Purchase the right property to make the best return on your investment and secure your financial future. Most successful property investors, including me, will tell you that you make money with real estate by purchasing the right property, at the right price, at the right time, in the right market.
Purchase the Right Property
It is common knowledge that population trends indicate an aging population will dominate the property market. Most inner city and suburban single-family homes are owned by an older demographic. These are people who built the home or inherited it from their parents.
However, there will be more single people, unmarried couples and single-parent families in the market place.
Most research indicates that when people get older they want smaller, high quality, low maintenance properties such as apartments or town homes with good facilities (pool, spa, gym, tennis court, BBQ area, etc.) preferably near water (coastal, beachside or lakeside) and near shops.
Single people and unmarried couples also want this type of property but near urban or inner-city areas where there are shops, restaurants and bars and near their place of employment.
Families want a single-family home with a backyard for children and dogs to play. They also want to be near shops, schools and work. So a suburban single-family home is most suitable.
Some investors believe that the large single-family home is going to be less desirable with the future population and young families simply won’t be able to afford that type of home.
Many homes on larger blocks of land are being demolished to make way for subdivision of the land into two home sites.
In my experience, the large home market (particularly upmarket homes) doesn’t increase in value with the rest of the market. Upmarket homes are a unique market and can boom and bust separately from the mainstream real estate market. Also the rental returns are poor on upmarket homes. As a result, I don’t recommend investment in upmarket homes.
I recommend investment in:
- Single family homes on small lots of land in desirable suburbs.
- Townhouses in small complexes near schools, shops, work, etc.
- Apartments in or near CBD or beach resort areas.
Purchase Property at the Right Price
Try to buy the most expensive property you can afford in a desirable area or close to the city. Quality real estate always improves in value and is easy to rent. Never buy a property just because it is cheap or affordable. There is usually a good reason why the property is cheap.
Negotiate a very fair price or don’t buy the property. I have seen many people pay too much for a home and pay too much mortgage interest. If you are lucky enough to purchase just before a property boom it doesn’t matter you paid a little too much. However, you never know when there is going to be a property boom.
Purchase Property at the Right Time
Never buy property in a boom.
When there is a boom properties have just reached or are close to their peak price for the current time. It may take many years for prices to rise to this level again or move higher than this level. Usually you will need to wait ten years for another property boom.
Purchase Property in a Recession or Market Downturn
The best property to purchase is one that has been on the market for a while. How long a property has been on the market can be difficult to find out. Vendors usually like to hide this. If a property is not selling the vendor usually takes the house off the market for a while and then puts it on again with a different agent. Sometimes the new agent is not told that the house has been for sale recently.
Property developers use the trick of only releasing so much property for sale at a time to limit supply and keep prices up.
Land developers like to limit the release of home sites for sale. Usually, they will release land in stages as they develop each street.
In large apartment developments it always amazes me how many apartments that have been sold come back onto the market for sale due to purchasers failing to arrange sufficient finance. Could this be that maybe they were not really sold in the first place and the developer makes it look like the whole development is selling fast and you had better get in quick or you will miss out. And of course the next release will be more expensive.
The Best Time to Buy Real Estate
The Right Market
I always like to purchase property when the market has cooled down and running slow as you are most likely to be able to select from many different properties and make offers at reduced prices.
Find out the state of the property market by following media reports, property tracking websites and checking the volume of sales in the area of interest. Also, some real estate agents are honest (can be hard to find) and will tell you the real market conditions if you ask them.
How to Approach a Real Estate Agent
Never show the real estate agent you have a sense of urgency to buy property. Never show positive emotions or tell the agent you are very interested in a property. If you do, this will diminish your bargaining power and the real estate agent may play you off against another buyer.
If you see a property for sale, don’t enquire immediately, wait a week or two before making an enquiry. Try to attend an open house rather than make an inspection appointment.
Never show a vendor or agent you are desperate to buy the property.
Rarely is a property priced lower than market value. If it’s priced below market value, it’s a fixer upper (needs substantial renovation), a deceased estate or a mortgagee sale (the bank selling to recover their money). In any case, you need to check with the council and banks, regarding planning, legal and financial issues for the property to ensure there are no hidden issues.
Most property is either correctly priced (usually slightly overpriced at say 3 to 5%), or obviously well overpriced.
I have seen many vendors listing their properties at 10 to 30% more than the market value to test the market hoping they will find a sucker buyer who doesn’t know the market. Usually an interstate or overseas buyer purchases the property.
When you inspect the property, tell the agent what you don’t like about the property. Even if you love the property there will be something you won’t like or could be better. So tell the agent and it will get back to the owner. Even if you really like the property and want to make an offer don’t tell the agent. Go quiet for a while, then make an appointment for a second inspection, then talk about an offer at a reduced price. Slow the buying process down on purpose.
If the property is correctly priced, eventually make an offer lower than the purchase price but not too low to insult the owner. Generally, 5% discount is a good guideline.
The Future
Nobody, not even the most experienced and knowledgeable investor, can predict the property market.
So don’t try to predict it.
The best strategy is to start as soon as possible, preferably as young as possible, invest in real estate and build up your wealth. Over time there will be periods of growth but you won’t be able to predict them.
You also need to expect periods where the market goes nowhere. Sometimes the market can be flat for years. Sometimes the market may even decline in value.
Just ignore all of that and keep investing for the future.