Would you trust a property report generated by the seller?  Buyers Agent Cate Bakos has some thoughts on that and she also outlines what she sees as some of the ‘invisible’ issues of property investing.
Transcript:
Kevin:  A property investment – or any investment, for that matter – is only as good as how it returns for you. What are some of the invisible issues that can undermine the returns on a property investment? Joining me to talk about that is Cate Bakos from Cate Bakos Property buyer’s agents based in Melbourne.
Hi, Cate. Nice to have you on the show again. Thanks for your time.
Cate:  It’s great to be here, Kevin.
Kevin:  Give me some of those invisible issues. What have you found, generally, that people tend to overlook that can impact their returns?
Cate:  Sometimes it’s not even overlooking or not being aware of them, but the invisible issues are the things that need to be done once you’ve purchased that property – and they can be quite costly. So you went into this investment thinking you had a 3.5% or 4% gross rental return, by the time you’ve fixed those invisible issues, you could be significantly down to early 3%s, and that can really hurt.
They’re typically things that you can’t see, and without due diligence, you might not know about them until the problem occurs.
Kevin:  List a few of them for me, Cate.
Cate:  For example, electrical: re-wiring, the need to re-wire or spend significant money on a property that has unsafe electricals. There are a few little hints that we can sometimes see, but it certainly doesn’t guarantee anything.
I think that having a qualified building inspection on the property, asking them to point out any concerns, is a start, but it’s important to note that a building inspector isn’t an electrician. So, they might see more warning signs than a normal buyer can see, and that’s a start.
Another one is plumbing. If you have some significant plumbing and drainage issues, they can certainly add to the cost base of the purchase, because works will need to be done to fix that up. They can range from hundreds of dollars to tens of thousands of dollars, depending on where the issue sits, so it’s a really important one to consider.
One of the most expensive invisible issues isn’t so invisible that people often underestimate them; it’s when you have significant movement on a property that needs more than just re-stumping; it might need soil engineers. The whole problem might be something that spirals into hundreds of thousands of dollars and that’s more than just re-blocking; it’s substantial works on a period home, for example.
Kevin:  It can be a lot of underpinning. Therein lies another problem, because those structural defects or the need for underpinning and how a building can drop sometimes can be hidden depending on weather conditions.
As an example, we found, in different parts of Australia, when the climate is moist or when there’s a lot of rain around, those cracks that could emerge actually close up because the moisture in the soil will impact on the foundation. So, you really do need a highly qualified person to give you an insight about the foundations, Cate, is what I’ve found.
Cate:  That’s right. I think if a normal building inspector suggested there might be an issue that needs a little bit of specialization, someone to have a closer look, I don’t think you can ignore that. We’ve walked away from many a property that has proven to be too expensive with all of the rectification work for investors.
Kevin:  What you’re suggesting is as well as a building inspection or report, you have to have one done on electrical, one on plumbing, and one on the structural integrity of the building. Is that right?
Cate:  It’s a hard one, Kevin, because if you get all of that done, you’re looking at $2000 per property, and nobody in their right mind would want to spend that on every property that could be the one.
But I think getting a reliable building inspector who can give you a hint if there are other areas of concern and point you in the direction of a specialist, if one is required, that’s what is really important – having a building inspector you can trust.
Perhaps, asking on forums or chatting to friends, getting someone who is very reliable: they’re not just giving you scare tactics; they’re genuinely telling you that you might have to look a little bit closer at a roof plumber getting up on the roof or an electrician checking out the electricals.
Kevin:  In fact, we just did an interview recently in the show with a building inspector, and I want to get your opinion on this, too. Andrew Mackie-Smith joined us in the show. He’s written a book called Building Success.
He is suggesting that as it is in the ACT, that sellers should be required to get building inspections done, not just on the building but the electricals and the plumbing, so that it’s a full report that can be given to every buyer.
Would you support something like that, and would you take notice of a report that was generated by a seller?
Cate:  I certainly would check out the credentials of the inspector who has done the report, and I would want to be quite comforted that they are independent. But I think the idea has a lot of merit because a seller who has nothing to hide and has a property that checks out well is encouraging people to have a punt on auction day, and there are many occasions where a buyer might think “Look, I’m not sure if I’m in the right vicinity pricewise. I don’t really feel like spending the $500 or $600 on the report. I’m not going to bid.”
From the seller’s point of view, it can be quite a tactic if it’s a great report, because it will encourage people to bid and it will obviously increase competition and potentially get a higher result.
If a seller does have a house with problems, obviously, they won’t be so excited about uncovering all of those, and when you buy at auction, it is buyer beware. You’re buying as it is on the day, so I imagine sellers will have mixed views on that.
Certainly, from a buying point of view, I would find it much easier if we didn’t have to scramble around, getting building inspections on every property that we’re going for, sometimes at the last minute. So yes, I think you’ll have mixed reviews on that idea.
Kevin:  The “buyer beware” saying is quite real, but a solicitor Tim O’Dwyer said recently on the show that he believes that’s changing around Australia where there’s a lot stronger emphasis now being put on the seller, and I think rightly so, too.
Let’s face it. When you buy a car, it has to come with a roadworthy certificate. Therefore, there’s a requirement to say “The product that I’m putting up here is roadworthy as a car.” The same, I think, should apply to a property. If I were a seller, Cate, I would want to know what was wrong with my place because that’s going to impact the eventual sale price.
Cate:  Yes, that’s a really fair point. It’s not just about the condition of the property; sometimes there are illegal works or there are works that have been done without the appropriate sign-off, and so you have permit issues as well.
I think every buyer is entitled to understand when a property is being sold without the appropriate permits, and in most cases, a good, solid legal review will reveal those types of issues as well.
Kevin:  Cate, always great talking to you. Cate Bakos,, buyer’s agent from Melbourne, from Cate Bakos Property. Thank you very much for your time.
Cate:  Thanks for having me on the show, Kevin.