Researching Deals – Part 2: Know Your Costs
Welcome back to the second part of Researching Your Deals. If you have not read the first post in this series you can go back and read it here
The next step in the process is to know your costs! There are so many associated costs with property investing and they are many and varied depending on what strategy you are using. The important step here is to gather all your known costs together so you can make fast decisions when evaluating a deal. There are 4 main costing groups you need to focus on:
- 1. Purchase Costs – this includes stamp duty on the property, loan establishment fee, mortgage registration, transfer fees, solicitor’s fees, building and pest inspections. As a general rule you could budget these costs to be about 5% of the purchase price.
- 2. Holding Costs – This includes loan repayments, council rates, insurance for the property, rental management and maintenance
- 3. Adding value costs – These costs are wide and varied and may not actually apply to some deals. Some of the add value costs could be renovation, subdivision, strata titleling or development of the block.
- 4. Selling Costs – Yes there are exit costs to ensure you get out of the deal! These include your solicitor fees, agents’ commission and any marketing or staging costs to get your property sold. As a general rule you could budget about 3% of the projected sales price for these costs
This is a pretty broad overview of what your costs will be but once you find the right deal you will want to drill down on all of these items to ensure you have costed every possible item. The more diligent you are in this area the less risk you apply to the project.