18 Jan Conveyancing Gold Coast – Buying Real Estate
Buying a home or an investment house, or other property?
Not that big a deal. You go online, you have a look. You find a property that seems appealing, and then if you are nearby you might go and check out. Too easy! “Just what I wanted”, you might say.
But is it?
As a Solicitor with many years of experience in the property industry, I am regularly reminded by my clients’ numerous moments of angst when buying a property for home or investment purposes, as to the complexities that can, and often do, arise during the selection and buying process. In short, buying a home is not necessarily “a piece of cake”. So how can you best minimise your exposure to the unknown.
First up you need to format a methodology for selecting and choosing your purchase. You must decide what you want and for what purpose? What is it that you expect this purchase will give to you and/or your family, and from this you will be able to put together a list of criteria to “tick off” as you review various prospective properties. Research, research, research! When you obtain information, check it. You must seek out and qualify such data or information.
Buying a house to become your home
For example, if you are buying a house to live in, you need to be certain that it has, or is capable of providing the things you need to turn it into your home. If you have or plan on having a family, does the prospective purchase have enough bedrooms and space for all family? If you have boys who love playing cricket does it have a yard to swing the willow? If you like to tinker on cars, do you have a good size shed or garage that will give you the space that you need? Are the dimensions of the rooms suitable to your current, and future needs. Can the house be readily built on or added to? Are there nearby schools and/or shopping facilities? Does the house come with roof insulation or air conditioning – in a place which is known to have a hot climate? If not you might need to factor such costs into your purchase.
Buying a property for investment
If you are buying for an investment purpose other questions might prove to be more pertinent such as does the property have potential to give you a respectable ROI (return on investment)? Irrespective of whether this investment property is residential or commercial, is there a sufficient rental market to take up the tenancy? What is a level of debt that you need to undertake to buy the property? Do you have any equity to put into the property? Importantly this leaves with the next question, what are the returns having regard to the debt-to-equity value of the property? Will the property pay for itself, all you have to contribute each month.
For example, if the rent on the property is insufficient to meet the substantive component of the cost of the loan each year, then maybe the level of debt on that property is too high given the amount of rental return that is likely. Some of you may have heard of the term “negative gearing”, and this in its most basic form relates to the scenario where the rental return is less than the costs of purchasing and maintaining the property, leaving a shortfall in your expenses. In that event you need to consider two further important criteria to maintain a benefit of such an investment. The first, you need to have sufficient funds to carry you in the event that the property becomes vacant all the tenant fails to meet their obligations, as costs still need to be met for the property. The second, is you need to have generated or are able to generate significant income to which you might offset the negative return of your property, with your tax obligations. Whilst there are many investment businesses citing this as an excellent proposition, and this can well be the case but in reality negative-geared investment is only for a select few.
Once you have made the initial decisions (type and/or size of house or property, suburb, how much can you afford?) to buy a house or home, you should consider your position objectively. And I really mean objectively! Be really tough on yourself and more so be absolutely honest. Be brutal! Factor in a worst case scenario and use that as your base to calculate the viability and affordability of your planned purchase. If you ask why at this juncture, then I have to say that I probably cannot help you? And I doubt very much that you are likely to listen to my comments anyway. In real terms the answer is that for most of us the buying of a property for private or investment purposes is a major decision. Deservedly so it requires your most undivided attention so that it does not become a burden upon you, your loved ones or your family.
So what you do? I would recommend that you undertake a cost base analysis to work out in simple terms the highest price that you can afford to pay for your prospective property purchase. Find out the cost of the loan and loan terms, and factoring in your income or incomes together with savings, workout if you have enough money coming in to pay the costs of the loan, and all charges including insurances, utility charges (rates, water, communications and electricity). A rule of thumb, is that you should be able to pay all of the necessary costs using no more than 65% of your income. The rest of your income will then be available to cover normal living expenses, family expenses (there are usually a whole lot of those) and of course savings.
Speak with your proposed lender and/or finance broker. Ask lots of questions and get lots of answers. You might also want to speak with your accountant who is usually well-qualified to assist, especially when buying a property for the purchase of investment.
Nonetheless, if you have a few dollars saved up or alternatively you have equity in other property, you may well be in a position to purchase your new property with a lower debt-to-equity value, meaning that you have less debt in the property which can be calculated to be readily serviced by the income of the property. This is a positively geared purchase.
Negotiate price within your means
I often tell clients when discussing the prospective purchase of the property, that the power to buy property at the best price requires ‘veins of ice’, where the buyer is able to turn on their heels and walk away from a property that does not fall within their financial capabilities. This puts you in the driving seat and gives you the best option to negotiate your purchase of the property. Can you walk away from a property that you “really really” want? If not, then the Seller is driving the bargain and not you. Walking away from property that you love a hard thing to do, particularly where you are buying a house to become your family home, and more so if it is your first home where a lot of the emotion is likely to attach. Just think of it this way. If you love the house so much you really want it, does it not make sense that the seller will pick up on that and pressed you to pay the higher price. The plain answer is yes, and it happens all the time. So I say to you do not love your first house, and remember that there are other houses or properties out there. Nonetheless I know that when you see the house with the perfect kitchen, or the great size yard or the big shed in the back that will take the boat and the tool shop et cetera, it is hard to turn away. But if the price is too high, I can tell you for certain that there would or could be many moments of high stress and re-organisation of finances, or borrowing of monies from family and friends, to accommodate the property that you wanted so much. And a further issue here, is that when more monies are required to maintain the property ownership, there is less money for the family, for holidays and for children.
The buying paperwork – Entering into Contract
So now you have found the property, calculated your affordability, spoken to your lender, and you have an idea of the sale price that you can afford. Excellent! You are over the moon.
Your next action is to commence the process by entering into a contract of sale. In Queensland, when you buy real property meaning a house and/or land you must do so in written form – to become valid, binding and enforceable. Buyer beware. When you sign a contract in Queensland you are bound to those terms.
Problems arise often in conveyancing over such things as what the salesman told me, the conditions in the contract, your finance obligations etc. So how do you protect your interest ? The answer is that you must find a professional person who has expertise in property matters, contracts, and perhaps someone who also has knowledge of various structures or forms of holding your new property. Will you hold the property as joint tenants or tenants in common? And who can best explain your options.
The real estate agent
Be mindful that in Queensland real estate agents are permitted to prepare contracts, however they do not have the expertise and they are not legally permitted to provide legal advice on the contract. That is the skill of the lawyer. Notwithstanding that I know and work with a number of Realty agents, it is beyond my understanding as to why agents are still permitted in this day and age to write contracts which can so significantly bind and effect unwary buyers (and sellers), as it is rare in my own experience to see an agent or a realty firm prepare a contract to its full capacity and without error.
Typically the Seller has engaged a real estate agent to undertake the sale, to advertise the property and to find people just like you. This salesman works for the owner. He or she does not work for you, even though he or she is really very nice to you. “I want to do a deal just for you” they might say. In reality they hold a very strict obligation to do the deal for the Seller. If they had the same obligation to look after your interest as well as the Seller’s interest, we would class that as a ‘conflict of interest’. So I say to you, assume that you are acting on your own because the agent is not your best friend.
Employing a conveyancer/law firm
In some states in Australia there are businesses that call themselves conveyancers. In Victoria for example there are solicitors and law firms, and there are separate entities called conveyancers. They are not usually affiliated with the law firm, and conveyancers do not have the training and expertise that a lawyer holds. In Queensland the laws different insofar as lawyers are the only professionals permitted to undertake and charge for the conveyance of property. A separate entity conveyancer are not currently permitted, although there are many law firms who have an arm of the practice with a separate name encouraging conveyancing clients. In other words if you see a conveyancer advertising in Queensland, then in all likelihood they are linked to a law firm in some way. This is often done for marketing purposes and regrettably it is a sad fact that sometimes the level of care is less than if the law firm and lawyer are openly having the conduct of a conveyance matter. That said there are some good conveyancers out there, but they are generally where you as the client will have direct contact with a practising lawyer. In that instance you are likely to benefit greatly from the professional indemnity insurance of the law practice which underwrites the general business of your conveyancing matter.
Therefore you must seek out and discover the professional law firm/conveyancer who can assist you with your purchase. When seeking a professional I would hope that you consider quality and experience over cost, as the conveyance regime in Queensland is well known accommodate cheap conveyancers to undertake work at a purported lesser charge using unqualified and limited supervised staff to undertake the work. In many instances you will find that the lessor charges tend to mount up with add-on fees.
My clients tend to involve me at the time of negotiation whereby I assist the agent when drawing the contract to ensure that terms are completed and if necessary, special conditions are inserted to protect my client’s interests. I also advise my clients on different ways to own the property for the purpose of family sharing, tax minimisation and asset protection methodologies. Many Realty agents become frustrated by this process of checking the contract, but I prefer to think that my client’s welfare overrides any ego or commission frustration. Believe me when I say that I am as keen as any agent to achieve a sale, as that is my client’s general objective.
The answer again is quite simple. Speak to a professional or a lawyer with sufficient hands-on experience who can advise you as to the pros and cons of the proposed purchase. More so I believe that everyone should obtain advice as to the way they structure their purchase, including such issues as:
* the type of property that is purchased, and
* who will be registered as the owner,
* the details of the contract and the properly worded special conditions,
* what are the tax implications of such a purchase and what is the best way to minimise them,
* the type of finance product that best suits your needs, and finally but by no means least
* the principles of estate management including decisions as to beneficiaries and executors under your Will.
Sounds complicated. Not really, but it is involved. So the rule is caveat emptor (buyer beware)
Get sound legal advice!