Purchasing a property can be a daunting task. There are many questions that a first home buyer or first time investor might be asking themselves before they purchase:
- How much can I spend?
- How do I know how much a property is worth?
- How do I navigate the contract process?
- Is there anything that I should be concerned about?
- What comes first, a loan or a purchase?
Essentially, it’s a fear of the unknown that causes anxiety among most. The reality is, that if you engage the right people, and understand the steps that you need to follow the process can be very smooth and nowhere near as daunting as you might think.
So, here’s what you need to know.
1. Why are you purchasing a property?
For many of those renting in Sydney or Melbourne, as a first home buyer, it’s become very difficult to purchase a property in the blue-ribbon suburbs close to the city. This unaffordability has spurred an increase in the rent-vesting strategy – renting where you’d like to live and investing where you can afford.
Your approach to purchasing as an investor and as an owner occupier can vary, so understanding why you’re purchasing and what your strategy is, are the critical first steps. Engaging a financial planner can help you with this part of the process, as well as modelling various cash flow scenarios for investing into property.
2. Understanding your borrowing capacity
There’s two ways to approach this step. One way is to visit a bank to discuss with a credit advisor your income, savings and expenditure and they’ll determine the most suitable loan product for you at that bank.
The most effective and simple way for you to approach this step is to engage an independent mortgage broker. A mortgage broker specialises in understanding the products and lending criteria from numerous lenders. Without limiting yourself to one bank offering, a broker can identify and compare which bank is not only going to provide you with a competitive rate, but also who will be the most suitable structure for your purchase. Engaging a broker alleviates lots of the stress and time associated with dealing directly with a bank, and typically it does not cost any extra as the bank pays the broker a commission for introducing the client.
It also does not cost you anything to engage a broker ,and in many cases they’re able to secure better rates than you will on your own. One of the other additional benefits of a broker is that they can often operate outside standard office hours, which can prove convenient.
3. Doing your research or engaging a property professional
With a strategy and budget in place, your search for a property is likely to have been narrowed down. Understanding the market that you’re considering purchasing in, is vital in identifying value and the right property in an area. There are a couple of ways you can engage a professional to assist with this part of the process.
If buying an owner occupier property (your own home), engaging a buyer’s agent can be beneficial. They assist in identifying properties which meet your needs and your criteria. The benefit of a buyer’s agent is that they can provide you with the knowledge required to feel comfortable in your decision making. The other benefit is their access to pre-market opportunities and their negotiating expertise to help you buy at the right price. Engaging a buyers agent will typically cost you a fee, usually an initial deposit and a percentage or agreed fee payable on success.
As an investor, your approach may be a little different in engaging a property research and investment specialist. Unlike most buyers’ agents who help to find the home which you’ll be emotionally attached to, an investment specialist like Binnari Property focusses on research and data to determine the best properties to invest in. Choosing this path also wont cost you anything as we’re licensed under the real estate act and are remunerated by the vendor.
Essentially, buying a property can be done without engaging anyone and relying on your own ability. However, if you are time poor or looking to purchase a property in a location you don’t really understand well (say interstate), then engaging a property professional could make you thousands or save you from an ugly mistake.
Once a property has been found and an offer has been accepted, the next step is the exchange of contracts.
4. Choosing a solicitor
To navigate the contract process, a solicitor (or conveyancer in some states) is usually appointed. Their role is to review the conditions within the contract, along with the specifics that relate to the property. They’ll manage the signing process for you and communicate on your behalf with the vendor’s solicitor. Throughout this process, the deposit is paid, and the property exchange becomes unconditional.
In situations where you are purchasing off the plan, a solicitor will first assist you with the initial exchange of contracts and deposit payment, but then they’ll also facilitate the settlement process once the property has been completed.
Prior to settling on a property there are a few key things which you need to get in order. In circumstances where a property was purchased off the plan, your finance needs to be approved and settlement needs to be booked in. Other considerations include:
- Engaging a property manager – if the property has been purchased as an investment, do your research on the most prominent property managers in an area. Work to engage them pre-settlement to begin the tenancy process.
- Arrange a pre-settlement inspection – where possible this can be completed by the purchaser. In instances where it’s not possible or you don’t feel capable in identifying minor defects yourself, you can engage a building inspector who can assess the property and provide you with a report. If it’s an apartment or townhouse, you should gain access to the strata report to see what work has been carried out and what upcoming work is planned
- Arrange building, landlords and contents insurance – This will ensure you’re covered for any damage caused by a tenant or if tenants don’t pay their rent. Building insurance will be required for freehold properties, although most apartments and townhouses will cover the building insurance as part of the body corporate fees
The last step of the process is to settle on the property. This part of the process is essentially controlled and managed via your mortgage broker, bank and solicitor. You’ll be notified once settlement has taken place and the property will become yours. In the weeks post settlement it’s also critical to remember things like, a depreciation report which can be used to improve the tax deductibility of your investment property.
Above we’ve outlined the 6 key steps to approaching a property purchase. In each step you’ll see there is a professional you can engage to help you through the process. The task is less daunting if you’re able to assemble a team of qualified experts who have your best interest at heart.
If you’d like to know more about the property purchase process, please reach out to the team at Binnari Property who would be happy to discuss this with you.
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