Investing in property should be about making money

The media is full of property stories about how auction clearance rates in the big cites are moving from strong to silly. Frustrated buyers are losing out and sellers are rubbing their hands together in financial glee. I’m hearing of stories of buyers neglecting their due diligence because they just don’t have time.

Buildings and pest inspections, for example, are the first to go by the wayside. Some people are even signing on the dotted line without seeing the home. There’s nothing new in this, of course; it’s all been done before when the market was busy. The thing to understand is that it’s a high-risk strategy and not for the amateur.

Cutting corners to secure the home before anyone else is dangerous. And here’s an important tip: Buying a property is not a race. While it is not boom time everywhere, for many buyers wanting to buy a new home or invest in established areas, is becoming rather tainted.

Buying a home should be an exciting challenge where the results are clearly worth all the effort. From what I can gather right now that clearly is not the case for very many, so here are a few pointers.

What is a boom? Usually and thankfully booms happen and are over in a short time. When supply is low, demand is high, the media realises and starts discussing it loudly, all combined with low interest rates: Boom!

This typically occurs in areas where limited land is available for further development, or what is being built or planned is not the primary housing demand stock. For example, in urban areas, developers may be building stunning luxury units, but the older, established units are cheaper per square metre and have lower strata fees and so are selling like proverbial hot cakes.

In these conditions, investors should be aware they are likely to be buying at the top of the cycle — and there are no deals here, just market value and a bit more for luck! This is fine if you can see very long term and the figures stack up, but if they don’t — never get carried away with the hyperbole —— property investing should be about making money, not your own emotions, a desire to win at auction or following the crowd.

First homebuyers have two options. The first is to give in and let things calm down. It will — it always does. The price you pay later may be a bit more — that’s always the risk — but just as equally, it might not be and you may have saved more money towards your deposit, too. The second option is to keep going but always ensure you choose a home you really like. The property should be good for you long term — one that can be rented to a value to cover your home loan if you need to move on before the value gain or purchase price has been covered.

Upsizers and downsizers are trading in the same market. Ideally you want to sell in a boom and buy on the low. If you sell on a high, you may have to expect to be buying on a high and that will ensure any big gains might be balanced out.

Consider renting until it quietens if that is feasible. It is usually best to trade up in a quiet market as lower-priced homes hold value better and the purchase price of the larger, more expensive new home will be less in real terms. This means even stamp duty will be less and offer considerable savings. But waiting isn’t for everyone.

It is not so clear-cut for downsizing. If your larger home is a family home that is in a booming market sector, it could be a win-win for you because you’d be moving into a lower-priced home.

Those with a competitive nature are at even higher risk. Stay calm, and don’t get carried away unless it is your dream home and you can afford it. Passion about your home is not a bad thing. But if you’re a competitive investor — or just nervous — it is probably best to wait. The thrill of being the final bidder at auction is quickly tarnished if it’s replaced by years of losing money.

Story:  Andrew Winter      Source:  www.news.com.au