No matter where you buy, or what your strategy is, or what the property market is doing, it is important to ask yourself five questions before you buy.
Finding a good area to invest in is no guarantee of success alone. Two people can buy property in the same suburb with completely different financial results. Finding the right house and paying the right price is crucial – most property experts claim your money upfront when you buy.
The majority of investors look for rising property markets and promising suburbs, but if you only look for an area, and buy the first place you can, you may still be buying an overpriced house. If you pay too much for a property upfront then you are left waiting and praying that the market goes up so you can make that money back in the long run. Here are five important questions to ask yourself before you buy a property:
1. Why are you buying?
Being honest and clear with yourself and your reasons for buying a property is important. If it is for investment purposes then it should be able to make you money. Go through the following list to see if you are buying for investment reasons rather than emotional reasons. If the answer is “no” to all of the questions below, there’s a good chance there’s a better deal elsewhere:
- Are you buying at or below market value?
- Does the property have development or renovation potential?
- Are there drivers for demand for property in this area in the future?
- Will the property be positively geared if I rent it out?
- Is this type of property in demand in this area
2. Why are they selling?
For every buyer, there is a seller, and you need to ask yourself why a property that someone doesn’t want to keep is one that you want to buy. The seller’s reasons aren’t always causes for concern:
- An elderly couple may want to downsize to minimise the upkeep they do on their home.
- A young family might space to grow.
- An investor may have have over-committed themselves
However, there are other reasons that may lead you to reconsider, for instance, if there are undesirable development or infrastructure projects approved in the immediate area
Asking the question of the agent or owner first is important, then you must decide whether their reason for selling impacts your reasons for buying. Doing your own area research is also important. Understanding the seller’s reasons for selling can give you negotiation points to ask for a lower sale price or discount prior to settlement. If you ask the question directly and the agent is aware of any issues impacting the sale they must disclose it and not deliberately mislead buyers. Read here for more information on the agent’s obligations for selling property.
3. How much land are you getting?
Two houses in the same area could seem similar in quality and features but one might go for much more than the other. This can often be because there is a significant difference in the land size. A larger block of land is one of the first key needs when asking yourself can I develop this block (e.g. sub-divide, install a granny flat, knock down and rebuild).
4. What is the current zoning?
It’s great to find a large block that you can buy for below market value with the intention of knocking down the old house and putting four townhouses on it, but this must be permissible under current zoning. The current zoning rules will give you guidance on what is and is not allowed to be built on that large block you have found. Not checking and understanding the current zoning rules can be a costly mistake!
5. Do you have finance?
In the finance environment today, it is important now more than ever to ensure you have your property finance sorted before buying. Often, peoples expectations of their borrowing capacities don’t meet their requirements, and if you don’t have a firm grasp of this, as well as consultation from a lender, you can end up wasting a lot of time, and sometimes money.