Property Investor Handbook

Transcription

1 Property Investor Handbook

2 Welcome Whether you are one of the 1.7 million Australians who already own an investment property, or you are a first-time investor, this short guide will help you in making the correct decisions towards your next investment in property. This guide outlines six simple and effective steps to follow starting from initial research, through in-depth research and to closing the deal. Let s begin at step one, keep reading on. 2

3 Contents Step One: Get your finaces in order 4 Step Two: Work out your objective 6 Step Three: Work out where to look 8 Step Four: Create a shortlist 11 Step Five: Assess the shortlisted properties 13 Step Six: Negotiate the price 16 3

4 step one Get your finances in order Getting a loan pre-approved means you will know exactly how much you can afford to spend, and if you are planning to buy at auction, you will need a written loan approval before the hammer falls. Be aware too that lenders have different requirements for investment properties than for owner-occupied homes and different loan ratios specifically for company title and warehouse conversions.

5 Using the equity in your own home or equity from another investment property is a great launching platform for buying an investment property. For example, if your home is worth $700,000 and you owe $350,000 on your mortgage and you want to invest 10% of the equity ($35,000) into another property, you should be able to do so as long as you can comfortably afford the repayments. Pooling resources with family friends or colleagues can also help you enter the market, although you should have a solicitor draw up a contract outlining each party s responsibilities and percentage of profits before taking the plunge. There are also many different types of loans on the market, including line of credit, interest only and principal plus interest. Rates can also be fixed, variable or a combination of the two. A lender or mortgage broker can help you decide which is right for your circumstances. 5

6 step two Work out your objective Doing well from investing in property has a lot to do with location, but there are other considerations as well, like having clear objectives. When setting the objective, the key question to ask yourself is whether you want cash flow or capital growth. One constraint on choosing the latter if you are looking at building a portfolio of properties is access to cash flow. On the other hand, if you only choose properties that are cash flow positive, then you can buy more as long as you have the equity and the property will need some capital growth for its equity to grow.

7 Think long term If you are looking for capital growth, then buying with a seven to ten year horizon will accommodate most major market fluctuations, but you will need to be prepared to hold the property at least that long. Portfolio diversity Experts also tend to agree that portfolio diversity is the key. For a strong property portfolio, that means a mix of locations and a mix of capital growth and high yield properties. A general rule of thumb is that regional centres and many secondary locations produce higher rental returns but achieve poor long-term capital growth. In contrast the major capital cities produce strong capital growth, which usually goes hand in hand with a lower rental yield. Geoff Doyle, CEO of real estate advisory firm Go Gecko, recommends that investors start building a property portfolio with one or two properties yielding good cash flow, then go for third and subsequent properties that offer good capital growth. 7

8 step three Work out where to look When you can invest anywhere in Australia, how on earth do you begin to zero in on specific areas? While some of the decisions you have made in step two will help narrow the field, here are a few other factors to consider.

9 Check infrastructure announcements Find out what is being planned and when it is due for completion. A good website to search for this type of information is gov.au. This has links to all state infrastructure-planning departments. You can also check local papers and contact the council to find out if the area has any large developments planned that might affect capital growth or rental returns in the future. Check the competition A market saturated with investors could mean there is rental and selling competition if the market gets tough. Be cautious about buying into big apartment blocks and check that the market is not an over supplied rental area. 9

10 Understand the target market You need to make sure that the property that matches your objectives also matches the target market, so research infrastructure, transport links and local amenities. For example, if you are looking at a property in a university area, you should be looking at multiple occupancy homes near transport and amenities. Get a feel for values Consider purchasing property reports from companies like Residex or Australian Property Monitors that give both historical area growth figures, selling prices of houses sold for the last 12 months and projections of capital growth. When you agree to place your new investment property under management with Exchange Property we provide you with free suburb profiles to help you create your shortlist. We cover information such as historical and projected price growth, performance comparison for both houses and units and demographic analysis. This information can reveal a long-term trend that may well be taken into account during your decision making process. Other key indicators to take into account are auction clearance rates and days on the market, which can give an insight into the current real estate market in a specific area. 10

11 step four Create a shortlist Once you have narrowed the field to a key location it is time to look for some specific properties. There are many ways you can search for properties, from reading the real estate insert.in the local paper to doing an online search on websites like realestate.com.au or domain.com.au, among many others.

12 Contacting agents in your target area with a list of your specifications might save time. Alternatively a buyer s agent may be an appropriate choice. They provide professional advice on what property to buy based on your needs and circumstances, weigh up investment risk and negotiate with real estate agents for a fee. Another option: Buyer Agents We believe that buyer agents give buyers confidence in the value of the property they are going to buy and confidence in the process. After all, there are many people that prefer to be indirectly involved with the purchase of a property and real estate agents. How do buyer agents work? Typically they contact different real estate agents that are offering properties that tick the boxes for their client. They then attend the open inspections and if their client is interested, they liaise with the agent to buy the property prior auction or attend to the auction on behalf of the buyer. In Sydney we recommend: Amanda Segers

13 step five Assess the shortlisted properties Now that you have created a hit list of properties to look at and decided whether you want to be directly involve with a Real Estate agent or use a buyer agent, it s time to assess each one of your choices.

14 Walk around the area to get a feel for the local environment, availability of public transport and location of shops, schools, parks and other services. Talk to locals they are always a great source of information about an area. Go to as many auctions and open houses in the area as possible to get a feel for what is selling, at what price and why. Ask the agent about the potential rental return of the house or apartment and if it is been rented before. Check the tenant record to work out vacancy rates. You can also check rental vacancy rates for the postcode at If you are investing in an apartment, ask the managing agent for the rental history of both the apartment and the whole block. Look at the rental yields of other units and the capital growth history of the block. If you are considering a property on a strata plan, then ask to see the body corporate disclosure, which outlines exactly what is been spent and what works are planned. Properties on strata plans incur a monthly maintenance charge, which is deposited into a sinking fund and used to pay for the lifts, grounds and carpets. By checking how much money is in the sinking fund you will find if it would cover these and other repairs and maintenance. This will also tell you if there are any structural problems such as concrete cancer or broken lifts. You can also ask for a community management statement that tells you the allotment of the car parks and storage. 14

15 If you are really interested: Inspect the property more than once at various times of the day and week to help gauge noise and traffic levels. Investigate whether there are any internal or external cracks in the property. Take the opportunity on a rainy day to check for leaks and if the carpet is lifting, check floorboards for any sign of mould, White Ants, borers or other pests. Look at the walls and floors outside the bathroom and laundry for signs of rotting wood or water damage, and if there is a musty smell, it may indicate hidden water damage or rising damp. Order a pest and building report. This will give you an expert opinion on all the obvious and hidden features and services of the property, as well as any problems associated with water ingress such as rising damp and White Ants. The report should also comment on the general condition of plumbing, wiring and building work and whether it complies with relevant building codes. It may also give you approximate costs to rectify any defects. Ask to see the depreciation schedule. Have your solicitor or conveyancer look at the contract to make sure you are happy with the penalty interest rates, settlement dates, inclusions (curtains, light fittings, clothes lines etc.) and terms. You can also change a contract on an auction property, provided the vendor s solicitors have agreed to new terms in advance of auction day. Changing deposit amounts and settlement dates is common. 15

16 step six Negotiate the price Once you are happy that the property is what you are looking for, it is time to review the contracts and make an offer.

17 Get the facts The first piece of information you will need is a Comparative Market Appraisal report. This document tells you the sale price of properties with comparable square metre size within a set radius, for example 500 metres. It also helps you to verify the price guide that the agent has set. The next thing you could consider is obtaining a property valuation to assess the property s true worth, and then use that to negotiate on the price. Find out about the vendor Armed with this information, it is time to find out more about the vendor. This will be important when negotiating, because at the end of the day vendors are people and selling has an emotional component. You want the chance to appeal to that. You also want to find out if there are things you can offer that can be traded off for price, like short settlement terms, for example. Key questions to ask: Why is the vendor selling? How long have they owned it? Is the vendor testing the market? Have you had any offers? How long has it been on the market? Have they purchased another property? Which settlement terms are preferred? Is it an investment, owner occupied or tenanted? 17

18 Tips for negotiating While many advise going in with a low price to start, such as one that is 10% below the market value, we believe that if you bluff when negotiating, you may be thousands of dollars off or end up going with nothing. It is advisable that if a home is exactly what you want, you should declare your best offer in writing from the beginning. If you are the only buyer, there are two key questions you need to ask the agent that may help achieve a lower price, these are: 1. Why is the vendor asking that price? 2. How much will they take? To flush more information, we recommend to ask the discovery question: Is there anything else I should know? by asking this question, you will be able to sense the mood change, specially if something is being hidden. At the point of transaction, buyers can be emotional and no two buyers will have the same opinion on value, no matter what the emotional drivers are. That is why we suggest you, as the buyer, always try to work out a price based on objective evidence, like the comparative market appraisal, and then work out what it s worth to you. 18

19 Our fees If you still have questions on how to sell your property or about our property management services, please contact us. Contact us now Give us a call on Or us: ian@exchange-property.com.au We look forward to meeting with you! Ian Comyns Director ian@exchange-property.com.au Kris Wardecki Director kris@exchange-property.com.au Follow Us Suite 5, 28 Kingston Road, Camperdown NSW 2050 P +61 (02) F +61 (02)