the full set of costs against your income and see what the year after settlement actually looks like.Free account required

Before you move on

You have a figure for upfront costs, not just the deposit
You know whether you'd pay LMI and how much
You've listed the ongoing costs, including strata if it applies
If it's an investment, you understand yield, growth and CGT