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There are number of important considerations that a property investor needs to think about before making a decision to purchase. The following is a list of nine standard elements of the transaction you must consider prior to entering into the contract to purchase a property:
What entity or vehicle are you going to use to buy the property? You should take the advice of your lawyer, accountant and financial planner in relation to these matters as there will be significant legal and financial implications depending on your decision.
2. Purchase price
It is important when buying a property that you consider the purchase price properly; not only in terms of affordability and market rate but also as part of your overall investment strategy.
The deposit is the amount that is paid to the stakeholder (usually the agent) and can be forfeited to the seller if the buyer defaults under the contract. Generally, a deposit for the purchase of property in Queensland should be no more than 10% of the purchase price. This is distinct from the deposit required by any bank that is funding your purchase. Depending on the type of property and your history with the bank they may require that you put up your own funds of up to 20% to 30% of the purchase price as a deposit on your loan.
It is important to consider how you are going to be able to afford to purchase the property. If you are going to borrow money from a financier, you must ensure that the contract is subject to obtaining finance approval from a bank or financial institution.
5. Building and pest inspections
When buying a property, you should always make the contract subject to a satisfactory building and pest inspection.
6. What do you do if an encumbrance is listed on the contract?
An encumbrance is definitely something that you should be concerned about. If an encumbrance is listed, then you should ask the agent for an explanation of what it is about and then seek advice from your lawyer (or conveyancer) as it may adversely affect the property you are buying.
7. Is the property leased?
If it is then you need to ensure that you know when the lease ends and what rent is being received. The question of when the lease ends is important if you want to live in the property yourself. On the other hand, if you are looking to buy an investment property, a lease will affect your return on the investment if the tenant leaves. You should also consider the tenants that are in the property and the bond that is held. This may be important depending on the tenants and how much work may be required to rectify any damage to the property caused by the tenants.
8. Special conditions
Depending on your circumstances or the condition of the property, you may require special conditions to be written into the contract. Some agents will draft their own special conditions; however, it is always advisable that you check these conditions with your solicitor to ensure the effect of the clause is in accordance with your requirements.
There are number of factors that determine when the parties settle the contract. It is common practice to settle the purchase of the property at least 30 days from the contract date.
This is an extract from The Business Legal Lifecycle by Jeremy Streten – designed to guide and empower you with the knowledge you need to successfully navigate your business journey.