Mistake 1 Not Knowing Your Budget
MIGHT SEEM OBVIOUS BUT HEAR ME OUT!!!
Before you start looking at property or even suburbs, make sure you know how much you can afford. That doesn’t mean the maximum you can borrow; it means the maximum you’re prepared to pay each month.
Home loan repayments – plus the associated costs of owning a home – impact your monthly budget far more than rental payments do.
Plan your budget with your home loan repayments in mind and live on your new budget for three months – remembering to put away a sum every month for maintenance.
That way you can ensure your mortgage doesn’t become a burden, and you are able to live your life the way you want to.
Don’t forget, when you purchase property there are a number of other upfront costs to cover too, including stamp duty – so make sure you factor those in.
After that, apply for pre-approval, so you can look at the property with intent, rather than hope.
Mistake 2 Not Factoring Silent Costs
Factoring in all silent costs is imperative as they can creep up on you if unaccounted for. This is one of the critical mistakes you must avoid before buying a property. It’s the extra costs that will sneak up on you and create some budgetary mayhem.
Things like:
Council rates – if the current owner has paid the council rates for the year depending on when you take over the property you’ll have to pay them a portion
Stamp Duty – This is a big one as it can cost many tens of thousands of dollars so it’s best to use a stamp duty calculator to understand how much you’ll need to pay.
Lenders Mortgage Insurance – if you’re borrowing more than 80% of the value of the property you’ll likely pay additional fees called Lenders Mortgage Insurance (LMI).
Additional Insurance – most people know you should have home and contents insurance when you move into a house, but many banks will ask you to insure the home before settlement. That could mean you’re paying for two sets of insurance: your existing home and the one you’re buying. Get a quote to understand how much it will cost. Loan Fees – it’s worth comparing bank comparison rates rather than simply the variable or fixed rate as this will take into consideration the fees associated with a loan. Sometimes a really great rate actually has lots of hidden fees.
Conveyancing – Your conveyancer can be your biggest asset throughout buying a home. They work for you and will inspect the purchase contract, do searches on the property you want to buy and more. Fees for conveyancing can vary from provider to provider, so keep in mind there will be a basic fee for their service plus the additional costs when they need to do more work like add a clause to the contract or negotiate with the seller’s conveyance.
Building and pest inspections – if you think this is needed in your circumstances, or if it will provide you with extra peace of mind, consider budgeting for between $500 to $1000, but this can quickly add up the more houses you seriously inspect.
By preparing properly and factoring in all the extra expenses, you won’t be hit with any unpleasant surprises when signing on the dotted line.
Mistake 3 Buying with Emotions
Paying too much at the peak of the market DUE TO EMOTIONS AND HERD MENTALITY. If you’re in a hurry to get up the property ladder you can overlook the negatives and end up buying a lemon. Which is one that goes down in value even though others goes up.
HOW TO KEEP EMOTIONS IN CHECK!!!
Before any inspection, set goals on three non-negotiables the property needs to have i.e. the right price, location, number of rooms…etc if you're planning to reside in it, for investors the numbers should stack up i.e vacancy rates, rental yield, demand vs supply.
Doing so will help keep emotions in check when you’ve fallen in love with a property that comes above the asking price or when it comes with 2 rooms and they were looking for four. If they’re leaning towards a house because of its ‘feel good’ factor try to identify the emotion behind it. Can it be replicated or re-created in another home?
Don't get me started on perceived value. That new paint job may have only cost $100 and a few hours of your time but to a prospective buyer, a newly painted wall can be perceived as added value. Superficial things like a room painted in an ugly color can make people less likely to buy a house—even though fixing such a problem is as cheap as a couple of cans of paint.
Mistake 4 Thinking The Real Estate Agent Is Your Mate
Misunderstanding the real estate agent’s role...
Real estate agents are friendly people and in the course of shopping for a house, you will spend a lot of time with various agents. However, the wise home buyer understands who’s working for whom.
Unless you have engaged an exclusive buyers’ agent, then the agents are working for the sellers. Don’t be mistaken – a selling agent can’t work in the interests of both the buyer and the seller.
In fact, they’re legally and morally obliged to work for their client the seller. However wise home buyers know how to level the playing field by engaging a buyers’ agent to represent their interests.
Mistake 5 Not Understanding The Market Dynamic
Understanding what cycle of the property market we are in is extremely crucial for success. a seller's market is when you'd need to put your best put forward and work quickly in the background in order to secure your property. At the time of writing, we are in a seller's market with Auction clearance rates in NSW exceeding 80% week after week with figures smashing the vendor's reserve price.
A Quick Overview:
Buyers’ Market - Fewer People looking at buying then there are homes on the market Mortgage interest rates are a high Slower increase in the sale price, sometimes causing prices to decline Increased time on the market No urgency
Sellers’ Market - More people looking to buy then there are homes on the market Shorter than normal selling times Prices firm and may rise Higher volume of sales Greater buyer urgency
Balanced Market - When supply and demand are about the same The market moves at a good rate Prices are stable.
Mistake 6 Poor Property Choice
Poor property choice – Owner-occupiers are the people that push up prices and not investors.
So, it stands to reason that a property that appeals to owner-occupiers will be more popular than investor stock. You want to look at the suburb demographics and what the most common type of dwelling is, there's no point buying a studio unit in an area where people predominantly want townhouses.
If you buy a property that appeals only to investors or a distinct group of people i.e university students your opportunity for capital growth is limited.
Basic steps to mitigate this.
1. Start With One Good Investment (By following the tips on the next page)
2. Always Buy Below Market Value. ...
3. Make Money When You Buy. ...
4. Buy at the Right Time. ...
5. Avoid Cross-Collaterisation. ...
6. Work Closely With Your team of property professionals i.e Broker, solicitor/conveyancer etc.
7. Engage a Buyer's agent they are worth their weight in gold.
Mistake 7 Buying In The Wrong Location
You buy in the wrong location – Some areas offer sustainable growth and others don’t and others are up-coming, and others are in various stages of the property cycle. Your choice of location needs to take into account your long-term goals and your risk of appetite @property investors.
The Ideal Lifestyle. It’s not just about the Property. When homebuyers (owner-occupiers) are considering a purchase, they’re buying into a lifestyle. For example - If someone is interested in properties in Bondi Beach, they’re likely to be looking for an active lifestyle with good cafes. For some, living in Bondi Beach means morning walks along the beach before work, an afternoon surf or Saturday brunch at their favourite local café.
The answer is surprisingly simple. To begin with, we look for high demand markets with vacancy rates under the 2% mark. From there, we take a look at a diverse range of key market indicators to give us an insight into the overall economic health of the particular region we’re targeting. Another good sign is finding areas with a high percentage of “owner-occupiers.” In our time, we’ve seen plenty of large-scale developments where it looks like nearly 80% of the people living there are renters, this is never a good sign.
For example - The majority of home and land packages are located on the outskirts of the city, in areas often with an abundant supply of land, weaker economic drivers and a lack of infrastructure. Capital growth is therefore often harder to come by.
TOOLS & RESOURCES
www.htw.com.au - Property Clock to know where we are in a market cycle. All regions have different market cycles.
DSRData.com.au - To understand current supply and demand in the suburb area
OnTheHouse.com.au - Previous Sales History + Comparable Properties (Great tool for owner-occupiers & Investors to gauge property prices & sales history)
www.myrpdata.com.au - Great for general research with great insights like median price, suburb demographics, population etc
https://quickstats.censusdata.abs.gov.au/ - Detailed Suburb Demographics & Insights (Be sure to hit advanced search!)
https://sqmresearch.com.au/index_property.php - Great tool for vacancy rates and vacancy rate historical data
www.realestate.com.au - Property research platform great for comparative market analysis on what's recently sold.
www.domain.com.au - Property Research platform (Please note - some vendors choose not to advertise on both due to costs also great for comparative market analysis)
