Category Archives: property investing

Should I consider buying at a Mortgagee Sale?

 

Should I consider buying at a Mortgagee Sale? Whether you a new on the property ladder or an investor looking to snap up a bargain, looking at buying a property at a Mortgagee Sale or Auction could be the way to go. While it seems like it could be a good deal, buyers have to be aware of a few things before they sign the contract.

Is it really a bargain?

A mortgagee sale is an auction and potential buyers can get excited and carried away with their bidding. Always decide on your maximum budget and arrange to get finance before attending the auction. Mortgagee sales are often rushed so the settlement period may be less than a regular sale or auction. It always pays to do your homework before the auction day and get all your LIM and builders reports beforehand. Read the purchase agreement thoroughly because sometimes the agreement that purchasers sign at a mortgagee sale does not include all of the fine print clauses that are there to protect purchasers in standard auction agreements.

Is it in good condition?

While you may go and view the property before the auction, sometime the previous owners may be upset the bank is selling it and trash the place before the settlement date. Always arrange insurance from the day of the auction, just to be on the safe side. Also, it is safe to assume the previous owners fell on hard times financially and haven’t kept up with  the maintenance of the property, so any money you save may have to go towards renovations. Be aware that often the chattels are not included in the sale and the previous owners may remove them.

While there are bargains to be found at mortgagee sales, it is definitely buyer beware so always take necessary precautions to protect yourself and your assets.

Have you ever snapped up a bargain at a mortgagee sale?

 

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Buying a Property at an Auction

When you want to buy a property, whether it is your first time or if you are a seasoned expert, it is always a good idea to check out local auctions to try to snag a great deal. Here are 3 tips to being successful at an auction.Buying a Property at an Auction

1. Do Your Research

Always research the market and talk to Real Estate Agents to ensure you go into an auction fully informed. It won’t hurt to look online as well. You can also attend other auctions to see how they operate. Always get independent, expert help on legal, finance and building matters.

2. Know the Rules

Auctions have very strict rules so read through them beforehand. In Victoria, the auction rules must be displayed at least 30 mins before the start. The auctioneer must tell bidders that the auction will be conducted according to the auction rules and regulations. It is illegal to make a false bid, hinder another bidder, or in any way intentionally disrupt an auction.  You can be fined if you are caught doing any of these things.

3.  Watch your limit

When at an auction it can be easy to get caught up in the moment and the excitement of bidding. Before you start, have a really clear idea of what your limit is and don’t go over that.  Auctioneers are trained to try to get the best price possible so may encourage bidders to compete.

Check out Consumer Affairs Victoria for more information.

Have you ever bought a property at an auction? Did you snag a bargain or get caught up in the moment and pay too much just so you could win?

The Top 3 In Property Investing

If you were to ask 100 successful property investors to choose 3 keys to being successful in property investing, what do you think they would say?


Would it be:
Doing the numbers?
Employing a good team?
Having a watertight rental agreement?

They are all very important, but how about these 3:


Due Diligence
This is vital. You need to know everything about a potential property. From running the numbers, to median prices of properties in the neighbourhood and rental yield (to name a few). You need to know what the plans are for the area in the coming years. You need to know vacancy rates and the potential of being able to add value to your property. You need to understand the property cycle of not only the city as a whole, but of your local area, as often there are ‘micro-cycles’ which need to be considered too. Of course it’s unlikely that you’ll be able to digest all this information in a short space of time by yourself, so you may need to employ the services of some very knowledgeable people. Don’t be scrooge and want to do it all yourself to save money, tapping into your knowledge base is likely to save you money (and most definitely time).
Taxes, Taxes, Taxes
As part of your very knowledgeable team, I’m sure you have a fantastic tax accountant. This person will be worth gold as they will be able to advise you on how to correctly structure your property to be tax friendly.

They no doubt will be talking to you about trusts, negative vs positive gearing, tax deductions, future capital gains etc. All these will impact the amount of tax that you are required to pay and how much money is left for you to use. So making nice with your tax accountant will be a very smart move.
Choose Wisely
To be successful you need a plan, a strategy. A strategy that you intend sticking with over the long-haul. This will save you a lot of heartache in the long run because you know which sort of property will fit with your plan, and therefore reduce the amount of of the due diligence you need to undertake. if all properties look good to you you may need to spend time and effort analysing 10 properties, as opposed to 2.

As a general rule it’s a safe bet to invest in a property that: you can add value to, that is in a good location and there are positive future plans for the area.

So what would your top tips be when looking at investing in property?













The Holy Grail – Buying Before a Boom

Isn’t that what we all want to do, buy property before the boom hits? But how do you determine exactly when that is going to be?


Your Investment Property wrote a great article on exactly this, comparing a couple of different approaches.

Here is a reprint of the article, you can find the original HERE

Of all the hundreds of property market strategies out there, market timing would have to be one of the most discussed and least understood.
According to Richard Reed, co-author of academic research report Understanding Property Cycles in a Residential Market, there may be good reason for this. He paints a picture of a host of macro and micro economic variables spinning on consecutive and sometimes contradictory cycles and a residential property market plagued by poor information on which to judge them.
“At one point everyone thinks the market is going well but it could have stopped several months ago, so by the time the market information comes through the cycle has well and truly moved on,” Reed says, referring to the time lag for median house price data. “Neither is it across the board; while the market generally can be falling there are some pockets that may continue to rise,” he adds.
Reed suggests investors first look at the market segment in which they are active to determine how susceptible it is to market cycles.
“Premium property is not so affected by cycles, whereas in the mortgage belt, markets can go up and down quite sharply in response to interest rates,” he says, warning that younger investors who have not yet seen a true downturn can tend to overinvest.
Pinpointing the right time to buy
A total cycle tends to last 7–10 years. Reed recommends investors take control of their own long-term forecasting, using infrastructure investments, population shifts, demographic trends and local government planning papers to project the movement of their particular market within a 10–20 year timeframe.
Yet Paul Do, author of I Buy Houses: The Property Investor’s Handbook, says investors can take advantage of growth more quickly by determining the two to four year ‘buying zone’ of each cycle. He uses two basic criteria to determine the buying zone.
The first criteria is based on the share market concept of fundamental analysis and uses rental yields versus interest rates. You buy when yields to interest rates are high compared to historical levels. For example, over a decade the level of rental yields compared to interest rates may swing from 30–60% in a capital city. At 30% the price is expensive and at 60% it is relatively cheap compared to historical levels. For example, in Sydney relative rental yields were at the top of this range for a number of years in the mid-80s and mid-90s and in 2009. 
The second criteria relates to the share market analogy of technical analysis and it is supply relative to demand, so it is best when vacancy rates are at historical lows. When there is short supply relative to demand it signals that prices will increase in the next few years. For example, in Sydney vacancy rates were at their historical lows in the mid-80s and mid-90s and from 2007 onwards.
It pays to wait
Do also recommends waiting until those conditions are right. “My advice would be that if prices have been running strong, wait for them to pull back and start to rise again in the next cycle,” he says.
While investors may find it difficult to sit on their hands, Do says money is best invested elsewhere during the ‘buy nothing’ years. Using the example of Perth heating up while Sydney was cooling down in 2003, Do points out capital city markets are often at different phases at different times, creating ongoing opportunities around the country.

Rental Property: Renovate or Buy Brand New?

You have two potential investment properties you are looking at: 

Number 1: You have a brand spanking new, fresh from the box, 4 bed, 2 bath home in a new development.

Number 2: You have a tired and unloved but lower priced property that needs quite a bit of work. 

How do you choose which is the better bet?


This is where your property investing strategy would come into play. The 4 x 2 is pretty attractive as it’s all fresh and sparkly, you can use depreciation to your advantage when it comes to tax time and looks great to potential tenants. But then again, since it’s a brand new development, maybe the location is not as desirable. The Renovation Special needs a lot of work  and since you’ve been watching ‘The Block’ religiously, the idea of taking a tired property and making it fantastic seems like a great project, especially if it’s in the right location.

So how do you decide?

The bottom line is the numbers!

This should be the critical consideration. 

How do the numbers stack up? Once you have bought it, paid out everything you need to, and have tenants in place how does it look? 

Buy Brand New?
Brand New House:
Keep in mind that when you buy a brand new out of the box house in a new development, the first tenants will pay premium rates. It’s not until maybe the 3rd set of tenants come through, that you will get a true idea of what the rent will be over the long haul. This is due to seeing how the other properties in the development are doing, and what rent they are receiving. So keep this in mind when you are running the numbers.

Or tackle a reno?
Renovators Delight:
When it comes to your Renovation Special, keep in mind that you don’t really know what you’re going to find until you strip the house back.Yes, doing a house inspection is critical, but like all renovations, you need to factor in more of a cost for the unexpected. How will those unexpected costs impact your numbers?

Another thing to keep in mind is your ability to handle stress, especially if you plan on tackling the reno yourself. This stress and your other daily commitments may make buying a brand new property far more appealing.

In fact I would never recommend for a first time property investor, to undertake a major renovation project. This is because you do not have the experience (unless you’re a builder who does this for a living). Having said that of course, if you employed someone to find the property, run the numbers, get quotes on the work, oversee the work, and rent it out, then maybe that would work for you.

There is no easy choice when deciding on what property to buy if you are looking at 2 completely different properties. That’s why looking at your overall investing strategy will help you make the final call.

Have you had to choose between two different properties? How did you make the choice? 

Signing your life away!

Do you know what you are signing when you are buying a rental property? There are numerous forms to sign and while a few will look straight forward, I’m sure there are many that seem a bit baffling, but you just sign anyway.

I would advise you to stop!

The old adage “read the fine print” is even more important when it comes to property. But not just reading the fine print – but understanding it. If it all seems too daunting then turn to your team who will help you not only understand what you are getting into to (and how to get out of it, if necessary), but will be able to make sense of this new language.


Forming a qualified trustworthy and experienced property investing team is likely to be the difference between investing in one rental property or creating a profitable property portfolio. The team could be made up of a Lawyer, Broker, Buyers Agent, Property Manager, Financial Advisor. You may not need all of these people, or maybe you do, but your team will be able to help you work through the minefield of property investing paperwork.

So back to those forms.
Do you really know what it means when the contract talks about a ‘Fixed and Floating Charges?’,or a ‘Director’s Guarantee?’ What about the Stamp Duty you need to pay? 

If you are unsure then you need to stop and ask your team what it means, and what it means to you, if things turn ‘pear-shaped’. The terms may sound intimidating, but as long as you know what they mean and understand how it may impact you long-term, then you will be far more confident and be able to make better decisions. Most new investors will sign the paperwork, but not really understand it, and then it’s only when things are going wrong that they understand the true impact of what they signed.

So do you know what you are signing? Have you signed something without truly understating what it all meant? 

Did you Look Out for These in your Investment Property?

When you are buying an investment property, you know to look at the numbers. You take the heart out of it, and it all comes down to the dollars and cents. Which is the way it’s supposed to be. You look at a the local stats for the area, look at any developments that may be happening on the books and look at the neighborhood. Is there anything else you should be looking at?

Well yes – there always seems to be something else to consider. These are some things that experienced investors look for that may not be top of mind initially, but can make a big difference down the road.


The Friendly Meth Lab
Unfortunately there are more and more drug house popping up across the country. How do you avoid buying an investment property that is on the same block or next door to a Meth Lab? Meth labs are often set up in the nice looking house, that no one would suspect, so it can be difficult to avoid.

You can’t predict what will happen in the future, all you can look at is how stable a neighborhood is, and hope that that continues. If you have a strong community with a good school in the area, most houses are owned and lived in, then there is less chance for something illegal popping up. As there are too many people invested in the well being of the neighbourhood.

Schools
The hub of most neighborhoods is the local school(s). If you have a solid school that has a good roll and the principal is upstanding and respected in the community, then it is very likely that the school will either grow or it will remain stable. This is what you want. Be wary of a school where their roll is falling and there is a high turn over in staff. Staff turn over and a falling roll are indicators that the school is not as stable as you would like. If a school is not stable, then community around it is not as invested and that can lead to a less desirable neighborhood. So look closely at the school(s).

The Local Governing Body
What is happening in the local government? What noises are they making? Are they looking to increase housing in the area because of increased population numbers? Are they looking at changing how they collect the rubbish and in turn how much they are going to charge? Are they looking at changing the zoning of the area? What are the rumblings of the next 5-10 years? 

Now think what would happen to your rental property if all those rumblings happened? Would your property value go up or down? Would it mean more expenses for you and in turn less of a profit? Or conversely would it mean wonderful things for the community and your property?
Of course we can’t think of every single scenario, but we can be aware of more than just the numbers. It’s all about thinking long-term, not just about the value of your property, but about the community that it resides in. You need to pay attention and not just buy it and forget it. Property investing is a hands on activity, you need to keep a watchful eye on things. 

What do you think, what’s something to keep an eye on that you may not have initially thought about?