Start Here  
Book your free
Empower Wealth Blog post by Empower Wealth

A Home Is Not Just a Home: The Process of Buying a Home with an Investor’s Mindset (Part 1)

Buying a home is one of the most important financial decisions you’ll make in your lifetime. Some people live in the same property for the entire life and build a lifetime of memories in there while others tend to move from one property to another depending on their life circumstances ie: an expanding family or a change in career. Whichever group you belong to, you’ll have a number of decisions to make, many of them potentially stressful and emotional. This article aims to help you in the process of buying a home and at the same time, shed some light on the need to incorporate some investment mindset when you are looking for your dream home. The more information you have, the better off you’ll be in terms of making the right choices for you and your money. So, let’s get started.


Understanding the Costs Associated with Buying a Property

Buying a home in Australia is quite similar to buying a home elsewhere in the world. You don’t just pay for the property price. There are other costs that will come into play such as stamp duty, conveyancing/legal fees, loan set up costs such as establishment fees and potentially Lenders Mortgage Insurance, building and pest inspection reports and buyers agent fees. The stamp duty will be the largest expense, excluding the mortgage, and will vary depending on the state you buy in.

You will pay it on the property purchase price, yet if you buy land first of buy off the plan, in some states like Victoria, it could only be based on land values at the time of purchase, if say the property is still under construction. If you are buying an apartment, you will also need to look at the owner’s/body corporation fees and the more amenities (gym, swimming pool etc) an apartment building has, the higher these ongoing fees would likely be.  Once you own a property, you will be responsible for paying fees such as council and water rates. When it becomes an investment property, there will be other holding costs such as property manager’s fees, landlord’s insurance and possible land taxes. We’d also recommend you take out home and contents insurance.


What’s your Borrowing Power?

There are many budget and loan options to consider when you buy a home. If you are purchasing a first home, this will be different than if you are an upsizer/downsizer and have some equity built up to borrow against. As First Home Buyers, you will have access to First Home Owner Grants or other Government Benefits such as Stamp Duty concessions. There are however, a list of criteria that you need to satisfy and it varies between each states. Speak to a mortgage broker to help you in this process and look for one who will ask for information on your individual financial and personal circumstances, income, property desires, and determine how much you will likely be able to borrow. You want a mortgage broker who understands the importance of loan strategy and structure because you might need to refinance the loan in preparation for your next property.

A good broker will look at your current cash flow to make sure you can service the loan and listen to your future plans before they suggest any particular type of loan to you.

It is also recommended to get a pre-approval before you start looking for a property because then you would know how much you can actually spend. This would save you heaps of time by ensuring you look at what’s affordable. On top of that, most selling agents will treat you as a serious buyer if you have a pre-approval in place and in some circumstances, you can even use this as part of your negotiation tactics. A pre-approval is generally valid for 3 months but there are some lenders that offer a longer period. 



Where and What do you want to Buy?

You have a number of things to think about when researching properties to buy a home. This will vary depending on how long you’re planning on occupying the property yourself. If you are buying solely for investment purposes, we would be strongly recommending you to set your emotions aside when considering a purchase but for owner occupiers, we would usually say it is alright to include some emotions in it. After all, you would be living in there! Having said that, while you are in this research phase, think about these few things:


  • Location

The process of buying a homeThe importance of location when considering to buy a home cannot be overstated and this is even more crucial when you are looking to convert the property into an investment later on. As we always say here at Empower Wealth, you can always knock down and rebuild the building but you can never change its location. You can have a beautiful home with all of the right amenities that has a very low market value because it is in an undesirable area. So when you are looking at a particular suburb, think about its proximity to specific features such as public transportation, schools, government/public facilities (such as parks or beaches), quick access to highways, markets and shops, lifestyle and entertainment options (cafes, restaurants, movie theaters) etc.
Being close to lifestyle areas will be beneficial for you in terms of convenience and similarly, steer clear of areas with high noise pollution such as highways because it will reduce your property value as an investment. It will also be helpful to pay strong attention to the area’s demographic. What’s the crime rate in the area? You want to live in a safe area regardless if the property is pretty or not.  Is there a university nearby or does the local school suits your family’s needs? These factors will be handy to help you narrow down where you want to buy.


  • Type of Property

Are you looking at a house, villa, townhouse or an apartment? How many bedrooms do you need? You might want a house with a big backyard for your kids to run around or a simple two bedrooms townhouse with low maintenance. Most of the time it will depend on what you can actually afford but other times, it might be a personal preference thing. You will learn more of what you can afford based on comparable sales and what you want and you don’t want once you’ve inspected a few properties. In any case, if you can’t afford a house but you really want to live in a house one day, think about the possibility of buying a unit or townhouse. Live in it and five years later, release some equity from this property as a deposit to buy a house. In other words, adopt a long term view. It might be quite disappointing at first but if you select the area and property right, the unit or townhouse could yield a great return on top of a significant growth in value – isn’t that worth considering? Furthermore, if you have decided to live in the property for just a couple of years, it might be a good idea to think about what the potential tenants are looking for. Draw from your research on the area’s demographic for this.


Do you need a Building and Pest Inspection?

Once you have your sights set on a specific property, you’ll want to take certain steps to ensure it would be a good home. It might look cosmetically good from the outside but things like structural inadequacies, wall cracks, plumbing issues or a possible termite infestation can often be hidden. Get a building and pest inspection done by an independent professional which could give you that peace of mind. It might cost you a few hundred of dollars but it would be heaps cheaper compared to fixing any ‘hidden’ problems. Bear in mind that a building and pest inspection can be part of the special conditions in your contract so you only need to spend this money on properties that you are serious about.


How should you finalise the sale?

There are a few ways in which properties are sold. It can be via a private sale or in an auction campaign. The art of negotiation is another article all together but for simplicity sake, always remember your top end for how high you would be willing to go. If you’ve done your research well, you should know what level of offer that is high enough to attract the seller’s attention and yet not too low that it will be offensive. Talking to the selling agent or the seller will also help you in understanding the current situation and your competitors. Be patient after submitting your offer, these things can take time and are ultimately worth the wait. For more negotiation tips, read this article: How to negotiate a great property deal out there.

An auction on the other hand, can be quite different. For one thing, once the hammer goes down, it is an unconditional offer. There is lot to prepare before you turn up on the auction day such as your finances, building inspections and more. During the auction, you need to be able to read the crowd’s reaction and adjust your strategy based on that.  For more auction tips, watch: Tips for Buying at Auction.

If you don’t think you can manage this process, why not engage a professional buyers agent? A good buyers agent would have bought many properties before, both for owner occupier and investor. Not only will they be able to help you in negotiating the property or bid for you at auction, they can also help you in your property search and inspection and in appraising the real value of the property.

Connect with Empower Wealth:
Get in the know - Subscribe to our Newsletter.

  • This field is for validation purposes and should be left unchanged.