First Home Buyer (Apartment) - Upfront & Ongoing Costs

Sex on 11/01/2016 - 10:26
Last edited 11/01/2016 - 11:08 by 1 other user

Hi,

My girlfriend and I are in the process of researching the costs involved in buying and paying off a first home. We are looking into second-hand two bedroom apartments at the moment in the Sydney North-West/West area (Epping, Eastwood, Meadowbank, West Ryde). We have spent quite a bit of time doing research online and have compiled a budget/list of costs. However, there has been so much info online (some conflicting) that we don't know whether our figures are close or completely off. We would really appreciate some opinions/pointers from you guys.

Upfront Costs (Assuming we purchase for around $700k which seems around average for these areas for a used 2 bedroom)

  • $140,000 - Deposit @ 20% (we don't want to have to pay the ~$8k in lenders mortgage insurance)
  • $35,000 - Stamp duty and other fees eg. legal/inspections associated with property purchase (We budgeted this at 5% of purchase price because that's what most sites estimate additional costs to be.

Ongoing Costs Per Year

  • $41,340 - Mortgage Repayments Principal & Interest (I've still yet to do more accurate research on interest rates but based this figure on a 5.5% interest rate)
  • $2,800 - Strata (based on average area rates of $700)
  • $1,200 - Council Fees (I think this is average?)
  • $1,700 - Gas & Electricity
  • $750 - Water

Do the above figures seem about right or are we completely off?

Thanks!

Financial

Comments

  • tomleonhart on 11/01/2016 - 10:39
    +3

    Sound about right.

    Stamp duty on a 700k purchase is : $27,319
    Solicitor: $2k
    so not as quite 35k but overbudget is good.

    Have you factored in the first home owner grant ?

    For the on going cost: Brand new 2 beds apartment, you would be looking at $1k - $1.2k for strata per quarter. $700 is a bit low.

    Disclosure: I'm a broker on holiday :P

    • Sex on 11/01/2016 - 11:29

      Thanks! We don't get the first home owner grant because in NSW you only get it if you buy new off the plan. Ouch, strata's higher than anticpated!

      • tomleonhart on 11/01/2016 - 16:29

        Apology.. Somehow I read between the lines that you're buying a brand new apartment. It means you need to add 2k for inspection report

        • regenade on 12/01/2016 - 11:24
          +2

          2k for a Home Inspection Report ?? Plated in gold report. I got it done for 500 + GST from a well known outfit couple of years ago. Included Building Inspection, Pest and all usual inclusions and I got a 18-page report with 75 points and 43 photos !

    • ykwon10 on 11/01/2016 - 11:59

      Was gonna ask what are you doing here. LOL!!

      • tomleonhart on 11/01/2016 - 13:37
        +7

        Still have to check ozbargain once a day lol

  • barginhunter11 on 11/01/2016 - 10:55
    +2

    EEK - Id increase you repayments a tad too to pay more to the loan than the interest.

    We bought in Brisbane

    465k (4 bed home + media room) , went for 5% deposit

    We got 15k first home buyers and no stamp duty .

    Sydney prices are too silly for us to live there.

    • Sex on 11/01/2016 - 11:31

      Thanks for the suggestion to up repayments, but it's going to be tight on our budget already even with minimum repayments :(

      • ESEMCE on 11/01/2016 - 11:38
        +9

        Then you can't afford to buy.
        Interest rates are only going to go up in the coming years, that means minimum payments are going to go up too!
        If you're struggling to make ends meet with minimum payments today, then you'll have no hope in 2 years time!

        • Sex on 11/01/2016 - 11:43
          +3

          We won't be 'struggling', it'll just be tight as we want to maintain our standard of living. There are costs that we can cut if necessary. I get what you mean though. Hopefully in the years to come our salaries will have increased too! Studying post-grad at the moment to further myself in my field :)

        • barginhunter11 on 11/01/2016 - 11:50
          +2

          Cant afford to buy?
          That deposit is a bloody good effort !

        • ykwon10 on 11/01/2016 - 11:57
          +4

          @barginhunter11: Agree that the deposit is a bloody good effort but that doesn't stop the fact that OP said he will be struggling if repayments go up. Scubacoles has a point! Repayment is the major part of affordability rather than deposit. You can have 50% deposit but if you can't meet repayment for the loan, you simply can't afford to buy that house.

        • ESEMCE on 11/01/2016 - 11:59
          +5

          @barginhunter11:
          If you can't afford to put in extra repayments now, then you can't afford the minimum repayment when the Interest rate increases (which it will, given that we're at historic lows).
          Agreed that they have a healthy deposit, but having a deposit means diddly-squat if you can't afford the repayments!

        • Diji1 on 11/01/2016 - 12:33

          That's by no means a certainty: OP and partner may earn more by then, interest rates may not go up in two years (have you seen the various gloomy economic predictions lately from the World Economic Forum and others), OP may renegotiate mortgage terms, OP may change providers for beter terms.

          It is of course a very real risk however and so OP should plan accordingly which he/she seems to be doing.

    • Sex on 11/01/2016 - 14:43

      Thanks for all the warnings regarding the importance of making sure we can make repayments. I 100% agree. I think at the moment we have already been conservative with the interest rate figure of 5.5% in my original post. For example, ING are currently offering a comparison rate of 4.43%. http://www.ingdirect.com.au/rates-and-fees/home-loan-rates.h…

      Also, we have a considerable budget at the moment for weekly entertainment which we would be able to reduce if needed!

      And yes, I definitely hope to increase my salary in the medium term. Working towards my CA qualification at the moment.

      • [Deactivated] on 12/01/2016 - 09:16

        Hi Johndoe1,

        For example, ING are currently offering a comparison rate of 4.43%.

        Never look at the comparison rate when comparing homeloan rates. Reason here: Link:

        Comparison rates are calculated on the basis of secured credit of $150,000 over a 25 year term. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

        Comparison rates have to be shown for $150k/25 years, so it doesn't really match up when borrowing $550k+ like you are. If going for a fixed rate, as they calculate the 25 years as 3 years fixed rate, then the other 22 years at the current floating rate, which doesn't make sense, as after 3 years you'll look for another/better deal again.

        Best thing to do is walk into a mortgage choice place. I'm in QLD and they got me a deal of 3.95% fixed for 3 years with Bankwest (in Perth), when everyone else was offering 4.25%+.

        Hope this helps, its a big step. Good luck!

        • Lerchik on 12/01/2016 - 22:23
          +1

          +1 on the comparison rate being useless. Who borrows $150,000 over 25 years?! No one in any major city!!
          Get a broker to calculate the true rate for you if you can't do it yourself.

          -1 On using mortgage choice. They only have about 25 lenders on their lender panel and are literally just product pushers for the big banks. Find a broker that has a good selection of credit unions, small lenders and building societies. The deals are way cheaper outside of the banks at present

        • [Deactivated] on 20/01/2016 - 09:50

          @Lerchik:

          Hmm, good to know about mortgage choice. I'll have to look at a different broker when my 3 years is up.

  • poor_me on 11/01/2016 - 11:14
    +8

    Furnishing the place takes a big one-off chunk of change as well

    • bl1027 on 11/01/2016 - 13:32
      +1

      Best to budget for this too as the temptation to buy everything new and to match is high. My boyfriend and I initially furnished our place with cheapo stuff off Gumtree and eBay then have slowly upgraded throughout the year.

      Depending on the place, there may be some big ticket items that you'll need to pay for, eg. new flooring, fresh paint etc.

      • Sex on 11/01/2016 - 14:45

        Very true, we'll definitely be looking around Gumtree or for some cheap pieces at IKEA!

        • saine on 12/01/2016 - 11:16

          I bought a gorgeous modern era dining set, matching bookcase and coffee table from eBay for $200. Solid timber, hand made in Australia, Danish style… It'll last forever compared to Ikea. There's some great second hand stuff out there if you hunt.

  • 2jzzzz on 11/01/2016 - 12:49
    +1

    We had a 20% deposit ready to go on a 500k house in Melbourne but our wonderful broker suggested we ask our parents to be guarantor and only put down 5%. This meant we had a lump sum sitting in our offset account, we got the first home grant into the offset account and didn't pay LMI.

    In the 3 years we have owned, our house gets revalued for free with ANZ breakfast. As value goes up, the guarantor value our parents have signed to decreases. Their parts has gone from. 100k to 50k in 3 years.

    In our house we have equity we can draw from for investment property plus use what is in our offset. Granted, our repayments are higher due to borrowing more, but while interest rates are at a historical low, we will keep going along. Saying that, the amount we borrowed was more, but it is being offset by our offset account.

    • Sex on 11/01/2016 - 14:48

      Wow, this is interesting! Will definitely look into this. It took a long time and a lot of cost cutting to save up 20% butif we could reduce this downpayment and still avoid LMI that would give us a bit more freedom I think.

      • Ash-Say on 11/01/2016 - 15:01
        +6

        BTW it's ANZ Breakfree package not breakfast..lol

        • 2jzzzz on 11/01/2016 - 15:32
          +3

          Damn you autocorrect!

    • CI on 12/01/2016 - 01:16

      How did you not have to pay LMI when deposit was only 5%
      Please and thank you

      • 2jzzzz on 12/01/2016 - 02:26
        +1

        My parents used equity in their house for the other portion. They didn't pay any money, but if I couldn't make payments the bank could chase them for their guaranteed portion (was 100k, now 50k).

        Google home loan guarantor or call a broker.

        • snook on 12/01/2016 - 10:44

          I don't understand how they used 100k on a 500k purchase as the other 5%

        • 2jzzzz on 12/01/2016 - 11:33
          +1

          @snook:

          No it was the whole 20% and even some of the costs.

  • loulou1 on 11/01/2016 - 12:54
    +2

    Need to also factor in building and contents insurance. Price will vary depending on suburb etc.

    • m2000 on 12/01/2016 - 09:23
      +1

      NO building insurance as it should be covered under Srata

      • Sex on 12/01/2016 - 10:05

        Really? I wasn't aware that it was covered.

      • saine on 12/01/2016 - 11:44

        Contents insurance will still be needed, but isn't pricy.

        • Thenarrator on 02/10/2017 - 17:43

          plus landlord insurance

  • donbot on 11/01/2016 - 13:55
    +3

    Generally, you need to pay 20% Deposit AND Stamp Duty/Legals to avoid LMI.

    Eg. On your example:

    Cash Deposit of $140,000
    Stamps of $35,000
    Remaining Deposit = $105,000

    $105,000 / $700,000 = 15% Deposit, which means 85% LVR, which most likely means Mortgage Insurance.

    Other thing - repairs. Its all good to cover body corp, etc, but what happens when your dishwasher dies? Or the shower leaks? Thats all on you guys… dont be so tightly strung that something like this will bring you unstuck.

    At what rate have you guys been saving for a deposit? Have you been renting aswell during this time?

    • Sex on 11/01/2016 - 15:19

      I was unaware that the 20% included Stamp Duty, so thanks for pointing that out I'll have a look.

      Yes we have a proportion of our budget for incidentals like that.

      We have been putting savings away at around 3k per month for this property. Hard work and been a long time coming but it'll feel great to reach the goal :)

      • donbot on 11/01/2016 - 16:38
        +4

        Are you paying rent as well as saving $3k/month? If so, remember to include that in your savings figure, as you wont be paying it when you have a mortgage.

        FYI - our bare minimum position on a $560k mortgage (paid more, but this is the mortgage we have) for a 3bdr apartment in Melbourne is.

        Annual Mortgage P&I: $32,703.84 (most fixed at 4.13% for 3 years)
        Body Corp - $4,420 (almost bang on)
        Council/Water Rates - $1,950 (probably a few hundred more than we need, but $75/fortnight we pocket away)
        Contents Insurance - $975 (almost bang on)
        Electricity & Water Usage - $2080 (well in excess of what it costs us, but we pocket away $40/week as a bit of a buffer should something crap itself).

        I keep all this + savings + credit card balance transfers in a single offset account to reduce interest, and keep track of each little 'pot' for expenses in a spreadsheet. That way we never, ever get bill shock.

        Compared to yours, you seem to have your loan paid off over 25 years as opposed to 30 years (ours). Any reason for this other than to nail it down quicker?

        We opted for a longer term full knowing that we're putting away nearly double our mortgage payments as extra - to carve a good chunk of it off over the next few years. If you're not disciplined with money, maybe not a bad idea to have 25 years, but if you are (which I think you are to save a deposit of $140k) - maybe opt to keep the minimum payments low, but build in a further buffer for when rates rise in your offset.

        • Sex on 11/01/2016 - 17:05

          Thanks for sharing that tizey, very helpful. yes, the $3k is exclusively what's being put aside so rent now will be freed up when we purchase. It seems like our situation will be somewhat similar to yours in that our mortgage will be the same amount (560k). It seems like you got a great fixed interest rate too!

          Interesting that you bring up the loan period. I always thought 25 years was the better way to go due to the lower amount of interest payable over the life of the loan but you bring up an extremely good point in that a longer loan period will give us a buffer. Good job on putting away double your mortgage payments, would love to be able to do that down the track.

        • donbot on 11/01/2016 - 17:09
          +3

          @johndoe1:

          No problems at all.

          What about setting a 30 year term, but paying at a 25 year rate (so some in advance)? Same interest cost as you'll pay it down just as fast, but gives you a big more flexibility if you need it when rates move.

          You sound very similar circumstances to me - we were about $3k/month saving whilst paying rent. We saved at that rate + rent for 2 years, so were comfortable it wouldnt effect lifestyle - which it hasnt.

          Very good feeling having gotten there - all the best for your search!

        • Sex on 12/01/2016 - 08:44

          @tizey: Retweaked the budget using the 30 year rate and I think that's the way to go! We'll definitely still aim to pay it off at the 25 year loan rate as suggested. Great to hear things worked out for you in that situation :)

        • snook on 12/01/2016 - 10:52

          @johndoe1: you are always better off taking the longest term and paying extra into offset and not on your loan. The money is there doing the exact same thing and if circumstances were to significantly change for the better, you can buy another place and use your old one as the investment. Once money has been paid on a loan and redrawn, the ATO considers that the money is still there for tax purposes.

  • Ash-Say on 11/01/2016 - 15:04

    I guess you did not consider insurance which would be around $1,000 per year.

    In relation to water bill, we are paying around $300 per quarter so not sure how you have calculated $750. It it per year?

    • Sex on 11/01/2016 - 15:15

      Thanks, I did forget insurance!

      I got the number from real estate agents and their ads. This is what confuses me actually. They list strata and council fees, which makes sense BUT on top of this they always list water. I always thought it was based on how much you used individually as a household…

      But as I said, the ads I saw listed water at that rate :/

      • CheapskateQueen on 11/01/2016 - 22:56

        You only pay your own water rates if each unit has its own water meter. I dont think this is common in older blocks, and its not guaranteed in newer places either.

        so if it's just one per complex,you all split the bill regardless of your individual usage

  • tabz on 11/01/2016 - 21:02
    +1

    You forgot one of the most important ongoing costs… Internet

    • Sex on 12/01/2016 - 08:42

      Haha, definitely didn't forget that! It's just not a cost directly associated with the property itself.

  • T1OOO on 12/01/2016 - 01:34
    +3

    Hrmmm seams bloody expensive for an apartment!

    That's alot of money. Really. Quite depressing.

    I hope the property bubble bursts so we are not slaves to it.

    • Azn310 on 12/01/2016 - 05:11

      Exactly. What happens to shelter being basic humans needs? Just the matter of time before people start to speculate on food and water? A glass of filtered water, fully insured, stamp duty paid, interest included, for 20 bucks sounds very nice indeed.

  • whitewatermelon on 12/01/2016 - 06:06

    Your list seems well thought out.
    I do however think that rates, levies and water are estimated a bit low. Im on the Central Coast, and pay similar amounts for rates and levies, and ours are average. I know many people paying higher. I cant imagine Sydney being cheaper. And no offence, but I think water is way off. We're paying around $300/qtr. Units are measured as a whole entity, then the cost is divided between them all. A contract of sale (I think it is called) should tell you how much your unit is charged. Eg. For us, there are 8 units. Not every unit is the same size. Ours is the biggest. What you pay is a percentage out of 100. So some of the units here pay 12 and 13%, and we pay 14%.
    So in the case of water, whatever the cost is for everyone, we pay 14%. Others pay less. Doesnt matter if we've been frugal, and someone else wastes it. If you have an outside, accessible tap, you may be able to have individual meters installed, ours was quoted $550 per unit.
    If there is even a chance of your girlfriend getting pregnant soon, then I wouldn't even be including her wage in any calculations. Better to find somewhere cheaper than to struggle.
    And as others have mentioned, you will need insurance.
    Hope this helps.

    • Sex on 12/01/2016 - 08:42

      Thanks whitewatermelon. That's pretty expensive for water. I've been looking for apartments like this (although at 730k this is a bit out of our budget)…
      http://www.realestate.com.au/property-apartment-nsw-epping-1…

      As you can see, they seem to state the exact figure for water for each quarter (in this case $180) and that's what I've been basing calculations off. This apartment's strata is already higher than most of the ones we've been looking at and is still close to our estimates. Maybe it's because we're looking at older places and they have lower quarterly fees.

      700k doesn't get you much in this part of Sydney..mainly apartments more than 25 yrs old. new 2 bedroom ones go for over 1mill :(

      • snook on 12/01/2016 - 10:56

        I like to have too long showers and my water is high, over $200 but not over $300 a quarter.

        I also have a house with 5 people in it and the water is not over $300 a quarter. In fact, last quarter those 5 people used less water than 2 of us.

    • Eivad on 12/01/2016 - 10:26

      I agree, chances are your strata rates will be closer to 900 or 1000 a quarter (for a 40-50 year old apartment, any newer the strata rates will be much higher).

      Further, every few years you may be hit with a special levy - we were just hit with a $5,500 levy for building upgrade fire safety works. You will need to budget this into the cost of living.

      Your council fees, gas/electricity and water rates seem to be right for a couple without kids.

  • snook on 12/01/2016 - 11:05

    Looking at an older building it's important to get all the paperwork and find out what works are required on the building. I don't know how you do that because the body corp correspondence is particularly vague.

    I bought a unit with a leaking balcony. Something to do with sealing. It had been bodged up prior to sale. I didn't notice the extent of it for about 8 months. It's been 5 years now. Body corp is still refusing to fix it and they've told me it's been an issue for at least 10 years so they aren't in any hurry. Most apartments on my floor have a similar issue with leaking. They won't do anything because the building has concrete cancer and treatment is costing 2m plus. They would have known about this when I bought it too but there is no paper trail.

    My strata went from $998 to $1664 in the first 2 years and those repairs above aren't included yet. 2 x new lifts increased it. Body corp just keeps borrowing money. There was very little sinking fund. That should have been my red flag.

  • love86 on 12/01/2016 - 12:53

    ANZ Breakfee package with Interest Only payments is a Good option

  • SeVeN11 on 12/01/2016 - 19:48

    Are you sure you want to buy this with your (now) girlfriend?

    I have personally seen this gone bad financially for both parties.
    Just make sure both of you are committed to the relationship otherwise these upfront cost/ongoing cost is going to be the lease of your concerns.

    You'll also have to add the following:
    * The price at which you sell it at (hopefully not less than what you bought it at)
    * Selling cost 2-3% of selling price
    * Settlement cost for selling
    * Break fee for bank if any

    Assuming you sell it at the same price (i.e. 700k) you bought it at.
    it will cost you:
    * 35k stamp duty + closing fee + 21K selling cost + settlement fee etc. ~= lets just round that up to 60k
    * All the furniture/white goods that you need to either sell at a loss or buy from your girlfriend at the brand new price

    Note: Deposit is not a "cost" as you have effectively swapped cash (current asset) for the house (non current asset).

    I assume you guys went halves on all the upfront cost (i.e deposit) & ongoing cost (mortgage payments including additional payments). If not, you may be out of pocket big time as its unlikely you are going to get those back. (unless she earns more than you)

    i.e. its like throwing 60k into the bin if you are lucky. If you sell it for less than 700k then you'll lose even more.

    If possible, I would recommend that you buy it in your own name and get her to pay you rent + share the ongoing cost.

  • AlienC on 13/01/2016 - 20:32

    Step 1: Be rich
    Step 2: Don't not be rich

  • Ace26 on 22/01/2016 - 23:56

    Plan for absolute worst case scenario when interest rates go up. General rule is that you should be able to service the loan when interests are at 8%.
    As you are going to be living there you will not have any advantages such as depreciation or tax benefits, alternative is to buy and rent it out and rent elsewhere. (but you pay CGT if you rent out this property for more than 6 years in any 10 years)
    Do you plan to have to kids in future, if so consider school catchment areas. Epping has some nice schools I heard not sure of other areas
    Using a guarantor can reduce the deposit needed to pay, you may be able to buy a house with increased budget. In opinion houses are great to live in and units are for investment. Doesnt always work but just my observation.
    Do your research, start attending auctions and open homes
    Purely an opinion but I think Sydney market is super hot and over priced at the moment so I will wait for things to settle down. If it's your first house and you plan to live it, I guess over a period of time pricing will correct itself but as most proper experts say profit on property is made when bought not when sold.

    Good luck

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