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There are a swag of basic checks to determine if a property is a good investment …. BUT, the psychology of the buyer is also part of the ultimate equation of whether to buy or not.
The decision rests on assuming a certain price range and ability to service debt. Again, the buyer’s characteristics enter, some having cash and some borrowing the lot.
No-one can do it for you, you must reasearch a tight area or class of property, attend inspections, auctions etc and get to know a couple of good agents who specialise in the area or class that interests you.
If you put the leg work in, are qualified to buy and are a genuine buyer you will be the first to see some real bargains. Agents will call you, but beware, they can smell a tyre kicker a mile off.
How will you know they’re bargains? Because through your efforts you will be the most informed about your area or property class then anyone else, including agents. Its a full time job but the effort virtually always pays off.
It can’t be done by “Spotters”. If you want some pointers to selection criteria, there are none better than those put out by Wakelins in Melbourne.
Past treatments are not enough until the nest is destroyed. As an earlier post said, they are often in the lower trunks of largish trees.
Get a recommended pro who will drill into trees until he finds the nest. Then he will pump in about 50 or so litres of poison and the nest is gone, the tree gets healthier and the varmints are gone.
Make absolutely shore there is no damp entry points. Termites can eat dry wood but MUST get water as they do so. If they can’t, they will leave.
Since there is some crystal ball gazing going on here, it’s time to recap on reasons for the possible slowdown.
It’s patchy, say my agent contacts, some districts are still going gangbusters.
Consumption, as opposed to investment, is subject to all sorts of things but sentiment is most important, as it is with property.
When an international equilibrium appears again and our election is out of the way, (whoever wins), all those who have enjoyed an as yet unrealised capital gain from the past three years of property price appreciation, are gonna gear-up.
They will increase their mortgages and invest again and spend again, probably like never before. Only two requirements are needed, continued fullish employment and interest rates below 10%.
Any inflation will, as usual, increase your equity in any property you have a loan on.
Take a look at Hastings on westernport bay, near melbourne. It’s the last place you’ll find waterfront suburb homes within walking distance of the foreshore for 190k to 250k. It’s underpriced cf rosebud and the like.
For the record, BIS Shrapnel forecast the boom very accurately.
Only quality will be a good purchase for the next five or so years. Many regional centres will flatten out for a long time to come. There’s almost no upside left for anything other than equilibrium to settle in and a return to long-term trends.
Is world growth, and hence equities, going to be moribund. No-way, read “China and India”. Will interest stay at 100 year lows, not possible. do people have any more gearing-up “head-room”? No.
If property is your thing, think ONLY quality. The rest will stagnate for years to come.
Steve, re looking at Video rental stores, read page 18, Monday, Feb 9th, of the Australian Financial Review. If you must invest in a business, buy large coffee lounges with good staff.
An agent told me that when Ballarat agents return to fixed prices, or “offers up to..”, rather than the still common “offers above…”, then the market is in equilibrium again.
Another told me that late March will be when the 50% NOT selling at auction in Melbourne will have amounted to a large enough stock of unsold properties to reduce prices.
It’s too early yet for either effect but our monitoring methodology indicates an easing in advertised prices in Melbourne right now.
Mornington Peninsula, Victoria.
I guess this will only interest Victorians, but, a few years ago a real estate agent told me, regarding some properties for sale by auction in his area, “Well, Sutherlands* are auctioning them so at least we know they are REALLY for sale” (His emphasis).
* Now called Sutherland and Farrelly.
In all these discussions which deal with selling and buying, I wonder how many people in Victoria realise that buying costs on a median priced property are around $19,000. Then to sell after 12 months, selling costs amount to about $20,000 inc GST (on a typical gain of 8% taxed at half the gain and a marginal rate of 48%), agents and legals.
This is darned close to a dead loss of $40,000 less a bit of deduction from CGT. In the real world there have been other costs as well, and a couple of legal bills for conveyancing.
Buying AND selling is for mugs. Buy and hold is the best approach.
So, if you buy a median priced property and plan to sell in just over a year, you must make a profit of about 11.5% just to break even.
In Melbourne it looks like the wealthier and pricier the suburb and property, the more likely you see auctions. Toorak, almost all, Dandenong, almost none, (No insult to Dandenongians intended).
For those who are fixated on positive gearing, which is just a function of how much cash you put in yourself, I cannot recommend too highly the works of the Wakelin Group, in Melbourne. Specifically you should read “Through the Looking Glass, Residential Property View 2003”, pages 8 to 11.
I can’t paste them here because it is copyright but these people really know their stuff.
Because you have given someone such a long lease, you can’t get your hands on the business yourself so it’s compensation for that. Other commercial leases are 3x3x3 or something similar. Also, over 20 – 25 years you are going to have to put in some cash to keep the structure sound. As landlord you have to keep up painting, concrete, gutters, signage and a range of “property” factors.
Which ones exactly is subject to negotiation when you lease it out. Check an existing lease done by the previous owner very carefully.
Theoretically, a 25 year lease has 25 years to go, but as time passes and the leaseholder wants to move on, he will approach the landlord and ask to negotiate a new one, often after only a few years. He wants to move on and up and has to have a long lease to sell. You have many options at the point.
I’ve done motels to death. I don’t want to be responsible for peoples needs on a 24 x 7 basis so I’ve never gone into one. But here are some rules of thumb picked up from agents, lawyers and seminars.
The ultimate aim is to own a freehold and lease it out.
They sell as leaseholds at a price which is roughly equivalent to the annual turnover.
Freeholds should be about three times turnover.
You can get finance for about 50% of a leashold and 66%+ for a freehold.
Never buy a leasehold with less than 20yrs to go.
Pay yourself back for the lease before you start to use the income other than for living.
Investment motels, (already leased freeholds) sell at a return of between 8 and 12%. The higher the % the crappier the property.
Leaseholds return between 20 and, sometimes, 30% on investment.
Check that all chattels are owned.
If you want more, just ask.
There are two “Stamp Duties” in property, one, the biggie, is a duty on purchase and a one-off. The second is stamp duty for “stamping the mortgage document” which has to be done when the mortgage liability changes, such as when you top up etc. This second one is much smaller than the first. It could be the one your “Personal Banker” was referring to. (My wife substitutes a “w” for one of the letters in “Personal Banker”!)
My observations over many years is that Kay Henry is right. The best example I’ve ever seen was in the window of a Peregian Estate Agent, which advertised one magnificent property for sale for $1.2m. It also said, “Currently rented at $220 per week”. The luckiest tenant in Australia, possibly the World.
This discussion makes me think that, given everything is slowing now, even going backwards in some markets, it might be time to sell all real estate assets and become a tenant.
This has been a legitimate investment strategy in the past and it might be time to consider it again.
I’ve done a few “renos” and reccommend you read back copies of API. Their articles are spot-on. When you finish a reno it has to look like it belongs in the street and is in the top 25% or so of houses. It has to look inviting, not un-ususal. Buyers concentrate on kitchens, bathrooms and convenience. A good outdoor living area is a cheap but worthwhile project.
I won’t go on, API has it covered. Buy a current issue and it will show you which back-copies contain what and how to get them.
BUT, beware of stories where just buying and holding could have made money. In parts of Australia some median priced properties have been going up at $10000 per month! Any fool can make money in those circumstances, and even believe it was their clever renovation that did it!
There are a couple of issues about buying overseas. First the good news is that in the US, UK and a couple of others, the gross returns are around 6.5 to 7.5%, cf Australia at around 3%.
But exchange rate changes can defeat you if they move the wrong way. This is a minefield for Australians, not to mention the complex legals just getting ownership. In Italy, for example, a supposed single title property can have several geographic locations, some of which can be shared with other owners and/or users of various “rights”. Etc.
Several agents in the South Yarra, Elsternwick and Prahran areas have told me that the market is flat, or even a little down now. Note last weekend’s auction clearance rates were in the 50%+ range!
Time to cash up and wait for the bargains to appear. Apparently in Melbourne are a group of investors who can’t wait for Docklands to crash so that they can buy in at bargain prices and hold.
I recently had a market appraisal that was spot on my own estimate after watching local prices for six months. Then the bank did a valuation for re-finance and came within 4%, which is OK.
However the bank valuer asked me if it was a new house, (it was a renovation of a 27 year old house,) and then he asked me what style was it. I said it was “contemporary” when built but that was 27 years ago. I suggested he say “modern”, which he wrote down.
It seemed like the bank’s guy had not done many valuations, so I showed him the agent’s appraisal and he more or less gave the same figure in the end. Go figure!
