Investment Property Red Flags

Investment Property Red FlagsWhile we all know that property prices have risen steadily in Australia for many decades, there is a big difference between the top-performing properties and those that have struggled. While the suburb and area are important factors in property selection, many investors fail to identify some of the red flags that might weigh on a property’s potential for growth.

These are some of the most common red flags to look out for:

Hidden Costs

While most investors will pay close attention to the asking price of a potential property, many miss some of the hidden costs. While building and pest issues are usually addressed, there are other hidden expenses that it is important to look for.

If you’re looking at buying an apartment or unit, the costs that come with a strata complex can be very high. In most cases, you will be required to pay strata fees, which are typically higher in newer buildings that offer facilities such as gyms and pools.

Similarly, strata companies generally put money towards things such as sinking funds or even have special levies in place to pay for large capital works. Older buildings can experience a range of expenses relating to maintenance, upgrades, or restoration. Be sure to get a copy of the minutes from the past few strata meetings to see what the board has in mind for expenses going forward before buying a strata-titled property.

Whereas if you own a house or even a block of land, councils can require ratepayers to contribute additional levies for projects in the area. This has the potential to hurt your investment as you not only have to pay the costs, but you’ll also have trouble selling the property until those expenses have been met.

Public Housing

While we all know that suburbs grow at different rates, it’s important to take into consideration things like public housing in the area. If there is a lot of public housing on a certain street, it’s likely that the entire block will be negatively impacted in terms of possible growth.

A Long Listing

If a property has been on the market for a long time, there is likely a reason for this. It could just be that the vendor has unrealistic expectations. However, in certain circumstances, there might be a more serious issue with the property.

This doesn’t necessarily rule the property out; however, if the vendor is unwilling to negotiate, you are well within your rights to walk away. On the other hand, it is important to remember, that just because a property is reasonably priced, doesn’t always mean it’s good value.

Incorrect Listings

While sales agents might be good at selling properties, they are not always property experts. This is often the case when it comes to things like the development potential of property. These days, if you can subdivide a property, it will likely be marketed as having that potential.

A property with development potential will often be priced higher than a comparable property that can’t be subdivided. The issue with these properties is that not all sales agents are experts at property development. Just because an area has been rezoned to encourage development doesn’t necessarily mean that every property will be a viable one.

It is always best to do your own due diligence on a property before making an offer. Or, at the very least, include in your offer some key clauses that protect you.

By |August 17, 2021|Categories: Finance, Property|Tags: , |0 Comments

4 Property Investment Myths

While everyone loves talking about property in Australia, the reality is that few people are experts. Here are some of the most common property investment myths that you might hear.

Blue-Chip is Best

One of the main things you might hear when you talking about property is that blue-chip is best. What this means, in most cases, is buying into the top suburbs as close as possible to water or the city. While this is good advice in that blue-chip suburbs have performed well over a long period of time in terms of capital appreciation, the main thing to consider is that you have to be able to afford to buy into such an area.

IF you’re in a high-paid job, then purchasing a negatively geared, high-priced property might be something that is good advice. However, if you’re constrained by borrowing or equity, then it’s not always the most helpful property advice. Interestingly, while many experts will tell you to buy only in cities in blue-chip locations, over the past 20 years, there have been numerous examples of semi-regional markets that have performed strongly and come in at lower prices with far higher rental yields.

One Property Market

If you read the mainstream media, you would think that Australia has one large property market, and you have to simply sit back and take what the market gives you. In reality, there are tens of thousands of smaller property markets across the country, and they all differ. We can clearly see different markets at the state level, suburban level and even street level. The clearest example of this might be a suburb that has a ‘good’ end and a ‘bad’ end. We even see streets that have very different prospects as one side of the road might be zoned differently to the other.

You need a lot of Money

While it’s true that you do need some money to get started in property, cash isn’t always the most valuable commodity when it comes to buying property. These days, the ability to borrow money has become a lot more legislated than it used to be, and you will need to prove your ability to service a loan. If you have a steady job or form of income, then you can also take advantage of several different types of loans and even Government incentives that could allow you to buy a property with as little as a 5% deposit.

Property Always Goes Up

While property in Australia has had a rich history of performing very well, there are periods when prices go sideways or even fall. The most obvious example of this would be Perth and Darwin, which both saw huge capital growth during the mining boom, only for prices to retrace and stagnate for the next five years.

By |July 23, 2021|Categories: Finance, Property|Tags: |0 Comments

Houses or Units: Which is the Best Investment?

New home buyers are always faced with two major property questions: where to buy and what to buy? While there are advantages to both houses and units, it is important to understand why you might choose either type of dwelling as your next investment property.

Pros and Cons of Houses

The most obvious advantage of houses is the fact that they are generally larger than units. If you’re buying as an owner-occupier, a house will be something you will be able to use as your family grows.

Over a long period of time, house prices have also outperformed units in terms of price appreciation. Land is scarce, and as the population continues to increase. This keeps the upward pressure on house and land values in inner-city areas.

However, as prices for houses are high, rental yields are generally lower. For most houses in good locations, you’re likely to be looking at a rental yield of 2-3%. That means even in the current interest rate environment, you’ll have a negatively geared property on your hands and you will likely have to contribute to the repayments.

It’s also worth noting that not all houses are created equal. If you are buying a house in a new estate, 50km from the CBD, then there really is no land scarcity at all. In fact, there is an oversupply of land that few people want.

The other issue with houses is they do cost a lot to maintain, and if something like a roof wears out, it is on you to cover all the costs.

Pros and cons of Units

For the most part, units are far more appealing to investors than owner-occupiers. Units are cheaper to buy than a house in the same area, and it is therefore, easier to obtain finance. The advantage here is that you can buy into a blue-chip area for a fraction of the cost.

Similarly, the rental yield that you receive on your unit will be far higher. Many units generate yields of 4-5%, which can make them neutrally geared or even positive in some cases.

However, the devil is often in the detail when it comes to the rental yields on units, as it’s vital that you take into consideration the other costs such as strata fees. For buildings that have great features like pools and gyms, you will normally find sky-high strata fees.

It’s also worth noting that not all markets around the country are always that interested in apartments. While they are popular in Sydney, Melbourne and areas of Queensland, people in the other major capital cities generally prefer to live in houses.

The other real catch with units is the fact that there is just no scarcity. This is particularly true if you buy into a large 300-unit building. This is even more pronounced, if you choose to buy off the plan.

Which is Best?

As an investment, you normally need to find very specific properties to overcome some of the weaknesses of both types of dwellings.

For units, look for smaller buildings that have low or no strata fees.

For houses, look to established areas that have strong yields, with properties that also offer the potential for subdivision or development.

By |July 17, 2021|Categories: Finance, Fixon Homes, Property|Tags: |0 Comments
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