Not quite sure what has inspired this post - maybe frustration at seeing other's frustrations at buying property, and also a belief that I am quite good at it! But thought I would capture some relatively random thoughts on how to successfully and painlessly buy property - whether it be for investment or lifestyle.
Is it an investment property? If it is - buying is much more streamlined and much easier. It MUST be unemotional and based purely on returns (taking into account up front costs and taxes, ongoing costs, rental returns and capital gains and tax implications)
If it is a lifestyle property - it is important to know your 'must haves' and 'nice to haves'. Sometimes you can make a list of everything you want - such that it will be almost impossible to find a home! For 'must haves' - I would include location number one (the more specific the location the easier and less painless searching is) and budget number two. You MUST have a good understanding of these two requirements - and never stray. If you stray from what you know are the areas and/or price range you can work with in - you will waste a lot of time and go through a lot of heartache ("oh that house was so lovely, but we can't afford it") My thoughts - don't look at what you can't afford and don't waste time driving around areas that are not your ideal but 'may' have a nice house in it.
Random brain-fart thoughts for all property purchases:
1) Assign one of you as the CEO of real estate hunting. Don't both waste your time scouring the internet. Obviously you can share thoughts when you both have some time together but don't double up. SIMILARLY only one of you should do the Saturday morning inspections. NEVER NEVER NEVER schlep kids around with both of you. It will be painful and you will not get perspective at all and it will take too long and you will waste your weekend. (Did I make that point clear enough?!)
Once you have a short short list (ideally down to one!) you can then send your partner (once again without kids) to look. I also recommend sending parents or other people that know you well (if it is a lifestyle property purchase) so they can give you perspective on whether they think it suits you. For the house we are in now, I knew it would sell straight away. I actually made an offer before D saw it. But sent D around straight away to check it over! D knew that I knew what we needed! We bought the house 2 hours after the inspection with a jointly signed contract (vendor and purchaser).
Investment purchases - I don't involve D at all. I give him the fait accompli and stick the papers under his pen to get it all signed! I guess he trusts me!
2) Look through realestate.com.au with your must-have critiria (location, price, number of beds, renovated or not, land size, etc). Make a shortlist on the website. Email every real estate agent for each of these houses and ask them for a price guide and if not stated, an inspection time. Also you can ask how long it has been on the market, whether it has beens sold recently and contract fallen through, etc. Sometimes though I save these detailed questions for when I meet the real estate agent at the house.
3) Systematically plan your Saturday morning such that you have a set of times and addresses that you can drive from one to the other. This is a logistical challenge sometimes as it means mapping out your route and making sure you will be there for each open. However it is well worth it as you can see as many as possible in a given amount of time. I also print out the details of each house and highlight the inspection time and order them in the order I will be visiting them. I include this and a pen and highlighter in a plastic folder for the front seat of the car. I also use the GPS to plan each drive between houses.
4) Dress quite nicely and not too schleppy. I have a tendency to be a bit schleppy in my dress (!) but like 'Pretty Woman' real estate agents are people and they will tend to be more chatty if you look a little attractive. For example, I wear a little make up! So I don't look like a ghoul. Also I take the Mercedes. This may seem a bit strange - but I want them to know (especially as an investor) that they can take me seriously. I don't want to look like an amateur. I recommend you do this and act cool as a cucumber at all times, as if spending $700,000 is something you do every other weekend.
5) Don't take too long in each house/unit. You should be able to assess whether a property makes your short short list within less than 5 minutes. Don't for gooodness sake open every cupboard and knock on every VJ, or walk to the back of the backyard. You look a bit foolish. If this is 'the' house you will do this level of detailed looking at the next inspection. Also you want to be in and out to mazimise the number of houses you can see in the morning.
6) Make yourself known to each real estate agent and be sure to tell them what you like and don't like about the property. Tell them things like, "oh yes, I like this house, but it is out of our price range - we only have $x to spend". I did this with my last property and the real estate agent took me outside and said confidentially (!) that if I offered that he thought they would take it ($80k less than the advertised price!). And they did. Being honest tends to elicit straight forwardness from the real estate agent. Remember they want this sold and are actually a bit indifferent to the price as their commission doesn't change a lot on 10% price variation. They want offers.
7) Make verbal or text message offers as soon as you think you may like the property. HOWEVER make sure you start RIDICULOUSLY low. If they want $700,000, offer $540,000 as an example! I also include with the offer the reason I do not think it is worth what they want (for example, land size, amount of renovations required, missing certain essential things for you). Some real estate agents will negotiate with the vendor verbally before a contract. Others want you to complete a contract and sign with the offer. This is definitely a pain in the butt and it means meeting the agent at a later time and you both signing.
Know what you are prepared to pay and go up to that if need be. If the vendor won't come down any further - literally smile and stop all negotiating. Tell them you will keep looking. Keep reinforcing why you do not think it is worth that. Be sympathetic that their property just doesn't cut it! Even if this is your dream house. Play hard to get but oh so pleasantly. In today's inner city market, purchasers have the power - milk it. Make the vendor come to you. Make them sweat it out. But at all times be sweet as pie. Let your sweetness disguise (but not really) your 'don't mess with me' nature.
8) If you are an investor, look for bargains. Look for houses that look ugly and messy. Look for structural sound and structurally right for your needs. Also look at the rental returns in detail. I have a spreadsheet where I put every property I look at on a line with the cost, stamp duty, expected rental returns in dollars and as a percentage of the purchase price. For inner city, this percentage will be between 3 - 4%, for mining towns - over 10%. I also put a comment on what is good or not about the property which would make me pay more or less about it. This is time consuming but essential. For investment properties I want high rental return. Other investors want to do renovations - so everyone's financial analysis will be different - but it is obviously (!) very important to budget for the costs and revenues on the property (like you would write a business plan for a new business venture). Be careful that you don't try and achieve too much with one investment - rarely do you get renovation capital gain, high rental return, high property value increase capital gain, sub-divide potential, etc with the ONE property! Work out what your investment strategy is and shop for that.
9) For all purchases, after I have seen a property I go back to the car and write notes on my print out for each property. What I liked, didn't like - what work needs to be done, anything interesting the real estate agent said.
10) When you make an offer - put all your conditions in and be as favaourable for the vendor as possible. If you can make an unconditional offer your offer is MUCH more attractive. The less conditions the more likely they will accept your low price offer. Lots of contracts fall through due to finance falling through so if you can do an unconditional offer you WILL get a better price. Also offer settlement terms that the vendor wants (long or short) and of course do a building and pest inspection condition.
I have bought two houses at auction but I am not confident I could advise on auctions except to say do NOT bid until the first final bid is made and the vendors confirm that the house is on the market. Do not play your cards until that point. Ideally get a confident friend to do your bidding and tell him/her what price you are willing to go to. Then the real estate agent doesn't know it is you and so perhaps doesn't know what limit your friend will go to. Have your cheque book with you and you need to be unconditional on finance and building inspection I think. So auction is more final and therefore riskier.
11) Houses that have been on the market for a long time, or deceased estates, or divorced estates tend to allow you to negotiate better prices. Also houses that need beautifying (landscaping, paint work, window coverings, door handles, kitchen cupboards, etc) will also go for lower prices. If I was buying my family home again I would look for a place that is structurally right but needed finishing touches. I hope I could negotiate them down so that before we moved in I would get the house fixed up (via outsourcing) with the money I saved.
12) I use cheap and nasty conveyancers. Not expensive lawyers. It is a straightforward process and should be cheap.
13) If you are an investor, treat your tenants as gods. Look after them at all costs. I send Christmas presents and allow them to have pets etc. I do not use real estate agents to manage our properties, mainly because they are ridiculously expensive and they treat tenants like second class citizens. I also have not cheap-as-chips properties so the tenants tend to not be the types that will knock holes in walls (hopefully not my famous last words). I am a stickler for a lease agreement, condition report, bond and paying on time. I don't do house inspections regularly. I try and leave the tenants to live a normal life such that they don't feel intruded on. Most tenants hate being tenants. They wish they could have more control over their homes. I give them as much control as they want. Hang pictures? Go for it! Want to paint a room for the new baby? Go for it. Want a vegetable patch? Go for it.
Also I limit rent increases. For me, having a rolling annual renewed tenancy agreement (with no vacancy time or cost to re tenant) is worth so much more than an extra $50 per month. It also shows goodwill on my part. As with employees, if you treat them well and as they want, you will see this returned in spades, in my experience.
14) Selling - I am not expert at this ... yet as I tend to do the hold and get rental return strategy. I think the key is to know what you need to sell it for and the time frame you need to sell it in. The less urgent the more you can wait for the right price. I dislike having to interrupt my tenants for inspections. Not sure how I will handle that, as if it is empty it is harder to sell and I am not getting any revenue. Anyone else got an idea on this?
Also with selling - when do you exit? This will depend on the market (try not to exit in a down cycle like now!), what you want the funds for (for us it will be when we want to build the teenage home) and tax consequences in the year you sell. As capital gains are calculated on your marginal tax rate in the year you sell, it may be better to sell some properties together (one with a gain, one with a loss) so that they offset each other. Also if you or your partner have a sabbatical year when you earn nothing. Make sure you get tax advice prior to listing the property. You don't want to sell and find you are up for a huge tax bill unexpectedly. Though if you have a huge tax bill probably means you have a huge income - so that is a good thing!
I better go and do something productive now! A long post - hope someone, somewhere finds it useful!
Labels: Property Investing
