Avoiding the Hidden Costs of Buying a House
Buying a property in Sydney is expensive enough as it is. Don’t leave yourself open to the hidden costs of buying a house. Here are 5 issues you should consider before purchasing a property, to avoid unexpected costs.
1. Capital Gains Tax
If you are purchasing an investment property, you should always be mindful of being liable for Capital Gains Tax (CGT). CGT applies when you sell your property, if you’ve rented it out.
If you rent out a property for a few years to help with the mortgage and then decide to move into the property, you should only be liable for CGT for the time the property was rented out. There is a CGT discount method, which means that by living in a property for 12 months, you can reduce your capital gains liability by 50%.
2. Stamp Duty
Stamp duty is a levy charged on the transfer of land in New South Wales. It needs to be paid before the completion of the contract can occur. The amount is based on the purchase price of the property, and payable within three months of the contract date (the date of exchange). There is an exception for off-the-plan properties, whereby it can be delayed by twelve months.
Stamp duty can be a large sum and it is important that you factor in this amount when purchasing a property.
3. Organising Your Finance
Once you have exchanged contracts (both you and the seller have signed) you will be bound to complete the contract on or before settlement. A trap that home buyers occasionally fall into, is not having their finances prepared. You should liaise with your broker or receive some form of pre-approval from your financier before you purchase a property.
If the preparation of the financial approval and the signing of the loan documents is left to the last minute, it can delay settlement. If you delay settlement you will become liable to penalty interest on the balance of the purchase price.
The seller may also be able to rescind the contract, meaning you will lose the property and your deposit. It is therefore vital that you ask your solicitor to liaise with their broker or financier to ensure that the finance will be ready in time for settlement.
4. Pest & Building Report
An informed purchaser is a good purchaser, which is why it is important to obtain a pest & building report from a reputable company. A pest & building report will show the ‘real’ property you are buying.
The report lists the issues and damage that is found on the property and the cost in repairing it. This is important for a purchaser as it will show the additional cost behind the purchase of the property, as it may detail pipes and cracked tiles that will need to be repaired, and if there are any leakages or dampness around the property. It will also show if there is any evidence of termite or other insect damage to the property.
For example, a woman in Victoria recently purchased a property without obtaining a pest & building report. Her house sat on top of a double garage. The woman had never entered the garage until she had purchased the property. As soon as she walked inside the garage, she thought her house was falling down. The back wall was so concave, the woman could put her hand in the cracks. The costs of fixing this was up to $50,000.
If she had obtained a pest & building report, she would have established the position with the back wall. As a result she may not have purchased the property.
5. Survey Report
A survey report is useful for houses or vacant land. It shows the boundary of the property, so you know if the neighbours fencing or structures encroach onto your property or vice versa. This can also be useful for a purchaser that will be building a structure on the property and will require council approval, as this is one of the important documents the council will need.
Consulting a Solicitor
These are some of the issues that can befall home buyers. It is important that a prospective purchaser speak to a solicitor who knows the process and can help the purchaser navigate these issues. To discuss your property matter, please contact Etheringtons Solicitors on 9963 9800 or via our contact form.