Australian Property News

Property investors warned about ‘lemons’

Posted on Wednesday, November 03 2010 at 11:14 AM

If investors fail to undertake due diligence on the condition of a property by getting an independent professional inspection prior to purchase, they could wind up with a property ‘lemon’, warns Archicentre.

This could be particularly threatening to the investment portfolios of self-managed super funds (SMSFs), says Archicentre’s Queensland manager Ian Agnew.

"Around 70 per cent of people who purchase property in Australia fail to undertake due diligence on the condition of the property, usually finding faults when they rent out the property or take up residence themselves,” he says.

"In the case of self-managed super funds, people are responsible for their own due diligence and a property inspection by an independent professional person with appropriate skills is a very basic protection for the financial position of their fund."

Agnew says that in the case of SMSFs, aimed at building a retirement fund, many investors could find their returns badly eroded through the purchase of a ‘lemon’ property, with expensive faults ranging from structural problems, faulty wiring, plumbing, illegal building or termites.

"Costs to repair such faults can run into tens of thousands of dollars and obviously threaten the returns of the superannuation fund,” he says.

"If the property has been purchased to rent out the investor could find themselves with immediate costs. In the case of a commercial property this could mean the loss of substantial rent whilst the property is repaired and brought up to standard to comply with health and safety standards."

Archicentre’s top 10 cover ups and estimated repair costs are :

1. Illegal building, up to $100,000

2. Cracking, up to $50,000; average of $3000

3. Dampness, up to $50,000; average of $5000

4. Termites, borers and timber rot, up to $20,000; average of $5000.

5. Roof problems, up to $20,000.

6. Rotten weatherboards and windows, up to $10,000.

7. Rotten sub-floor or stumps, average of $8000

8. Faulty of illegal wiring, average of $6000.

9. Faulty or illegal plumbing, average of $6000.

10. Guttering and downpipes, average of $3000.