Financial considerations of buying a home or investment property

6 steps to property buying success: the essential guide for home buyers and property investors

Using a buyer’s agent is a good start in reducing stress when buying a property. Our Buyers Agent Guide series 6 steps to property buying success makes understanding and completing the transaction even easier.

In our previous article we laid the groundwork for beginning your property search with exercises to help you understand your needs and priorities as a buyer. In this post we discuss which expenses to plan for as an investor and provide detailed advice and free tools for setting a clear budget, both for purchasing and maintaining your property.

Part 2: Financial considerations of buying a home or investment property

Avoid financial stress with a clearly thought out budget

How will my finances be affected by the purchase of a home or investment property?

Buying a property is a huge financial commitment and, for most people at least, the largest purchase they will ever make. When it comes to purchasing a property, whether for residential purposes, running your business or as an investment, there are a number of costs involved that may seem insignificant if considered independently of each other. If combined, these amounts can quickly add up. An independent financial planner can provide expert advice regarding how to achieve your long term wealth creation goals, however it is important to have a thorough understanding of your own financial position and get across the details before making any investment decision.

Free property budget planning tool

With our free property budget planner, we have strived to ensure that you will not overlook any costs that may be involved in purchasing and owning a property. Tailored to both owner occupiers and investors, the budget prompts you to consider both the costs of buying now and other amounts you may need to spend on improvements or services. Take a look at the categories included:

Property Budget Tool Fig 2.1

Overlooking any of the above costs may prove fatal to your household budget. A thorough budget will allow you to fully consider the lifestyle and financial impact of your investment and help to set a realistic ceiling property price that is within your means.

You can download the Microsoft Excel or PDF version to enter figures and complete your personalised budget below. You will find one section of the planner for buyers who plan to occupy their property and another for investors. Using the Excel version of the document will allow you to customise the document and add or remove line items to create a more personalised budget planning tool.

Property budget planner – editable in Microsoft Excel

Property budget planner – print and complete from PDF

Tips for using the BAG property budget planning tool

  • There are separate planners for owner occupiers and investors – choose the right one for you.
  • Check out the example to see how we’ve used the different formula options and input areas.
  • If there are items included that don’t apply to your personal circumstances, for example government grants or property manager fees, delete these items to give you a clearer view of what’s affecting your budget.
  • If the ‘forecast net annual cash position’ is a negative number, your property is negatively geared – the cost associated with managing your property may be offset by the benefit of eligible tax deductions.
  • If the ‘forecast net annual cash position’ is a positive number, your property is positively geared – remember to budget for the cost of tax you must pay on this income.
  • Try working backwards: enter your information without either the purchase price or the mortgage value to see how much you should spend or borrow
  • Use this planner in conjunction with a comprehensive household budget to ensure that you are comfortable with the lifestyle impact of your planned change in financial circumstances.
  • While all budgeting should be conservative, it is particularly important if your investment will be negatively geared to be conservative when estimating the potential growth of your property.

A note on capital gains tax

We have deliberately excluded capital gains tax from this planner for two reasons. First, capital gains on property are almost impossible to predict as the amount will be influenced by a large number of highly variable factors – the forecast capital gain calculator included in this planner is for the purposes of rough estimates only. Second, by nature capital gains tax is only payable if you have made a profit on your investment, which is ultimately good news and means that your investment strategy has been a successful one. Capital gains tax is not applicable to owner occupied homes.

A good accountant will provide advice regarding how to structure your investments to minimise any tax obligations related to your property.

Additional budget planning considerations for investors in commercial property

The enclosed budget planner is targeted at buyers of residential property. Commercial property investors must consider a wide range of regulatory and financial obligations that will be discussed in a later blog post.

Coming up on the Buyers Agent Guide Blog…

In part three of our series 6 steps to property buying success, we provide guidance on the plethora of legal matters to stay on top of when buying a home or investment property.

About the Author: Kristin is a freelance writer and property investor from Brisbane, Australia. You can view Kristin's other projects or contact her at LinkedIn or Google+. If you have any topics that you would like to see covered on this blog, please email blog at buyersagentguide.com.au

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