As a property investor you face a minefield of advice from financial advisers, sales agents, property planners and developers, not to mention numerous magazines and books all promising the road to riches.
BY CATHERINE CASHMORE
Not unlike politics they offer a sea of differing opinions of what constitutes a good property investment and it’s often hard to sort the wood from the trees. Learning from past mistakes isn’t preferable when you’re investing large amounts of money, so it’s best not to make one in the first place.
Buyers often feel more confident purchasing in what’s traditionally known as a ‘sellers’ market’ rather than during the downward phase of a market cycle. Purchasing property that’s rising in value is understandably more assuring than reading weekly headlines that instigate the fear that we’re on the brink of a property crash. However when buying into a ‘buyers’ market’, words like ‘bargain’ should start to ring the warning bells.
If you want to purchase a property that’s going to perform well over the long term, whether it’s a sellers’ or buyers’ market, nine times out of 10 the property you’ll be attracted to will also attract healthy competition from other buyers.
With sound negotiation skills there’s always the opportunity to purchase good property at a great price. However if you find yourself being lured into a deal that looks too good to be true, it’s time to start asking ‘why?’
There are three important numbers to take into consideration when you purchase real estate. What you want to pay, what the vendor is willing to accept, and what the property is worth to other buyers. It’s not unusual to hear about distressed sales, or ‘quiet’ off-market listings, and in such circumstances a reduction in buyer competition is advantageous. However, vendors have usually done their homework on market value, and if it looks like they’re giving the home away it will be for one of two reasons – they’ve hit a financial dilemma, or they want out of a non-performing asset.
One of the most concerning acquisitions widely touted to buyers and investors are off-the-plan developments. The sellers often disguise themselves as ‘buyers agents’, but pick up their fee directly from the developer. When you purchase off the plan you’re taking a punt that the property will continue to appreciate in value. With established dwellings it’s possible to trace the sales history for reassurance of capital growth, however off-the-plan dwellings don’t offer the same luxury.
They come with a promise of high rental yields and depreciation benefits, however you have no guarantee that the look, feel and design will fulfill expectation. You’ll usually be charged a premium on price – much the same as you would with a new car – and like a new car, the price is unlikely to hold value without risk of initial depreciation once the word ‘new’ has disappeared from the title.
So before you whip out your wallet, consider the points below.
1) Is the location desirable or are you purchasing on a main road, close to an industrial zone, or in a far off field away from local amenities?
2) Is it one of a kind or one of a hundred? Unique qualities make a home stand out – buying into a new estate or high-rise apartment block won’t help attract competition if you need to sell in a soft market.
3) Is a flash renovation covering poor bones, or are their strict heritage overlays which will make future renovation or development problematic? Dig a little deeper and get a good building inspector and solicitor to check you’re not walking into a money pit.
4) Who’s going to live in the property? Are you buying an apartment in an area which mostly attracts families who won’t be interested in your ‘shoe box’ when you want to rent or sell?
5) And finally – if the word accommodation is preceded by ‘student’, ‘defence’, ‘serviced’ or listed with ‘huge stamp duty savings’, steer well clear. It may look attractive on paper, but capital growth will be limited, ongoing fees invariably high, and each comes with a greatly increased ‘risk vs reward’ scenario.
Cheap properties are cheap for a reason. Before you purchase, find out why.
Catherine Cashmore is a senior property adviser and buyer advocate for JPP Buyer Advocates – the largest dedicated buyer advocacy in Melbourne. With extensive experience in all matters regarding real estate, JPP successfully purchases and negotiates over $100m worth of property each year for clients. http://www.jpp.com.au