Tips and Hints

The Phases of Purchase

This edition we start the first in a series of tips on the phases we go through when buying a property for our clients.  We trust this information is useful and please stay tuned for further tips and advice on buying properties in the South East Queensland and Northern New South Wales markets.

TIP 1 - The Criteria

Focus is the way to go, make sure you have picked the area you want to buy in and set the criteria in a property that you are looking for.  Then hit the pavement searching for it, many people set out with an idea of what they want but that can change along the way and they get disillusioned and either buy the wrong thing or nothing at all.

Be realistic when setting your criteria and be rigid on it, this will help avoid disappointment in not being able to buy everything you want for what you can realistically spend.  Remember that you will generally only satisfy 80% of your criteria, if you are lucky!

TIP 2  - The Search

Develop networks with real estate agents and follow them up diligently, they will have many buyers on their books so make sure they remember you.  A good place to start your search and get things moving is to surf the real estate pages on the net, this will make you familiar with property types and can give you some perspective as to what you can expect to get for your money.  Also scan publications, both local to the suburb/area and the general city wide newspaper and various glossy real estate magazines.

Addressing all of the above in conjunction, will yield a property for you close to your criteria, but by far the most important issue is to maintain the one on one contact with the local agents and make sure they know you have finance approved and can settle in a short period of time.  Finally, if you can manage it, inspect properties during the week via appointment rather than on weekends with everyone else.  If you like the property and feel the price is reasonable this will allow you to try and take it off the market before many other buyers see it.

TIP 3 - The Evaluation

This is a crucial phase in buying a property as it will set the tone for the next stage (The Negotiation) and preparation here will definitely save you money.  It is widely known that knowledge is power and this is certainly the case in this situation.  I can not stress how important it is to research, research and more research!!!

When establishing a value for a property you must first understand the dynamics of the surrounding area and how they fit with the property and its highest and best use.  The property you are assessing must be compared with 'like' properties.  That does not only mean a house with another house, but like zoning with zoning and permitted use with permitted use.

A great place to start to familiarise yourself with the market in an area is to attend open inspections and listen to other people there and what they are saying about the property. Also talk to agents and question them not only on the property you are at, but others they may have on the market and some that may not even be on the open market yet.

Understanding how to weigh up the positives and negatives of a property and comparing that with what else that has sold in the surrounding market place is not an exact science and does require skill and experience.  Direct comparison of property with like property is certainly the main way to assess things, but summation should be used as the check method.  This means you should assess the value of the land and then calculate a depreciated value for the improvements.

TIP 4  - The Negotiation

Once all of the hard work and research is done through the 'Search' and 'Evaluation' phases, the negotiation phase is one that requires careful planning and setting a strategy to purchase the property at a target price. This strategy should be based around the information collected in the evaluation phase and a strong case built for what you want to pay for the property and why.

When you know what the property is actually worth the above questions should be easily answered.  Remember that all negotiations will be different as circumstances and personalities change from situation to situation.  Be prepared to give something in return to get something and remember everything is negotiable.  Property contracts can be negotiated on much more than price, like making the contract free of a finance clause or not requiring a building and pest inspection to be done as well as shortening or lengthening the time frame for settlement.

While remembering that the best negotiators always have a plan firmly in place, there are opportunity costs to be had.  For example if you had set a target for securing a property in a premium location at $500,000 and the property was actually worth $530,000 but the vendor had come down to $510,000 and would go no lower, you would need to reconsider your target given that you are getting an excellent property at a good price anyway.  All too often people loose sight of this and forever regret it.

The above can certainly be said for any market, it is only those that act quickly that will generally buy the quality properties. They seize on the good opportunities fast and shut the rest of the market out by doing this.

TIP 5  - The Contract Phase

After setting the criteria, searching for properties, evaluating properties and negotiating....you are at the final stage and this can be a testing time like most of the phases of purchase.  Things to remember in this stage are meeting with mile stone dates like the finance and building and pest clause dates, as well as any deposit monies that need to be paid.  We usually have a small upfront deposit on signing of $2,000 and then a larger deposit of say $8,000 on the contract going unconditional. The size of deposit paid can sometimes be taken by the seller as an indication of the level of interest in the property the buyer has, as they are more likely to complete a contract which they have paid a higher deposit for.

In saying that, there is no set minimum as to how much you have to pay as a deposit, you can put a hundred dollars down if you like.

Five very important things to do immediately are:

1. Pay your deposit;
2. Get the contract to your solicitor ASAP;
3. Get a copy of the contract to your bank or broker ASAP;
4. Organise insurance cover for the property (you are responsible for insurance as of 5.00 pm on the first business day after the contract date);
5. Organise a building and pest inspection ASAP.

If your building and pest inspectors find fault with the property, although you are not afforded the right under the contract, you should try to negotiate money to allow for repairs etc.  In many cases we have been successful in doing this as we have had legitimate cause to do so.  If you don't ask, you never know!

If you are an investor you can use the time between the contract going unconditional and settlement to organise a Property Manager and maybe get prospective tenants through the house if it is owner occupied or vacant.  The last thing that needs to be done is the Pre-settlement inspection, this is to ensure the property is as it was first inspected and the seller has left it in good order.
If you are an investor, the next step is obviously to turn around and do it all again!!!

Other Tips

• Look don't leap - do exhaustive research if you have the time, if not employ a buyer’s agent.
• Be finance ready- If your finance is approved you will be able to move quickly on potential properties.
• Too many people buy in a market thinking they know it; it takes more than a few weeks and a bit of surfing the net to understand.
• Be persistent and consistent in your search. Choose an area and target it for the property criteria you have decided on.
• Never solely rely on what a selling agent tells you, they are only there to do the best by the seller.
• Buy the worst house in the best street, not the best house on an arterial road!
• Whether it is timber or brick, buy something that will be low maintenance as too many people buy a renovator for an investment property and never have their hand out of their pocket.
• Look out for cheap renovations. People can cover major problems with a coat of paint or carpet etc.
• Check with the local council and government departments for any proposed roads, rail lines or issues that could negatively affect the value of your property.
• Always get an independent building and pest inspection done and attend onsite when it is done so they can outline in person what is right and wrong with the property.  If you can’t be there your buyer’s agent will be able to be.
• If an agent is selling a property to you on the return or income stream it provides it usually means that the capital growth of the property will be lousy because they are focusing on the return.
• You should stick with buying house and land for the majority of your portfolio, as it will provide the best growth.
• Get a good tax accountant. They will save you thousands.
• No matter how old your property is get a quantity surveyors report done, if you don't this could mean thousands of dollars in depreciation you are missing out on each year.
• When negotiating start from the strongest point for you and be prepared to give on some issues.

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