ARCHIVES - "Safe As Houses"

IT'S NO BIG DEAL
Copyright © 2005 John Hopkins

The biggest single purchase most people will ever make is their own home. The second-biggest would probably be an investment property.

So the importance of these financial transactions cannot be over-emphasised; they should not be undertaken without prior, careful consideration.

In selecting a home, the decision is more influenced by personal taste and family needs and it may be necessary to give these precedence over pure investment criteria. But it’s foolish not to maximise the investment potential of your home and plumb crazy not to do the same when putting your hard-earned dollars into a rental property.

Let's have a look at some general principles that should apply when a property purchase is made.

For a start, don’t waste too much time looking for bargains—if, by bargain, you mean, "a steal", something selling way under the market value.

As Sybil Fawlty declared when O’Reilly had botched the renovations in Fawlty Towers: “You get what you pay for, Basil!”

Occasionally—very occasionally—someone finds a well-located property in good condition that suits them perfectly, and which the owner is offering, unknowingly, at a bargain basement price.

It doesn’t happen too often.

This does not mean that you should pay more than current market value. And it does not ignore the fact that the market, which is affected by general economic conditions, can range from lively to lethargic. The aim is to buy at a price that is prevailing, in the market, at the time.

Try to buy without emotion. Feverish activity and impetuous decision-making should be avoided. Remember Oscar Wilde's dictum—"the advantage of the emotions is that they lead us astray".

In property purchase it's no advantage.

Don't buy merely because of some attractive features. A fine fireplace or a fabulous fishpond won’t weigh heavily in a sworn valuation.

Do some research of your own on comparative values. Study the newspapers, consult with agents, look at properties for sale, similar in style to the one you want, and try to ascertain their value. Auction prices are a good guide.

Know the price you want and can afford to pay, and stick to it. It's here that Wilde's witticism is truly apt. And keep Oscar well in mind if you go to an auction. That's when emotion can really run riot.

Some thoughts about selection:

I reckon it's a good plan to make up a comprehensive list of features to look for—and classify them as "required" and "desired". Then make a rule for yourself that all the required features must be there—and don't be tempted to ignore their absence because some other item is appealing. Adherence to this rule will reduce inspection times and the agonising indecision which follows them.

If the property inspected does not have your essentials it is wiped from your list and forgotten.
Obviously it is preferable to acquire as many of the desired features as possible.

Observe the general rules of property selection by looking for -
- a quality location a quality building
- a builder's inspection could help a quality tenant
- check the agent's rental record

And don't forget the three most important words in property evaluation—continuing strong demand.

The property must have continuing strong demand from buyers and, if rentable, from tenants, now and for the foreseeable future. That strong demand will be related to location, appearance, structure, design, proximity to facilities and entertainment and access to the largest possible number of prospective buyers and tenants.

Check and re-check the paperwork. A section 32 gives explicit details of the property and both it and the contract should be examined and explained to you by an expert. You can't claim ignorance if your signature is on the dotted line.

Make the necessary arrangements about finance, whenever possible, before starting negotiations—and shop around for the best deal. Ask your accountant to compare long-term benefits of each offer. It is worth asking if the vendor is willing to finance some part of the transaction.

Negotiating is an interesting process. If possible, get the vendor to name what he thinks is his lowest price and make an offer below your pre-determined, affordable figure.

Sound definite, interested but not anxious; put a time limit on your offer. Continue to negotiate if the vendor’s price is nearing yours. If you then offer your top price, make it clear it is your last offer. Ask the agent to show you some other properties to prove your point.

Auctions are designed to trot bidders up—so it's very important that you have a limit in mind above which you will not be tempted to raise your hand. If you have no past experience of auctions, get assistance from someone who has—a friend or another agent. It could pay to offer them a fee. Remember that there is no cooling-off period for auctions; 3 working days for other sales.

Check off the contract list of fixtures, fittings and furnishings, etc., which go with the property and make sure there is insurance cover when the contract is signed.

It would be terrible to see all that work go up in smoke.