Buying Property For Dummies Read online

  Thanks also to my family who have watched the process of putting together a book unfold in my corner office. To my husband Iain who has been unfailing in his support and belief; and to my children whose regular cries of ‘Haven’t you finished that book yet?’ goaded me on to its completion.

  Publisher’s Acknowledgements

  We’re proud of this book; please send us your comments through our online registration form located at http://dummies.custhelp.com.

  Some of the people who helped bring this book to market include the following:

  Acquisitions, Editorial and Media Development

  Project Editor and Copy Editors: Robi van Nooten, On-Track Editorial Services; Charlotte Duff

  Acquisitions Editor: Rebecca Crisp

  Editorial Manager: Hannah Bennett

  Production

  Graphics: Wiley Art Studio

  Cartoons: Glenn Lumsden

  Proofreader: Liz Goodman

  Indexer: Don Jordan, Antipodes Indexing

  Introduction

  Buying a home is one of the biggest things you’re going to do in your life (along with getting a job, getting married or having a baby — but they’re the subjects of other For Dummies books). Buying for the first time can be especially daunting: How do you know if you’re getting a good deal? Why is one area better than another to buy into? Is this property any good? If you’re like most first home buyers, you’re going to have to borrow an enormous amount of money, which can be a nerve-wracking experience in itself. You have to deal with real estate agents and understand how property sales work. You also have to get all the legal stuff sorted.

  Buying property is likely to be a far less stressful process when you go into the experience with some knowledge of how it all works. If you understand why some suburbs are more likely to grow faster in value than others, for instance, or the advantages (and extra costs) of having a mortgage offset account, you’re going to be better able to make informed decisions and less likely to make expensive mistakes. You’re also in a better position to ensure that any professionals you deal with do their job properly.

  In Buying Property For Dummies, 2nd Edition, I give you that baseline of knowledge about real estate and property buying, and the financial and legal stuff that goes along with it. I also muster together lots of tools and practical ideas on how you can improve your chances of doing well out of your dealings in property.

  About This Book

  Much of the information in this book comes from knowledge I’ve gained over many years working as a property writer. Much of it also comes from insights from the many people who’ve talked to me over the years about their own property buying experiences — friends buying or selling their homes, as well as property investors who have accumulated large portfolios of properties.

  Some of the information is more factual, such as the rules that apply to property transactions or the kinds of permits you need to renovate a home. Other information is in the form of tips and insights, such as how to organise all the paperwork you collect during your search for a home, and the tell-tale clues that suggest a suburb is about to take off in price.

  While I try to present as much up-to-date and accurate information about each stage of the home-buying process as possible, the intention of this book is as much to be your ally in a challenging and exciting journey as to be a factual guide. Buying a home is as much an emotional experience as it is a transaction, and understanding what you’re likely to come up against during the process helps give you the confidence to deal with the highs and the lows.

  Be warned: The laws and regulations governing property dealings, and subjects such as first home-owner grants, contracts and stamp duty, change all too rapidly. Even over the months of writing this book I notice that some rules have changed, while others are in review. As part of your research, you may need to contact the relevant government authorities to check on current rulings.

  How to Use This Book

  Buying property involves a number of stages, each requiring a different area of knowledge and with its own dynamic and its own complications.

  While the book is set out in a logical order — you probably should work through the costs involved in buying a home and establish what you can afford, for instance (this information is contained in Chapter 2) before you start thinking seriously about what and where you want to buy (look for help on this in Chapter 3) — you may prefer to start by dreaming about what you want your perfect home to be like, and where. After you work out what you can actually afford to buy, you can start thinking about what you can live without in the trade-off between the perfect location and the perfect home.

  Note: In this book, I use $450,000 as a typical price for a first home. This figure is higher than the national average for a first home (at the time of writing, the national average was around $300,000), but this figure is closer to the typical cost of a first home for many buyers in the major cities around the country. For those buying in more affordable areas of the country, you can have the satisfaction of scaling down my calculations and projections by a third or so.

  Foolish Assumptions

  In this book, I make some general assumptions about who you are:

  You may never have bought your own home before, and are now seriously hankering after your own four walls. That may be because you’ve been renting for some time and feel like you’re throwing your money away on rent. Or you may be living at home with your parents and you feel that owning your own home is an important next step on to the property ladder. Or perhaps your friends have started buying their own home and you feel it’s time you did too.

  You may know people, such as your parents or friends, who have bought their own home and are suggesting you ought to take the step to home ownership and you’re not sure whether it’s the right thing to do now.

  You may have previously bought your own home and are looking to upgrade and would like to be more knowledgeable and confident about going into the process the second (or third) time.

  You’re looking for information about the process of buying a property that’s presented in a way that doesn’t assume you have an economics, law or accounting degree.

  If any of these statements apply to you, you’re in the right place.

  How This Book Is Organised

  This book is organised into four parts so you can go directly to the topic you need to know about first. Here’s a brief overview of each part.

  Part I: The Great Australian Dream

  Many people in Australia consider buying a property to be something of a rite of passage. But although home ownership can be an important foundation for both building your family life and your financial security, it’s a big step to take — both financially and psychologically.

  The first two chapters in this part give you a clear idea of the costs and responsibilities involved in buying and owning a property to give you a better understanding about whether you’re now ready for this step. You find out about ways to save the money you’re going to need for a deposit and other upfront costs and how you can join forces with others to make the dream come true. Chapter 3 covers how to go about finding a property that meets both your needs and your budget, and that holds (and hopefully grows) its value over the years. And because you’re almost certainly going to be dealing with real estate agents in your home hunting, Chapter 4 gives you some insights into how to deal with property professionals in the long process of searching for your home.

  Part II: Finding Your Dream Home

  Having worked out a good idea of the type of property that suits your needs and wants, now is the time to actually look at what properties are out there and narrow down the field to the ones that most closely match your wish list. This process is a job that can well take months, so getting a system to help you manage the deluge of information you collect in the process is going to make the job a lot more efficient and stress free. Chapter 5 covers finding potential properties and keeping track of all the information yo
u gather on each.

  What kind of home do you look for? An established home in an established suburb, a brand-new home in a new housing estate, or perhaps an apartment? This part takes you through the issues associated with each option. You find out what’s involved in buying and restoring a period home (Chapter 6), and the challenges involved in renovating a property with more imperfections to start with (Chapter 7). Building a brand-new home — whether a house-and-land package, or an architect-designed home on your own piece of land — involves dealing with people such as developers, builders and architects as well as negotiating the many rules and regulations put in place by local councils to ensure that any new construction is safe and solid. Chapters 8 and 9 cover building a new home.

  Part III: Borrowing For, Buying and Protecting Your Home

  Even the most modest home costs a small fortune these days, so one of your first tasks is to go cap in hand to a lender to ask to borrow an enormous amount of money that you’re to spend the rest of your life (or so it can feel) paying off. Many people these days build their entire financial affairs around their mortgage, using it as an endless ATM from which they finance not just renovations on their home, but cars, entertainment systems and holidays. Chapter 10 helps you find the right kind of mortgage — balancing flexibility with low cost.

  Chapters 11 and 12 look at how you actually go about the purchase of your new home. Whether you buy your new home at auction (Chapter 11), through a private treaty sale or through some other method (covered in Chapter 12), these chapters set out the information you need to confidently put in your best offer. Chapter 13 covers what happens when you sign on the dotted line, getting the legal part of the transaction right, and then ensuring that you properly insure what may well be your biggest ever asset.

  Part IV: The Part of Tens

  In many ways, the chapters in this part are the most important chapters of the book for first home buyers. Chapter 14 sums up the crucial points you need to remember when buying your new home. For example, pay only what you can afford to borrow, be careful of selling agents and keep your emotions in check. Follow this advice and your first property experience can be a happy and profitable one. Chapter 15 covers what you should look out for when inspecting properties.

  Icons Used in This Book

  In this book, I use icons as a quick way to go directly to the information you need. Look for the icons in the margin that point out specific types of information. Here’s what the icons I use in this book mean.

  This icon points you to a website that gives you more information on a subject or has a handy tool that you can use.

  This fine piece of art flags information of note to store in your memory bank.

  The Technical Stuff icon points out material that generally can be classified as dry as a bone. Although I think that the information is interesting, it isn’t vital to your understanding of the issue. Skip it if you so desire.

  The Tip icon points out practical, concise information and insights that can help you make the right decisions when buying property.

  When you see this icon, you can take advantage of my experiences and those of people I’ve spoken to over the years. I’ve learnt from every one of these stories.

  This icon cautions you about potential problems or threats to your financial health.

  Where to Go from Here

  For Dummies books are designed so that you can dip in anywhere that looks interesting and get the information you need. This is a reference book, so don’t feel like you have to read an entire chapter (or even an entire section for that matter). You’re not going to miss anything by skipping around. So, find what interests you and jump on in!

  Part I

  The Great Australian Dream

  Glenn Lumsden

  ‘Now there are three of us, I think it’s time we sell the tree house andmove up to a bouncy castle.’

  In this part . . .

  Are you ready to buy a home? Is renting better than buying? Is now the right time to buy? In this part, you find the answers to these questions and more. I help you assess whether home buying is really for you, and cover the how, when, where and why, including costs, location and using professional real estate agents and buyers’ agents.

  Chapter 1

  Assessing the Dream: Buying Property

  In This Chapter

  Deciding whether you’re ready to buy

  Weighing the pros and cons of renting versus buying

  Looking at your home as an investment

  Getting a helping hand from the government with the First Home Owner Grant

  Thinking laterally to put the deposit together

  Understanding the property market cycle

  Starting the search for your dream home

  Buying property is ingrained in the Australian psyche. If you haven’t already bought your own home, you probably spend a fair bit of time wondering if you should or fending off questions from others as to ‘when’ or ‘why not’. Even with the boom in property prices tapering off somewhat, buying a home still costs a fortune, so it would be understandable for you to wonder: Am I better off renting than buying? If I buy, when do I get into the market and how? Can I even afford to live where I want? If I get a mortgage, will I be able to eat out/see a movie/buy a new piece of designer clothing ever again?

  This chapter helps you decide whether entering the property market is right for you and gives you some know-how to make the process less stressful if you do decide to buy. I compare the advantages and disadvantages of renting, and look at how your home really is an investment. I also cover some of the ways the government gives first home buyers a helping hand and provide some tips on how to build that all-important deposit.

  Looking at Whether You’re Ready to Buy a Home

  Before you leap into the all-consuming tasks of saving for, researching and spending every weekend inspecting potential properties, thinking about whether you’re truly ready to take on the commitment of home ownership is a worthwhile exercise.

  In Australia, many people buy a home because they’re expected to. As soon as you’re a certain age and you’ve got a steady job, you’ve settled down with someone or you’ve got kids, the common assumption is that your next step is to own your own bit of bricks and mortar. You may also take on board the idea that the earlier you get your foot on the property ladder, the better off you’re going to be financially later on. That idea may well be true, but buying a property is such a big commitment that you need to do it when you’re truly ready — financially as well as psychologically.

  Buying a home is very costly. You need a large upfront sum and then you need to be able to keep repaying the mortgage payments month after month, as well as covering all the costs of owning your own home — costs such as rates and insurance, and bills for maintenance and repairs, such as emergency plumbing and regular house painting that your landlord, or your parents, have previously paid for. (See Chapter 2 for a blow-by-blow account of the costs of buying and holding onto a property.)

  Covering those costs can exclude the possibility of doing other things in your life — things like studying, going overseas, setting up a business or travelling around Australia. You may have to cut back your spending on entertainment, dining out, clothes, music and other luxuries. Strict budgeting involves sacrifices — something you need to be ready for.

  If you buy before you’re ready, offloading a property isn’t easy, and deciding to rent it out and become a landlord isn’t something to go into lightly either.

  Ready to make the dream a reality?

  If you’re like most Australians — about 70 per cent — the time comes when you get a yearning to put down stumps on a place you can call your own. You may also start to experience a desire to benefit from that great financial leg-up that home ownership confers in Australia.

  If you answer yes to the following, you’re seriously ready to consider taking the plunge:

  Do you find yourself poring over the property pages in yo
ur local newspaper and visualising whether a particular place could be your dream home?

  Do you slow down when going past properties that are for sale, or pop in to those that are open for inspection ‘just out of curiosity’?

  Do you look at auction results to see how much properties are selling for in a suburb you’d like to live in?

  Do you study the floor plans of homes for sale, mentally knocking out a wall here or adding an extra bedroom there?

  Do you dream about colour schemes, built-in shelving or planting a garden that you can watch grow over the years?