Preparing for Your First Investment: Costs You Have to Get Ready For

Making your first investment is both exciting and nerve-wracking. It could be more challenging if you are not as prepared as you would like to. This is why it's very important to make the right decisions by studying the pros and cons well. For instance, while making a considerable investment is incredibly rewarding long-term, the first few months and years could be very challenging, mostly because of the costs.

The major thing about these costs is that it's often underestimated, especially when investors are doing their cash flow analysis. The significant factor to consider is the interest rate, so a buffer should always be included in case of rate increases.

What are the costs that first-time investors need to prepare for? Here are five of the most essential.

Deposit
To get into the property market, you must first have a substantial amount of money or deposit in order to secure your spot. But first, you should pass the screening since lenders have much tighter criteria when it comes to lending funds. Lenders prefer that borrowers have at least 20 percent of the total value of the house or property saved for a deposit. Another option is to get a smaller deposit provided that there's a lender's mortgage insurance. Unfortunately, the house will take longer to pay off.

Insurance
The whole point of the Lender’s Mortgage Insurance is to protect lenders from financial loss if in case the borrower won't be able to pay off their repayments. For instance, the borrower defaults on their existing loan, and if the borrower cannot afford it even after selling the property, the lender may make a claim on the insurance policy in order to cover the difference. LMI will generally be insisted, especially if your savings are less than 20 percent of the value of the house or property you are interested in.

Stamp Duty
Stamp duty is a government tax customarily paid when you buy a property and would vary depending on the property transactions and where you live, and the value of the property you have purchased. State-based first home owners grant may qualify you for exemption of stamp duty fees. You may ask your state about this.

Property Management
While hiring a property manager can be expensive – with fees that could go from 5 percent to 12 percent of your weekly rent and would also depend on the agent you use. It's always a bright idea to communicate with your property manager before deciding on any maintenance on the property. You would at least assess whether you can do it yourself in case you want to save some money. Other costs would include council and water, repairs, strata costs, etc.

Lender’s Fees
Using a lender or bank for your investment would come with additional charges, which will cover fees pertaining to loan application and documentation. This is usually a one-time payment or a monthly basis, which would depend on your chosen lender. Additional costs, such as offset or redraw fees, could also be applied depending on your bank or lender, so it's important to read and understand the terms before signing.