see also:

• investment strategies for busy 50 year old doctors

• Buying property in Victoria - a legal perspective before you buy (pdf)
  • vendor will provide Section 32 documents relating to Title, etc
  • the purchaser SHOULD inform their own solicitor of their intent at least 3 weeks prior so they can confirm the validity of the Section 32 content, perform their own Title search, council rates and planning.
  • if time does not allow full satisfactory attendance of all matters, the purchaser should at least add their own requirements to any contract (NB. this generally is NOT possible with properties bought at auction) to reduce their risk such as:
    • subject to financial approval
    • subject to architectural building inspection approval
    • subject to your solicitors approving the vendor’s title and the property being in an area zoned residential by the planning authorities.
  • the purchaser may have a cooling off period in certain circumstances
  • the purchaser MAY be able to rescind the contract BEFORE settlement if the vendor's Section 32 documentation was erroneous
    • note all Section 32 documents should have warnings to the purchaser to check:
      • the use to which you propose to put the property may be prohibited by planning or building controls … or may require the consent or permit of the municipal council or other responsible authority.
      • the possible amenity and other impacts from nearby properties and agricultural practices and processes conducted there
      • the appropriate authorities as to the availability (and cost) of providing any essential services not connected to the property
  • purchaser will be liable to pay Victorian stamp duty (~6% of purchase price), any unpaid land tax, and also an annual land tax if the property is not their principal residence

• although illegal, agent under-quoting of expected price is rife
  • assume the reserve will be ~10% more than the highest value of the quoted price range otherwise you will be continually disappointed at auctions and waste much time
• there is NO cooling off period
• you have taken due diligence to ensure the Section 32, contract of sale are accurate and suitable, and that the property is indeed in good order without Land Tax owing and their are no outstanding council permit issues (eg. unapproved renovations or building works), no termites, etc.
• you should obtain a written pre-approval from your bank for a loan
• you need to ensure you have sufficient monies available:
  • on day of auction to pay 10% deposit (you can pay deposit by next business day IF you get permission from the vendor's agent PRIOR to auction)
  • on settlement to pay stamp duty, legal fees, other adjustments at settlement plus the amount of property price not being covered by your bank loan (banks often will loan up to 90% of purchase price)
• if purchasing within a SMSF you will need 60-90 days settlement to allow for establishment of bare trusts, etc, and ensure the correct entity is on the contract of sale - or include purchaser name &/or nominee.

• generally, if purchased within a SMSF:
  • the property CANNOT be used by family unless it is a commercial property
  • on signing the contract, specify your name and/or nominee so that the ownership can be changed prior to settlement
    • if a nominee is used, your solicitor, purchaser and nominee will also need to complete the State Revenue Office Duties Form 6A and accompanying Stat Declaration prior to Settlement
  • loans within the SMSF can be created but usually at a higher than normal interest rate and require more deposit than non-SMSF investments, plus allow $5500 and time to establish:
    • a corporate trustee ~$1500
    • a bare trust ~$2000
    • SoA basic requirement for bank requirement for Financial Advice Certificate ~$1,700

• caveat emptor places responsibility on the prospective house purchaser to be responsible for carrying out their own inspection of any property on land before purchasing the land; the purchaser having no recourse to the common law if any building defects (patent or latent), which are discoverable pre-contract by a normal inspection, are discovered subsequent to sale.
• the vendor is under NO obligation to disclose details relating to the quality of the property!
  • however, there may be an onus on the vendor to reveal latent defects (defects not obvious from a reasonable inspection of the property) of which the vendor is aware.
• The Australian trade practices and fair trading legislation, do not apply to private vendors selling owner occupied houses; although, private individuals selling investment properties will be covered under state fair trading legislation, and potentially the vendor's real estate agent could be covered within this legislation, nevertheless, statements by the agent such as “quality built residence” are unlikely to be sufficient to protect the purchaser if flaws are later discovered. It would seem estate agents are allowed poetic licence and advertising hyperbole. Such “descriptive statements” by estate agents generally make no specific reference to a warranty, guarantee or assurance, and should be taken with a grain of salt. ¹⁾
• the vendor's agent works for the vendor and is obliged to observe the conditions of its agency agreement with the vendors in the event of a conflict between its duty to the vendors and a duty, if any, to prospective purchasers - thus one cannot rely on them informing the prospective purchaser of anything that was not in the vendor's interests.
• renovation works often cover up important defects such as rising damp, and structural damage from the recent 12 years of drought, and the vendor is not obliged to disclose these.
• it is said that over 30% of older houses have problems with white ants / termites (borers), and remedying such issues can be very expensive.
• what restrictions are placed upon the property such as restrictive covenants?
• are there easements on the property?
• are all the buildings approved by council?
• are there any outstanding unpaid rates?
• it may not be possible to gain insurance for low lying properties at risk of flood damage
• your solicitor will generally make enquiries with Vic Roads, Ministry of Housing, the local municipality, Ministry for Planning and Environment and Melbourne Water (if applicable), and any relevant regional authority to ascertain whether there is anything deleterious directly affecting the land so far as such public authorities are aware.
• seek independent legal, architectural, pest inspection and financial advice BEFORE buying any property
• you may also need to consider options if the property is to be owned jointly
• “Joint tenants hold the interest in the property together. Upon the death of a joint tenant, the title automatically passes to the surviving joint tenant(s). The interest of a joint tenant cannot be willed.”
• “tenants in common each hold separate interests in the property. These separate interests can be transferred to another person or left to another person in a will.”
• on signing the contract, ensure adequate house and contents insurance is obtained as the vendor's insurance if any, may not be adequate in the event of damage to the property prior to settlement, or if an insurer would not have insured the property.
• if it will be an investment property, ensure you include Landlord Insurance

• conveyancing ~$2000
• optionally, building inspection fees, depreciation schedule fees (~$500)
• State stamp duty (~6% of purchase price)
• any unpaid Land Tax
• loan establishment fees
• if creating a loan within SMSF, then bare trust, etc fees ($~5500) plus additional accountancy fees

• making good the property for tenancy eg. cleaning, carpet cleaning
  • ensuring compliance with safety regulations so you reduce chances of major injury claims
    • especially pools and external spa bath child safety issues
  • capital works prior to renting are NOT tax deductible but are added to the cost base for capital gains tax calculation purposes
• advertising costs (~$180), photography costs if cannot use existing photos from auction
• leasing agent new tenant leasing costs - usually 1-2 weeks rent plus GST

• leasing agent management fees (5.5-7.7% of annual rent)
• re-leasing fee at end of each tenant contract (~$180)
• building and landlord insurance ~$800 pa
• council rates and water rates (~0.3% property value)
• land tax (~0.25% property value)
• accountancy fees (particularly if SMSF as these are generally based on asset value of SMSF)
• gas heater checks (~$200 pa per heater)
• air conditioning checks
• gutter cleaning
• repairs
• loan fee
• loan interest
• accountant tax preparation fees may increase
• tax deductability of interest, expenses etc is pro-rata based upon the percentage of time or space the property is available for rent
• tax deductibility of any travel to inspect or repair the property once rented is pro-rata based on private purpose for the trip (eg. holidays)

• making good the property for sale eg. garden, paintwork, etc
• advertising costs
• photography costs
• real estate agent fees (~1% of sale price)
• capital gains tax on sale - will be halved if property is held for > 12 months

• most properties in Melbourne are sold at auction
• those auctions which fail to sell are then usually put up for private sale - often at a price HIGHER than the auction reserve price, although it may be lower if vendor needs to sell.
• a fair indication of value is the rental return - for most residential properties it should be around 3.5% - if the expected rental return is lower than this then the property may be over-priced.
• fair value of properties takes into account:
  • land value for the area based on size of land and location:
    • in 2013, land value in Melbourne suburbs could be approximately determined using this equation I created:
      • land price per sq. meter = locality factor x 773492 x (distance to CBD by car in minutes)^-2.129
      • where locality factor generally = 1 but varies as follows:
        • northern and western suburbs, some inner city such as Cremorne = 0.6 to 0.9
          • some more popular areas such as Essendon = 1.3
        • north-eastern suburbs = 1.0 to 1.2
        • south-eastern suburbs = 1.0 to 1.2
        • bayside suburbs are variable:
          • Brighton = 3.0
          • Sandringham = 2.5
          • Williamstown = 1.7
          • Albert Park = 1.4
      • beach front properties will attract a premium - perhaps of 100% to the above
      • proximity to amenities will also give local variances - eg. shops, public transport, school zones
  • building value
    • this is based on:
      • internal area
      • layout
      • recency and quality of building or renovations
      • site specific issues such as need for re-stumping, renovations, etc
      • aesthetics and desirability
      • number of bedrooms, bathrooms and toilets
      • size of bedrooms and living area
      • amenities such as type of heating, air conditioning
    • NB. one needs to compare these with construction costs
  • external features
    • courtyards
    • garage
  • overall gestalt of the property:
    • does it tick all the boxes for target purchasers or tenants?