Investing in property is one of the biggest financial commitments anyone can make, yet we see people make the same costly mistakes over and over again. If you are investing in property or considering investing in property make sure you don’t make these mistakes.
1. Buy On Emotion
Whether you are looking to buy a future home to live in or an investment property it is important to keep your emotions in check if you want it to be a good long term investment.
There is a reason why people spend the time and money doing cosmetic improvements when selling a property because it increases the attractiveness of the property and hence the value. A good selling agent will be seeking to present a property such that it has maximum emotional appeal, as once someone has fallen in love with a property, the selling price of the property becomes secondary.
Protect yourself from buying on emotion by
- not buying on impulse. Don’t put an offer in on the house the moment you see it. Sleep on it. Go back for second private inspection.
- establish a fair market price for the property. This can be harder than it seems. Obtain recent sales evidence from the state land titles register, or ask the agent to supply a complete list of selling prices of houses in the suburb for the last 12 months. Drive past similar houses and get a feel for what similar houses are selling for. If you are finding it hard to establish a fair price for the house, you can pay a licenced valuer to provide a valuation – this could also help to support your loan application.
- get a second opinion from a friend that understands the area
- include a “get-out” clause in your purchase contract that allows you to terminate the purchase within a certain number of days for no reason if you later have buyer’s remorse.
2. Don’t get finance pre-appproval before they make an offer to buy a property
When investing in property it is always useful to know exactly how much the bank is willing to lend you. This allows you to not only set a reasonable budget for yourself, but you also know whether you can stretch yourself a little further if the perfect house comes along.
The other big advantage of having a loan pre-approval is that it puts you in a stronger bargaining position in front of the vendor of the property. Would the Vendor prefer to sign a contract with you for say $490k with a high chance of the sale going through, or a contract with someone without finance pre-approval for say $500k with an increased chance of the sale falling over. As they say, usually a bird in the hand is worth two in the bush.
In this article, we share tips on Obtaining finance as an Australian expat.
3. Don’t research the market
Vendors and real estate agents not only love people who buy on emotion, but they also love people who have no understanding of the market. Not understanding the market is made up of two main components – (a) not understanding the market price and (b) not understanding the peculiarities of the suburb.
A : Not understanding the market price
As we mentioned in mistake number 1, it is important to educate yourself on the factors affecting Australian property prices and the current state of the market to give yourself a feel for the true value of a house when you inspect it.
I generally request at least these two things from the government department or company selling real estate sales data :
- All sales history for the suburb for the last 12 months. This should include the address of the properties sold along with information about each property which usually includes at least the selling price, the date sold, and the block size.
- A map of the suburb showing all the plots in the suburb along with their last known sale price, and the date they were last sold.
You will usually need to pay for this information, but in the context of one of the biggest financial decisions you will make in your life it is not much money to outlay, and enables you to get a good picture of what houses are selling for in the area, and also what neighbouring properties to the one you are interested in have sold for.
This data also provides you with information on the last sale date and price of the house you will be interested in purchasing. This is particularly useful information in determining an offer price.
B : Not understanding the peculiarities of the suburb
I am always astounded when I read in a property investment magazine how people boast that they bought such and such a house sight unseen. Can you really rely on google maps and the selling agents photos of a house as a basis for a significant financial investment.
When you live in a particular suburb for a period of time, you get to know a lot of the peculiarities of the area. You get to know which streets people use as a short cut during peak hour traffic, which streets get congested by people parking in the street on the weekend when the footy is playing at the nearby oval, or where an unsightly high voltage power line runs. After living in Paddington in Brisbane for four years (a hilly suburb in the inner city of Brisbane), we also discovered a big temperature difference between living at the top of a hill (where you would catch any breeze that was blowing) versus living in one of the valleys (where there would be no breeze and could be quite stifling in summer).
All these factors will have a long term impact on the returns you will make from your investment. It doesn’t mean you shouldn’t buy on a road that people use as a shortcut, or buy a house in the valleys of inner city Paddington. What it means is that you should be factoring this into determining the market value of the house. Your aim should be to know the suburb like the back of your hand before buying a property.
If you don’t have time to research the market (or you physically can’t because you are living overseas), perhaps you should consider the services of a buyers agent. A good buyers agent will thoroughly research the market for you and be able to give you a holistic picture of your future investment. We recommend Milk Chocolate Property Concierge, a bespoke buyers agent in Australia, and have arranged a special offer for our readers. Read more here.
4. Don’t claim their full entitlement to available tax deductions
If you are renting out a property for income producing purposes there are a number of tax deductions available to you including things like property management fees, council rates, water rates, maintenance, etc. Most people know to claim those items, but there is a large number of property investors in Australia that fail to claim depreciation on the cost of the building and fittings to the house. Rental property depreciation can be as much as $5,000 to $10,000 per year on a typical new house.
The easiest way to claim depreciation and to maximise your deductions is to obtain an ATO compliant depreciation report from a registered quantity surveyor. For a typical house in an Australian capital city this would cost less than $1000 as a one off expense that should be tax deductible in Australia. Our readers can obtain a special discount – read more.
5. Aren’t prepared to spend money to make money
To maximise your rental returns and thus the returns on your investment, you should ensure you maintain the property to a standard that suits the target tenant market you are wanting to attract. This will ensure you not only receive the maximum possible rent, but you will also attract better quality and longer term tenants, and reduce your vacancy periods between tenants.
Of course you still need to keep your spending in check, but low cost and largely cosmetic renovations can make a big difference to the rent you can receive – new blinds / curtains, fresh coat of paint, a bit of landscaping in the garden, an extra airconditioner, installing a dishwasher. Here are some low cost ideas to increase your rent.
If your house is quite old, renovations to bathrooms and kitchens tend to add not only a lot of re-sale value to the house, but also can result in a substantial increase in the rent you can receive as well.
Start Investing in Property in Australia?
If you are interested in investing in property in Australia it is now more important than ever to get good advice and work with people who are experienced in investing in Australian property.
Take the stress out of investing in property in Australia by working with Milk Chocolate Purchase Concierge. Milk Chocolate specialise in purchasing property and undertaking renovations for Australians living abroad. They work exclusively for the buyer.
Milk Chocolate offer a true concierge service, taking care of every last detail of your property purchase. Using the latest technology, data and communicating in your time zone ensuring the experience is rewarding and enjoyable.
Mention the Australian Expat Investor when contacting Milk Chocolate, or complete the form below, and you will be entitled to not only a free initial consultation to discuss your needs and to see if Milk Chocolate is right for you, but you will also receive a free voucher to the value of A$500 to treat yourself to a celebratory dinner in your country of residence when you sign up to use their services (and pay your initial fee).
Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way.