When you are looking at potential investment properties, it can be difficult to be objective.
Real estate is such an emotional asset class — far more so than investments like shares — and, all too often, buyers lead with their heart.
Instead, a better strategy is to try to approach it like a property valuer, with more facts and fewer feelings, and you’ll reap the rewards.
Keep it real
When it comes to ascertaining how much a property is really worth, we know the sentiments we attach to a property can inflate its value.
However, this isn’t a genuine indication of how the property sits in the market; just because you’re willing to pay a premium for it, doesn’t mean it’s actually worth that much.
A property valuer uses extensive research and market knowledge to determine what a property is worth, using hard facts and psychological push and pull factors to reach that golden number.
Don’t be duped into paying $20,000 more for a home that’s around the corner from your sister, when no other buyer would find this proximity valuable.
Thinking like a valuer helps you to grasp the real, tenable value of the home, rather than merely what it’s worth to you.
Research, research, research
Thanks to the wonders of the internet, conducting research is easier than ever before, with a wealth of information right at our fingertips when it comes to property research.
You can find out the sales and rental history of virtually any property online these days — valuable information that would have been extremely difficult to lock down in the past.
You can also use Google Maps to calculate how close the property is to nearby amenities that your tenants will value, such as public transport, shops and schools.
You even find copies of the title, plans and applications to council.
It may also be worth doing a little legwork, away from the computer. For instance, you can ask at council if there are any developments in the works close by, attend auctions to get a feel for the crowd, and speak to neighbours, estate agents and local business owners about the property and the area.
Inspect like a professional
Rather than merely wandering around, marvelling at the pretty tiles or calculating how much the peeling paintwork is going to cost to repair, inspect the property the way a valuer would.
- Taking stock of what’s included in the sale and what’s not (what is furniture and what is a fixture);
- Turning on taps and switches to ensure they all work;
- Taking into account all the visible flaws of the property;
- Reviewing access and street appeal;
- Noticing the condition of fences, pool and outbuildings;
- Noting the slope of the block; and
- Noting items that may require future maintenance.
Compare similar properties
It’s now very easy to find what similar, local properties have sold for using the various real estate search sites such as Realstate.com.au and Domain.com.au
Compare how the property you’re interested in stacks up to these, in terms of condition, number of rooms and bedrooms, land size, and price.
How much did they sell for, and how long were they on the market?
Take into account factors such as being on a busy main road, or backing onto parkland, that may have influenced the price.
If you can find two or three properties that are fairly similar to the one you’re looking at, that’s a good starting point.
Finally — keep your heart out of it!
Property valuers don’t go in with a vested interest in the property, clouded by emotion.
They are consummate professionals, conducting their business. As an investor, that’s how you should approach the task too.
Consider: what’s the current median in the suburb, and what are the prospects like for future growth? What are vacancy rates like in the area, and are rental returns strong?
Keep reminding yourself to think, not feel, and you’ll be on the right track.
That said, if all of the above sounds like too much work, you may want to consider engaging a proficient buyer’s agent.
They’ll take care of all of these tasks on your behalf, and help you locate a high-quality growth asset that helps you build your future wealth.