Does stamp duty influence your decision about where to buy?

Let's say that you've got a budget of 500k purchase price in an IP, no 1st home buyer concession. The realestate.com stamp duty calculater gives the following:

Vic = 26,553
NSW = 18,319
Qld = 17,280
SA = 25,237

For that budget, surely this would discourage investors in either Vic or SA? It's not as if those markets are going to outperform similary priced markets in NSW or Qld.

I'm an expat, so I could target pretty much anywhere in Aus. The same basic principle though could be applied to an interstate investor. So can anyone think of a good reason why you'd even bother to consider giving away an extra $9000 to the Mexican govt* (compared to Qld) on an IP purchase with similar projected CG + yield?


*jj.... I <3 Victoria

 

Gee when you put it like that there is a huge difference isn't there.

But you also have to consider stamp duty issues down the track - e.g. spousal transfer in VIC is exempt from duty - but they make up for it up front I guess.

 

I haven't considered it but maybe I should, avoiding extra Land Tax has been more of a consideration.

 

The decision should be based on the merits of the acquisition and not negligible costs imo. Its like not wanting to pay LMI. Stamp duty is just a cost of doing business. Would it make sense to avoid a place in SA and save say 9k but lose out a potential 50k on the deal via adding value methods? Personally I just see it as a business expense and i prefer to focus on the merits of a deal as to whether I will buy or not.

 

No, its factored in to the price I offer.

 

I think this is a great question because, although I absolutely get what Leo is saying, stamp and LMI questions are pretty much always answered with the 'well it's a business expense' response, meaning you have to spend it to make the profit. That makes sense for people who have researched appropriately and have a compelling reason to think they'll make a profit at some point in the future to cover their costs. However, for newbys reading, I do think it's an important question to consider. Personally I do give a lot of consideration to stamp and LMI. I only own two properties of our nine in Australia. For the ones I bought stamp was not a consideration, lifestyle was the main consideration for ppor and perceived future profit was the consideration for the ip. I like to look at rising markets or good quality cash flow properties wherever they are in the world though, and if that means I can avoid stamp, pay off debt quicker and retire quicker, then that's my strategy.

 

Agree, "negligible costs" being the key words.

I'm always surprised to see people base 500k-1000k decisions on a small amount of LMI, stamp, the presence of home owners grants or lack thereof. Think big picture.

 

The same fundamentals applied to the process of "buying on merit" apply equally no matter where you purchase. So let's be realistic, is there anywhere in SA or Vic that anyone can guarantee* will outperform alternative (similarly priced) markets in NSW or Qld by the appropriate margin (see below)?

Assume that your 500k purhcase increases by 40% in 5yrs. At the time of purchase in Vic your equivalent purchase would be 491k (the remaining 9k goes to the tax man). 40% increase on 491k is 687.6k. In order to break even you require a certain guarantee* of 2.6% better return over 5yrs. That could of course be achieved easily. However, predicting that with 100% certainty in the present is definitely not easy. In fact it is impossible.

*Nb: the reason this is a certain guarantee is because it is certain that you must pay the extra 9k upfront in Vic.

 

Some people might base those decisions on LMI, stamp etc, but I'm not. I'm basing the decision on where to narrow my search zone down to. Not the purchase itself, nor the merits of the acquisition.

I'm also including hte effect of compound annual growth in the big picture....

500k at 7% compound annual = $1,934,842 after 20 years
491k ditto = $1,900,015

$34,827

A more complicated calculation (don't have time to figure out right at this moment) would be to assume that purchase price is identical but then the 9k difference will alter the LVR and ensuing interest payable. In this case whilst CG remains equivalent, the net return minus total interest payable will be less if you started with a higher LVR, but all else remains the same.

 

There are no guarantees in any investment decision you make. You are also only talking about capital growth potential, but there are many other ways for equity to be created that could make the 9k look like a drop in the ocean. I just look at it differently to you, that's all.

 

Yeah I agree. I usually (not always) factor in all my acquisition costs for the 'vendor' to pay which is reflected in my offer. Obviously in hot, high demand markets its not going to fly. But who buys most of their properties in hot markets??? I know I don't. I usually buy at the 7-10 o'clock mark which allows for strong negotiating to take place with a much higher success rate than if your buying a 11 o'clock where the demand is so great. It is my strong belief that great negotiating skills and tactics is so important and will save the investor 10s if not 100s of thousands of dollars over the many years and bring them to their financial goals faster. Its really common sense.

 

You and I think differently... for now..... because our situations are very different. From posts in other threads I can tell you're a seasoned investor with a variety of analytical systems in place, and your location says you live in Sydney. From the OP and my location status, recall that I live o/s, so I have no choice but to buy unseen or use a BA. I'm looking for a low maintanence, high dep schedule acquisition in a bread and butter location with a balance of CG + yield. 400-475k. There are dozens of locations in Vic, SA, NSW and Qld that match this rather bland/safe/generic selection criteria.

The sound, fundamental advice I've already been given on this forum is to narrow down search zone and get to know the area. If I can reduce the "cost of doing business" by 9k in the process (which is equivalent to a 2% saving on a 450k purchase), that makes good sense to me also.

In 5-7yrs when/if I move back to Australia, then there will be a much higher chance I'll be thinking more like you.

 

Many of our Victorian clients have told me that one of the reasons they like buying in NSW is that compared to buying in Victoria, they see a buyers agent in NSW as being thrown in for "free", when you consider the differences in stamps.

 

HI songo,


Mate you posed the question "So can anyone think of a good reason why you'd even bother to consider giving away an extra $9000 to the Mexican govt* (compared to Qld) on an IP purchase with similar projected CG + yield?"

And I gave my answer - which was 9k might be a worth while cost to pay if you can create equity from the deal that far exceeds the 9k. I'm just answering your question.


Also, I've always believed that people should do whats best for their own financial situation and goals, and of course only you know your situation best mate. It really comes down to income, equity available, risk profile and personal goals.


Cheers

 

If you don't mind..... because I trust your advice, can you comment on the following (these are examples of the sort of things I'm looking at)....

I know Geelong and so I can purchase there without the use of a BA.

This one is ripe for renovation, but it isn't what I'm after right now.....
http://www.realestate.com.au/property-house-vic-geelong+west-120390529

This IS the sort of thing I'm after...
http://www.realestate.com.au/property-townhouse-vic-geelong+west-119790687

This is a random example of many from southern Brisbane area with good fundamentals....
http://www.realestate.com.au/property-house-qld-sunnybank+hills-120363449

The last one here looks like it has lots of potential to capitalise. It is rent ready now, nice street close to transport etc etc, but check that crappy backyard and undercover entertaining area!

Can we definitely say that the Geelong option is going to perform better than the Qld option? No we cannot, but we can control the choice to impose an additional 9k up front cost on the Geelong property.

 

If they reduced the stamp duty in Melbourne by 10k you would think it would just increase the property price by 10k (or more due to leverage).

 

HI Songo,

I'm happy to give some comments - but never just trust my advice or anyone else for that matter mate. Always verify and do DD on any advice someone from on here or from anywhere gives you.

With regards to the Geelong properties I have no clue because I know nothing about Geelong whatsoever. The one in Qld looks interesting. At first glance, its too far from the CBD for myself to be interested, but the suburb does seem to have some very expensive dwellings in the 800 and 900s. The first thing that I was thinking of was 'is there room to add value some how like a full on cosmetic reno or knock down and rebuild etc.

The problem is that when I see a deal I am looking at it through my own lenses of possibility which matches my strategy, risk profile and goals. I really don't know much about you and your situation so its very hard to comment. My only suggestion is to be as clear as possible on your goals and choose a strategy that is going to get you there and that is in line with your own financial situation. You sound really passionate though and I love your commitment to getting this underway!

add in: With regards to BAs, I know there are some good ones on here. @Jacque from Sydney is top notch and a very nice person.

 

Hello,
This is a very common road block that people have had in investing in Melbourne.
But every state has its pros and cons...
EG: Some clients of mine have advised me how much rates cost in some parts of Brisbane and it can be three times costlier more then Melbourne on a yearly basis.

Some parts of Gold Coast have ridiculous insurance premiums...

 

Scientific researcher by profession, so it is in my nature to be inquisitive and spend time upskilling or educating myself. I have a share portfolio but just getting started in property investment, so right now I'm trying to absorb as much info as possible. I like this forum because it cuts through the bs and people seem to just give good, honest opinions.

 

No Idea which part of Brisbane Johann's clients are buying in because i have lived in Brisbane for 18 years and have 35 of my properties in the City and would assure any potential investor the Council Rates are definitely not 3 times more than Melbourne.

I have recently purchased a property in Noosa Waters and would agree the Rates their are a lot higher.

Never buy a property solely based on the Stamp Duty charged but in saying that Qld is compelling for a variety of reasons.