Mobile data, childcare, coffee and petrol are just some of the property search costs that you may be overlooking. Here’s how much you could be paying in hidden fees and why it could make sense to buy earlier rather than later.
The costs associated with buying property in Australia are astronomical, and while many homeowners have the upfront costs of buying property down pat, have you given thought to the hidden costs of searching for real estate?
Bessie: Hi! I'm Bessie from Finder and today I'm chatting with Belinda about the hidden cost of buying property.
Belinda: Well, Bessie, I recently did some research on this, and it's such a fascinating topic because I think a lot of people don't realize that you could be paying significant hidden costs when searching for the right property. And when I say hidden costs, I'm referring to things like petrol or road tolls, even coffee, take-out lunches or child care expenses that may crop up when you're taking the time out to inspect different properties.
Bessie: That's right. It's often the direct cost that we consider when it comes to buying a property, things that we hear about all the time, stamp duty, lender's mortgage insurance, legal fees. But often, it's the things such as the $4 cup of coffee or the take-away lunch or the mobile data that you're churning through in between inspections that can really add up. In fact, our research found that if you're searching for a property over a 12-month period, you could be paying more than $20,000 on these hidden costs.
Belinda: So Bessie, how do you think that people can prepare for these hidden costs?
Bessie: Well, with the direct costs, it's a lot easier. You can jump onto site like Finder, punch in the numbers and know how much you'll be up for. But when it comes to indirect costs, you really need to be aware of them and make a conscious effort to cut down. Think of ways to be resourceful and call on those closest to you to help out. For example, ditch the babysitter for a day at the grandparents', and avoid hefty road tolls by using Google Maps to find alternative routes.
Belinda: Well it sounds like these costs can add up really quickly. So it's a matter of doing your homework and being really conservative with all your outgoings and budgeting. I think it's important that people try to build up a contingency buffer of funds. Try to have at least two to three months of mortgage repayment sitting in a linked offset account or in a high interest savings account so that you're not stung by these hidden costs.
Bessie: Being diligent with your budgeting is key. Can you imagine how much new stuff you could buy with an extra $20,000?
Belinda: That's right, Bessie. Thanks for watching today. And for more information on the costs of buying property, head over to finder.com.au.
The reality is that there are several miscellaneous expenses that you may have omitted from your budget spreadsheet.
If you haven’t accounted for the wide spectrum of costs needed to secure property (think coffees and take-out lunches, not to mention the time investment required for property search), then you may have missed the mark as far as budget planning and savvy property buying is concerned.
Ask yourself: if you had to spend a year searching for a property, how much would you pay in total search and upfront costs? And what appreciation value would you forgo if it took you a year to find the right property, rather than buying during the initial stages of your search?
Should you; get in early, secure a property and benefit from annual price growth, or should you take your time to find the right property, cop the expenses and hope that the wait will be worthwhile? Which would put you in a better financial position?
According to our example, explained below, here are the hidden costs of year long property search, along with the costs of purchasing a property:
The hidden costs of searching for a property
Research, petrol, mobile data, childcare costs and more over 12 months.
If you’ve decided to start researching properties in your chosen markets, you need to be aware of the hidden costs associated with the property search.
Assuming that you and your partner spend three days inspecting properties each month over a 12 month period, here’s a ballpark figure for hidden search costs:
Property search costs
- Information cost. If you want to access suburb property reports from sources such as CoreLogic RP Data, you may need to pay a fee. Budget $150 per suburb report. If you accessed one property report per month, this would be a monthly cost of $150. If it took you a year to find the right property, your information cost would be $1,800. Some sources offer these reports for free, such as Residex, but the level of data offered may be lower.
- Professional advice. A licensed accountant or financial planner may charge around $200 per hour. If you visited an accountant for three one-hour sessions over a year, this would be $600. To minimise this expense, you could consult a friend or family member who has an accounting or finance background.
- Petrol and road tolls. When inspecting properties, you’ll be driving back and forth which will cost you not only time, but also money in petrol. Depending on the location of the property, the distance of travel, and the price of petrol, you may need to set aside $50 in petrol for each inspection day plus $13 for road tolls ($6.50 each way). If you inspected properties on three separate days per month, you would need to budget $63 per day and $189 per month. Over 12 months? That’s $2,268 for petrol and tolls. To dodge this expense, use Google Maps to plan a route that omits major roads and tunnels.
- Coffee. Don’t underestimate the cost (and need) for coffee. If you’re getting up early to inspect properties, chances are you’ll need a caffeine hit. Budget around $7 per day for one coffee each. If you and your partner spent three days inspecting properties or attending auctions, your monthly coffee bill would amount to $21. This is an annual figure of $252. If you want to save on this expense, consider brewing your coffee at home and bringing it along in a thermos.
- Lunch. Don’t forget the cost of eat-out lunches. You’ll most likely dish out $15 per day, per person (think a cafe’ style lunch). Assuming that you're taking three days out of your schedule, your lunch budget would be $90 per month. That’s $1,080 per year. Want to minimise this food expense? Pack your lunch in a brown paper bag.
- Time. While most people inspect properties on the weekend or after work hours, there’s a chance that you may need to take time off work to check out a property. If this is the case, the time you take off work represents a loss of income. If you’re on a $85,000 annual paycheque and you take one day off work per month, this would set you back approximately $350. If you took one day off each month over the full year, that’s $4,200. If your partner comes too (assuming they earn the same salary), that’s a $8,400 deduction from your combined household income.
- Mobile data. Have time to kill in between property inspections? As you're streaming online, you're churning through mobile data and it’s likely that you’ll exceed your monthly data limit. If you spent an hour on your phone (together), you’d get through 3GB (for high definition video streaming). As most providers charge $10/GB for each extra GB, this would cost you $30 per hour. For your three dedicated days of property searching, the total mobile data cost would be $90. Add this up over a year and that’s $1,080 gone. (If you want to compare the service providers available in Australia to get a better deal, try this handy tool.) To avoid a hefty bill from your mobile provider, bring an extra person along with you to spice up the conversation (to distract you from binge-streaming online).
- Childcare. The average cost of daycare is $70 - $150 per day. If you can’t bring your kids along with you to the property inspections, then you could be forking out $150 per day for childcare. That’s a monthly childcare cost of $450, or $5,400 over 12 months. Our tip? Send them to Nanna and Papa’s.
Total search costs
|Petrol & road tolls||$2,268|
|Time off work||$8,400.00|
Upfront direct costs
Once you’ve narrowed down your search to a final property, you’ll be up for several upfront fees.
Let’s assume you’re purchasing an owner-occupied property valued at $612,200. If you took out a loan of $489,760 and you had a 20% deposit of $122,440, here’s a roundup of some of the major upfront costs you can expect to pay prior to getting your hands on the keys.
- Stamp duty. The amount of stamp duty payable depends on the state in which you’re purchasing the property. For this example, you would expect to pay around $15,388.28 if you were a first home buyer in Sydney, NSW. If you want to estimate the amount of stamp duty that you might be up for, first type your desired location into the suburb vs. salary calculator, and then use that figure in our stamp duty calculator.
- Legal costs. This will depend on the complexity of the work required, but generally you would need to budget around $1,000-$2,500 to have a solicitor or conveyancer prepare your paperwork.
- Inspections. It’s important to get a building and pest inspection completed to ensure that the property is structurally sound and to make sure that it complies with the relevant building code. You should set aside around $500 for a building inspection.
- Mortgage establishment fees. The average establishment or application fee is approximately $500-$600, however this will depend on the lender and the product type.
- Lenders mortgage insurance (LMI). Assuming a 20% deposit, you generally wouldn’t need mortgage insurance for a full documentation loan. However, if the lender did require lender’s mortgage insurance (LMI) for this loan, the premium would be around $1,915.
- Building and contents insurance. While your policy amount will depend on a number of factors, such as whether or not you include extras such as accidental damage, you should budget around $150- 200 per month. Over the course of a year, you could be paying $1,800.
- Valuation costs. Some lenders may require you to get your property independently valued, which could cost around $500.
Total direct costs
|Building and pest inspections||$500.00|
|Mortgage upfront costs||$500.00|
|Lender’s mortgage insurance (LMI)||$1,915.00|
|Building and contents insurance||$1,800.00|
The combined cost of upfront direct costs and hidden search costs is $42,483.28 ($20,880+ $21,603.28). This is the aggregate cost required up until the point in which you are handed the keys.
You might also opt to get the property professionally cleaned before you move in
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Use the calculator below to estimate your property buying costs.
Buy now or search?
Data from CoreLogic RP Data indicates that Sydney experienced 12.8% price growth in the 12 months to November 2015.
If we take the above example and assume that you’re purchasing a residential property of $612,200 in Sydney, then the property would appreciate by a staggering $78,361.6 over a year. This means that the property would be worth $690,561.6 in 12 months from the date you purchased it.
Effectively this means that if you purchased a property earlier in your search phase, you could potentially benefit from the $78,361.6 in property price growth in one year. Not only would you have covered the hefty stamp duty cost with this amount (which is priority for most property buyers), but you would have covered your combined upfront and hidden search costs of $42,483.28, with $35,878.32 to spare.
Thus, getting into the property market sooner could make financial sense, because even if you move in a year later to your dream location, you’re no worse off.
The hidden search costs and upfront costs of buying property are exorbitant. Make sure you’re fully aware of the 360-range of costs involved to ensure that you make a savvy property purchase.