11 property tips when buying
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My thoughts from 30 yrs in the real estate industry.
Tip 1: Contact your broker, don’t wait for them to contact you – Good properties always sell, even in a challenging market. Your ability to buy the best properties that tick all your boxes comes down to your relationships with the local brokers, so take the lead and make sure they always think of you first when they become aware of that perfect property. Ask to be on their mailing list if you are not already.
Tip 2: Buy when you can afford to buy – You will never get:
(1) High growth,
(2) High rents,
(3) Low-interest rates,
(4) Easy to borrow from the bank
All at the same time, so buy
(1) When you have the money and time to research.
(2) When you have the financial buffer to hold on for the long term. As long as you’re buying at a fair price, I wouldn’t worry about trying to pick the peaks and troughs of the market, as even the experts can’t do this accurately. Inflection points are like shares, almost impossible to pinpoint.
Tip 3: Maintain close relationships with Lawyers, Brokers, and Bankers – Trying to get finance is one of the most challenging issues faced by property buyers and investors these days, so the relationship you have with your bank or broker could mean the difference between pushing forward or being forced to sell. Plan well in advance as there are often delays. Remember, lawyers can help you word special conditions of sale and payment terms that can protect you if problems arise. Borrowing as a foreigner may prove difficult, so look at alternatives like vendor financing.
Tip 4: Identify all your significant risks and deal with them early – Most things in a property investor’s journey are controllable, so be prepared. If you buy the right property in the right area for the right price and present it in the best condition with the best property manager, you should always get paid 90-100% of what it’s worth. Rent should cover the mortgage. Make sure you build enough cash buffer for any gap so that when interest rates or exchange rates change or you lose your job, there’s a special levy or some major maintenance, you’ll have enough money to hold on.
Tip 5: Buy blue-chip properties – We all know the phrase location, location, location; it’s been around for decades for a good reason. If the market turns down in the future, many properties will drop in value, but conversely, many median-priced, blue-chip properties in blue-chip suburbs will hold their value. If you buy quality property, it will often rise higher in the good times and fall by less in the bad times.
Tip 6: Focus on capital growth ahead of rental return – Whilst having a higher rental return does make it easier to cover the outgoings, it’s unlikely to make you rich. Whereas capital growth or a property doubling from $500k to $1m or $1m to $2m will add something to your retirement fund. Capital growth is only taxed when you sell, and you can often extract the equity with minimal costs by refinancing and using that to continue building your portfolio.
Tip 7: Use multiple lenders – Many borrowers think that if they have all their loans with one lender, they’ll get a better deal on mortgage rates, but it’s often not the case. It can be the opposite in that it creates risk if one or more of your properties drop in value. They may consider there is too much risk, so if you sell one, they may keep any profit to offset against your other loans. Don’t forget to consider asking for a vendor mortgage in a tight market for finance. Also, consider using another property or asset as payment if the market is illiquid.
Tip 8: Always get an independent valuation – It’s straightforward to fall in love with a home or investment and to pay the wrong price, especially if you’re competing against other buyers. By getting an independent total valuation where the valuer spends 2-3 hours inspecting the property and researching comparative properties, you’ll almost guarantee you’ll never overpay for a property. Not all valuers are created equal so choose carefully.
Tip 9: Get good advice and follow it! – experts are experts for a reason – they’ve often spent over 10,000 hrs practising and studying their subject to become that specialist. More than 50% of potential buyers get their advice from friends and family who aren’t qualified. The other quarter gets specialist advice but then doesn’t follow it. So that only leaves 25% of the buyers that get professional advice, pay for it, heed it, and then implement it. They’re probably the 25% most wealthy people (in time, freedom and money) in the country. Remember, free advice from friends and acquaintances is worth what you pay. Nothing.
Tip 10 Trade up in a depressed market – If the market is depressed, but you like the location, it is a perfect condition to trade or buy a more expensive property as your leverage is greater.
Tip 11: Just Do It – you’ll never know everything, so don’t wait until you’ve got perfect knowledge before making your move, as you’ll miss the opportunity. Some property education is very advisable, as following these tips will ensure that you’re not going too far wrong. At some point, you’ll need to jump in and buy something.
Sure, you might make the odd mistake, but often, it’s not that bad if and when it does eventuate.
I still believe investing in the median-priced blue-chip areas is good practice in any market. There are usually few properties for sale, and there will always be a certain level of demand. When I play golf with middle-aged people who have retired, they all built their wealth by buying real estate.
Source: Geoffrey McRae
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