At Property Observer, there are a number of questions from investors that we get time and time again. We’ve compiled a list of our eight most common queries.
Do I need a buyer’s agent?
A buyer’s agent is a licensed professional who can cover the entirety or just a single stage of the buying process for you – from searching for properties, assessing its value and negotiating the purchase for you. A good buyer’s agent will ensure you don’t spend too much on a property, and can handle the hazards of auction bidding on your behalf.
The best buyer’s agents can save you time and money, and will have specialised knowledge and resources (like databases and contacts) that you won’t have access to as a buyer.
There are many arguments for and against using a buyer’s agent, but what it really comes down to, as with any part of investment, is cost versus benefit.
According to the Real Estate Buyers Agents Association of Australia, a buyer’s agent should cost you roughly 1.5-3% (plus GST) of the property in question’s purchase price (similar to what a seller’s agent will charge). “Negotiation only” buyer’s agent services are typically around 1% of purchase price plus GST, and for if you want to hire a buyer’s agent just to represent you at an auction, you should be looking at a fee of $500-$1000 for each auction they attend, with a potential 0.25-0.5% of purchase price fee added on.
If you aren’t confident with negotiating auctions or aren’t as familiar with the buying process as you’d like to be, a buyer’s agent can bring a lot of value to your transaction.
What proportion of my income should be taken up by mortgage repayments?
This is a question that comes up a lot and really depends on your individual budget constraints. For example, the more frugal among us may have the capacity to have a greater proportion of their income taken up by mortgage repayments, while still maintaining a decent amount of savings. Others may have ongoing costs like children, chronic illness or travel, which will reduce their ability to contribute so much to their property.
As a rough guide, housing affordability stress is generally defined as spending more than 30% of one’s income on housing payments, so you want to stay well under that threshold, especially if you are a low income earner. Most mortgage providers have calculators for potential mortgage payments – here’s one from the Commonwealth Bank.
A good budgeting exercise that will help you determine whether you can afford mortgage repayments is to have your expected mortgage repayments deducted into a savings account for a year. It will help you gauge what is manageable for you, and by the end of the year, you might have enough to put down on a deposit.
How do I pick the best capital growth areas?
This is a very contentious question, with no simple answer. Property Observer contributor Terry Ryder specialises in identifying capital growth “hotspots” around the country, and many others have devoted their careers to doing the same. Decent transport amenities, sustainable economic development, and nearby employment hubs are all good signs.
However, all the experts agree: keep your eyes on the data. Rental yield movement is important to keep an eye on, as is an area’s median sales price trend – but remember, context is everything. The metric should only be applied as a rough guide, and only if you’re looking at a “median” house in that area.
When should I sell?
Again, there is no simple answer to this question – though if there were one, it would be “before everyone else.” In the best case scenario, you want to take advantage of rising demand in your area before the other home owners get the same idea and start pushing up supply, which will bring prices back down.
Charles Tarbey, the owner and managing director of Century21 Australasia, says that sellers need to be keeping an eye out for the signs of buyer interest well before they are intending to sell to avoid competition.
“If you’re thinking of selling, there’s a time to launch. And that time to launch is not when you’re hearing the talk out there about the markets going well.
“If there are lots of “For Sale” signs up, you’ve got competition. When you open up the newspapers or go and see the same properties in there, week after week after week being advertised, it’s another indication that you’re going to have a lot of competition.
“So why would you then launch your property into a market place where when there’s all this competition out there? You’re going to have to negotiate downwards.”
What make better investment properties, units or houses?
Again, a contentious question. The answer will depend on whether you’re looking for cash flow in the form of rental yields, or capital growth. If you’re purchasing a unit, bear in mind body corporate fees, potential difficulties in renovating your property, and your state’s strata laws.
For those who are thinking of purchasing a house, you again will have to consider development restrictions such as heritage overlays. There may also be additional costs to tending to the home’s exterior and garden.
When considering the numbers before purchasing your property, make sure you’re looking at the relevant data – that means median house prices or yields if you’re looking at a house, or unit prices or yields if you’re considering a unit. Within a single suburb, these figures will vary greatly.
And remember – don’t confuse what you want and what makes a good investment. A dwelling type that you wouldn’t prefer to live in may make a great investment.
How much should I spend on renovations?
The cost of your renovations should be weighed up against how much profit you think your property will make at sale. Some commentators recommend spending 5-10% of your property’s current value on a renovation, but where you distribute this cost will make the real difference. In general, most agree that kitchens and bathroom renovations will contribute the most additional value when renovating your home.
Try talking to agents in your area to look at similar properties in your area which have modernised interiors or comparable renovations before you start any works – this will give you an idea of the value potential of your renovations.
Also, don’t forget that labour and materials aren’t your only costs. If you’re planning to undertake significant renovations, you may need to find temporary accommodation for you and your family – something that can cost a decent pile of cash.
Factor in all the costs and undertake a profitability study on your home before you even think about picking up your tools.
What sorts of properties make the best investments?
For capital growth, Tarbey says that investors should look at the top of the first home buyers’ market, or the bottom of the second home buyers’ market.
“The most important thing about buying real estate is picking the mark that you want to go. And for me that mark has always been at the top end of the first home buyer’s range or at the bottom end of the second home buyer’s range,” says Tarbey.
“In other words, you’re putting yourself at a category that is not actually at the bottom where it’s less than desirable to everybody, and it’s not at the top of the second where some people can’t afford.
“At the top of the second home buyer [market], you’ve obviously got better homes with better facilities. And obviously those facilities are not often good when you’re renting the properties out. For example, swimming pools et cetera become a burden to a landlord, rather than an advantage, because they have to be maintained. In normal tenancy terms, generally, those features won’t be maintained to the same level that an owner might.
“In the middle of that price range, you’ve got two levels of people that might be interested in buying the property should you wish to sell it. So you’ve not priced yourself in a category where you’ve probably got the highest amount of buyers that you’ll ever get.”
Should I sell at auction or private sale?
According to investment writer Karin Derkley, there are a number of factors that should influence a vendor’s method of sale. These include:
The norm in your suburb: go for what is the most common method of sale for your area
Whether the property has unique or special qualities: an auction may be for you
Whether your area is booming: an auction may be the right setting to take advantage of buyer anxiety
How quickly you need to sell your property: If you want to get it off your hands quickly, an auction might be the best choice, but if you want to take the time to consider offers, a private sale may suit better.
This article first appeared on Property Observer.