Buying a property is one of the biggest financial decisions that a person can make in their lifetime. Here are some tips for property investment from the experts in the field.
With continued speculation of a property market bubble in the coming year, the following steps are recommended to successfully navigate the property market in 2016. The industry experts behind these property investment tips include the Property Investment Professionals of Australia (PIPA), the Real Estate Institute of Australia (REIA), and the Real Estate Buyers Association of Australia (REBAA).
Look outside your home state
It is important to remember that the Australian property market is made up of many markets, most of which lie outside of your home state. It is entirely possible that smarter investments lie elsewhere. People who invest beyond their home state are known as ‘borderless investors’.
They key to successful borderless investing is extensive research. Independent information can be taken from sources such as RealEstate.com.au and Domain.com.au in order to give you an understanding of the investment performance outlook of certain areas.
On the other hand â€“ distance should not equal less research. Investors who take shortcuts and rely solely on internet searches and data reports when buying property seriously risk making an expensive mistake according to buyers’ agent and real estate author Patrick Bright.
Mr Bright said “creative” photography was often used to show property in the best possible light (in fact often using fake light), but failed to show the negatives.
“Real estate photography regularly misrepresents property by displaying images such as outlooks that are not accurate and by ignoring the negatives altogether such as lack of privacy, unsightly views or very unattractive neighbouring properties,” said Mr Bright.
“These negatives will have a significant impact on the value and any subsequent purchase price paid, including its future prospects for capital grown and rental returns.
“While it’s tempting to want to speed up the process and remove the tedious activity of going to dozens and dozens of open homes for weeks on end, the reality is that by taking shortcuts you’re much more likely to end up with an inferior investment result when compared to those who do proper due diligence.”
Meanwhile, the Real Estate Buyers Association of Australia (REBAA) is urging buyers to “think local”, with state-by-state warnings of areas to avoid and areas to consider in 2016.
The state of the property market
According to recent statistics from the Real Estate Institute of Australia (REIA), the property market in Australia is seeing the slowest house price growth in three years.
The weighted average for the median house price of our eight capital cities increased by 1.3% over the March 2016 quarter, which is a significant reduction on the 4.1% growth seen over the same quarter last year.
Houses across the nation now sit at a median price of $684,601, while the median price for other dwellings such as units is $537,591.
The median house price in Sydney, Australia’s strongest housing market in recent years, has finally dipped back below the $1 million mark. Darwin was the only capital city to show an increase in prices for dwellings other than houses.
REIA President Neville Sanders says this can be attributed in part to the influence of macro prudential measures “introduced to curb investor activity” â€“ mainly the lowering of the official cash rate.
“Moderate increases in the median house price in Melbourne and Adelaide were outweighed by decreases in the other capital cities,” says Sanders. “Vacancy rate data shows that Melbourne, Brisbane, Perth and Darwin have either balanced or oversupplied rental markets.”
Switzer expert Margaret Lomas expects the 2016 property market to deliver great results, especially the residential property market, which has displayed all the signs of fantastic growth prospects. However, she also urges caution when investing this year. She claims the Christmas period tends to yield the most tales of poor investment decisions, and recommends using the next few months to assess your current financial situation and to set positive goals for property investing heading into next year.
Drive a hard bargain
When shopping around for properties, don’t be afraid to ask the hard questions or to ask for a discount. A professional mortgage broker can do a lot of this for you, and can be an all-round invaluable asset to help you secure the appropriate finance from banks. They can also do the investment research for you and provide you with options.
When it comes to the purchase price of the property, you could potentially consider engaging a Buyer’s Agent.
“With any professional service where you are not experienced, you engage a specialist for their advice and expertise. I have always wondered why inexperienced property buyers do not believe they require an agent to represent them when looking to buy property,” said Tony Slack, of Geelong Advocates.
“It surprises me the number of people who have never purchased property before or who have only bought once or twice but who are confident in their ability to execute in searching and negotiating property. Buyers also underestimate the real estate agent’s ability to negotiate and seem to value their own negotiation skill with more credit â€“ the reality is that real estate sales agents negotiate on property for a living.”
Consider rentvesting or co-ownership
“Rentvesting” allows buyers to live in a more expensive location â€“ where the cost of renting is less than paying an owner-occupier mortgage â€“ while investing in another more affordable location.
The main benefit of rentvesting is that you have one foot in the property door while still being able to live where you want. This method is particularly popular with young investors as a means to bypass affordability issues.
If you have a close friend or family member who is also looking to invest, then co-ownership can be another powerful method of beating affordability constraints. It is important to establish a formal agreement between the two parties however â€“ investment partnerships can be fraught with danger.
Look to the long-term
Property is a high-cost, long-term investment strategy, and should always be considered as such. PIPA recommends considering how every property purchase adds to your overall wealth and retirement plans, as well as conducting yearly reviews of your property and investment portfolios.
It is also important to make sure that you can afford to service your mortgage repayment over the long-term. This is why PIPA strongly advises against “speculating” property investments.
You can start by using our Home Loan Repayments Calculator to get an idea of how much your monthly repayments will be based on loan interest rate, type, and duration.
Seek professional advice
Since property investing is not recognised as a financial product by ASIC, it remains without any regulatory framework. As a result, property investment is a field ripe with chances for dodgy operators to put their own self-interests ahead of their client’s.
Seeking professional advice from a qualified property investment adviser can ensure that you avoid falling into such traps. Choose any adviser or professional service with the PIPA logo to ensure they are a trusted professional.
20 July 2016