Thousands of properties are bought and sold around Australia each year. However, despite the frequency of transactions, the process is by no means simple. Assessing the performance potential of a property is time consuming.
Greville Pabst, CEO and Director of WBP Property Group estimates the average Joe typically invests around 19 hours before throwing their hat in the ring for just one property.
This may seem excessive, but each part of the process is essential in assessing the suitability of a specific property before parting with hard earned dollars.
Following is Greville’s checklist of things to consider before and during the property-buying process.
1. Where to start?
It’s likely you’ve already decided roughly where you’d like to buy, but our decisions are often informed by our perceptions and experience, which can be dangerous in the absence of all of the facts. Most people base their purchase around three factors: affordability, familiarity and proximity – that is, proximity to schools, employment, infrastructure, and family and friends.
While buying in an area you know and can afford may feel more comfortable, these factors shouldn’t underpin your decision about where to buy.
Instead, base your decision on the factors that help achieve your financial and lifestyle goals. If the property is for investment purposes it’s important to select an area well-supported by the rental market – that is, an area consistently in demand with tenants, to support loan serviceability.
If you’re searching for a home, your selection criteria may not be too different. In both cases, it’s about catering to the needs of the types of people living in the local area.
If you’re buying in a capital city, be mindful of the importance of space, including storage, parking and living area. Parking in particular can add or detract significantly from the price and future performance of a property located in inner city areas, whereas it’s not so important in outer lying areas that don’t suffer from parking congestion or restrictions.
Assessing the geographic location of a property isn’t as simple as picking a suburb you know or like, but one that supports financial and lifestyle goals.
2. Research – estimated 10 hours
Like most big purchases, the process of buying property starts with research. This includes several hours searching for and shortlisting properties in your desired location. If you’re under pressure to buy in the short-term this could be concentrated over a few weeks, or if you’re more flexible it may be spread over several months. In any case, scrolling listings takes time, even when using fairly specific search terms.
Once, you’ve created your short-list, there’s inspections. A diligent buyer undertakes multiple inspections of a property and the area at varying times throughout the day, on different days of the week to assess the property and location under all conditions. In many instances, it’s wise to undertake pest and building inspections once you’ve selected a property you like to protect the future security of your investment, ensuring it’s structurally sound and there’s no hidden surprises.
3. Cursory review
Once you’ve found a property you like, there’s a list of things you need to know before deciding to buy. A thorough assessment should include investigation of the street and the site number itself to determine the availability and suitability of infrastructure including schools, recreational and shopping facilities and of course, public transport including road infrastructure and accessibility – factors which underpin the habitability and enjoyment of the property from you or other occupants.
4. Performance analysis
Buying a property is the single biggest investment most people make in their lives – but even if buying as a homebuyer there’s no reason you shouldn’t treat your purchase with the same level of seriousness as an investor.
In fact, Australia’s largest well-to-do social class, baby boomers, owe the share of their wealth to strong property growth. But remember, not all property performs the same and there are both winners and losers in the property game.
With this in mind, it’s imperative to review the current and past performance of not only the asset class and location in which the property is situated, but also the property itself.
If it’s an established property this will include the retrieval of historical sales records to measure past performance over time, as well as assessment against recent comparable sales within close proximity.
Past growth is often a strong indicator of future potential and can be used to select a property that consistently performs above average.
5. Due diligence
Once you’re satisfied with the location and past or current performance, you’re ready to review the sale documentation. A diligent review will include close scrutiny of the contract of sale and section 32, as well as owner’s corporation minutes, if applicable, and council notices to ensure you’re fully informed about the purchase. At this stage you will usually enlist the services of a conveyancer to assist with the legalities of the proposed transaction.
It’s also wise to contact utility providers to ensure the property is eligible for electricity, gas, water and telephony services such as internet.
If you haven’t done so already, now is also the time to organise a pest and building inspection to ensure the property satisfies building codes and to determine if maintenance or renovation works are required prior to occupying the property.
6. Buying strategy
Now comes the exhilarating part – buying the property. This process can be somewhat different depending on whether you’re buying at auction or via private treaty.
If you’re buying at auction the key is to participate. Many would-be buyers fail to realise that as the top bidder you receive first right of refusal to negotiate if the property passes in at auction, which provides significant advantage over the competition. For more auction tips visit this youtube link.
Before bidding or tendering an offer, it’s important to set your budget for each property, which is likely determined by a combination of how much you can borrow and the value of the property. Knowing your borrowing capacity and loan serviceability is important from the outset to ensure you’re searching for and bidding on properties you can afford.
Knowing the market value of a property before making an offer gives you confidence in knowing how much to offer the vendor, and when further negotiation is appropriate. If in doubt, enlist the services of a property valuer for additional peace of mind.
Aside from price, flexible settlement terms can also add weight to your offer. Sellers may be attracted to a longer settlement that allows them to find a new home, while others may be in a rush to settle, with a short settlement offer and early release of deposit considered more important factors than price in some instances. An unconditional offer may also prove attractive to a vendor. In any case, ensure your offer has an expiry attached – usually 48 hours – to create urgency and apply reasonable pressure.
At this point you’re either successful or it is back to the drawing board.
Considering the number of steps required to search for, assess and bid on a property it’s easy to see why the whole process take around 19 hours. It’s no surprise why some people enlist the support of professionals, such as a buyer’s advocate, to undertake the job on their behalf.