- What makes a property a lemon?
- 9 big money mistakes we make
- Are you paying a ‘learning tax’ when you don’t have to?
- The no reserve auction that was anything but no reserve
Here is what is on this weeks show…..
What makes a property a lemon? What turns buyers off might be a clue so Jennifer Duke lists the top 10.
To balance that, Bessie Hassan from Finder.com lists the top 5 features buyers will pay extra to have in a property. She also reveals the 9 big money mistakes Australian’s make and property is right up there. In fact you might be surprised to hear how much is lost on average.
You can’t beat getting your feet on the ground and seeing the area you plan to invest in. The temptation is high, because of the internet, to believe that you can assess a good property without travelling to see it. But travelling there is not always possible. Michal Yardney this week speaks about what he calls a ‘learning tax’ that may apply if you believe you can invest from a distance.
There are countless budgeting mistakes made by investors all over the world but they can be summarized as underestimating expenses, overestimating income and failing to plan for unexpected costs. But there are long-term errors investors can make in their existing financial plan and Helen Collier-Kogtevs reveals what they are.
In Brisbane recently a no reserve auction caused an enormous amount of interest when it didn’t sell despite some solid bidding. Surely a no reserve auction means that the property must be sold even if the highest bid is $1. So what happened and what are the pros and cons of a no reserve auction.
Affordability when it comes to property is one of the most searched terms. So we have challenged Brisbane expert Shannon Davis to identify the most affordable suburbs in that part of Australia.
Bessie Hassan –
Kevin: Almost half of Australians, around 47%, have admitted to making a costly money mistake. Not surprisingly, divorce is right up there, so too is making a mistake on an investment property or a property purchase. Joining me to discuss this is consumer advocate from Finder.com.au, Bessie Hassan.
Bessie, not surprisingly, divorce comes up at number one. That’s pretty sad, really.
Bessie: That’s correct. An estimated 1.36 million people have been affected by divorce and do cite this as the costliest financial mistake of their life. But interestingly, this is closely followed by losing money on a property investment. That also has affected almost 1.3 million Australians.
Kevin: Yes, I guess if we can look at it, we can associate the heart with both of these things. The heart is in the divorce and the marriage, but then I think a lot of investors make a mistake with a property by buying it from the heart as opposed to the head. They don’t make a good business decision.
Bessie: I completely agree with you there, Kevin. I do think emotion comes into it all too often unfortunately for owner-occupiers and investors alike. Buying with your heart and not your head can lead to these mistakes down the track.
Kevin: Yes, when you make a mistake with property, too, another interesting aspect out of your research was the average loss was just over $100,000. That’s a lot to lose on one property, isn’t it?
Bessie: It absolutely is, particularly in a thriving property market as it is now. You buy a property with that view that you will make a huge capital gain, so anyone losing money, particularly of that amount – over $100,000 – should really be doing their research to ensure that this doesn’t happen again or at all.
Kevin: Let’s help with a bit of that research, because there was another interesting story that I noticed came out of Finder.com.au, and that was the property wish list, the top five home features that buyers will pay extra for. What are those, Bessie?
Bessie: That’s right. We’ve surveyed more than 1000 people nationally, and coming up at the top of the wish list was actually air conditioning. Aussies would tell us that this is the most desirable property feature, and that was followed closely by covered, off-street parking.
Kevin: That doesn’t surprise me. What were the other three, by the way? You mentioned air conditioning and off-street parking.
Bessie: In third place, we had a garden, fourth place was solar panels, and then rounding out the top five was an outdoor entertaining area, so a deck or a pergola is very highly stated among property buyers, as well.
Kevin: Yes, we have quite often talked about swimming pools, and they came in I noticed at number seven, but there are quite a few investors who will actually buy a property with a swimming pool and then fill it in, because of the costs of maintaining those pools.
Bessie: Yes, that’s an interesting point, and there is very much a perception out there that a home that has a swimming pool is the dream home. It is very often viewed as that most desirable trait or feature. However, our research tells us it’s not the case, and I think you’re bang on right there, Kevin. The upkeep of keeping a pool can get so expensive. It’s not just the installation but it’s the maintenance. People tell me when something goes wrong, it’s very expensive to repair, so while it might seem well and good in theory, there’s a lot more to it. You need to do your research and factor in those extra costs.
Kevin: It doesn’t surprise me at all that air conditioning comes in at number one when you look around Australia, however I want to take another look at that. That’s from an owner-occupier’s point of view. We’ve got air conditioning in our place and we wouldn’t live without it to be quite frank, because in some parts of Australia the temperature can get up well into the mid-30s.
Bessie: High 30s, yes, absolutely.
Kevin: But from an investor’s point of view, I wonder if that would actually come up number one. If you asked purely investors whether they thought that would be something that would be desirable for them or whether it’d go down to some of the other aspects you talked about, which was the back yard, those outdoor living features for tenants.
Bessie: Yes, that’s an interesting point, Kevin. This was survey owner-occupiers and buyers. We single out investors in particular. However, previous research done by Finder does view back yards and off-street parking as the two key features for investors. A lot of these things can be put in at a later date. So air conditioning, we had a dishwasher on the list as well as a built in barbecue. They can all be put in at a later date and command more money, however things like parking and a back yard, you’ve either got it or you don’t.
Kevin: That’s right, and also with location to schools and shopping centers and so on makes it very important. In the earlier part of our conversation, we were talking about the mistakes that people make with property purchases. They don’t do enough research, they don’t think about the end user, and from an investor’s point of view, they have to think about what the tenants want that makes it more rentable.
Bessie: Definitely. In terms of renting, you absolutely do need to look at those key features and proximity to those key amenities: hospitals, schools, train stations, things like that. Again, remove emotion from the equation. If you’re buying it with the view to live in one day, even then you do need to think of the costs and the rental potential in it.
So if you are buying a property with a view to rent out, look for something with a bit of a back yard. As Aussies, we love to do our outdoor entertaining. We love barbecues, we love having people over, so anything with a deck or a pergola and a bit of a back yard will really go down well with investors and renters alike.
Kevin: Great talking to you, Bessie Hassan. Bessie is a consumer advocate with Finder.com.au.
Thanks Bessie, talk to you again soon.
Bessie: Thank you.
Justin Nickerson –
Kevin: Well, here’s a horror story for you. You may or may not have heard about the no-reserve auction in Chelmer, which wasn’t quite a no-reserve auction. Let’s find out about the intricacies of this. I’m going to talk now to Justin Nickerson. Justin is a director of Apollo Auctions.
Justin, thanks for your time. By the way, too, happy Easter.
Justin: Thank you very much, Kevin. Much appreciated. Likewise.
Kevin: First of all, tell me, a no-reserve auction, is it exactly what it says or it sounds like, and that is the house is going to be sold with absolutely no reserve?
Justin: Well, generally, yes is the short answer. Usually if it’s been advertised as no reserve the owners are prepared to take a punt, so whatever the highest bid is on the day, that’s the person who will end up owning the property.
Kevin: Have you ever done a no-reserve auction?
Justin: I’ve done two, Kevin. As a full-time auctioneer, I’ve probably called a few thousand auctions in my lifetime and I’ve only done two, and I haven’t done any for a couple of years. It’s very uncommon. Most sellers don’t want to roll the dice and take that chance, but they do happen from time to time.
Kevin: The two that you’ve done, tell me about them. Were they successful? In other words, what sort of price did they achieve?
Justin: One of them actually achieved what I’d consider to be a premium in the market, really. One thing about no-reserve auctions generally is that they do attract a whole heap of buyers, and what we generally find with an auction – be it a no-reserve auction or a regular auction – the best auctions always have momentum.
What you tend to find at no-reserve auctions is that they do get a bit of momentum of their own and they take off, and sometimes they do go past what most people would deem as being a fair market value or a reasonable market value. One of the no-reserve auctions I did certainly did that, and it probably sold at a premium. The other one probably sold, I guess, at figure that’s roughly around that market-value figure.
Kevin: I guess that’s the proof of what an auction is all about, and that is creating that competition. When you create the competition, you put people in an environment where they may spend more than they ordinarily would just to compete.
Justin: Yes, exactly. We always say there are two things, two ingredients, you need from a seller’s point of view to get the best price that’s out in the market. One is you need an emotional buye – someone who loves the property – and the second one is you need to place them in a competitive environment. That’s what auctions are built around. It’s built around “I want this home and I can look across the yard or across the living room and see someone else is trying to take this home from me,” and that’s when you generally get the best results and the most competitive behavior.
Kevin: You said you’ve done two. One you mentioned that sold at what you thought might have been a premium. What about the other one?
Justin: It probably sold roughly around market value, maybe slightly on the lighter side. It didn’t have the same amount of registered bidders, and it certainly didn’t have the same amount of people there on the day. It still had that very, very, good number, but the other one was a bit of a frenzy, whereas this one was probably a little bit more reserved. But it did get to a point where it’s probably equitable to market value, anyway.
Kevin: Not a bad result, is it? Two auctions, one getting a premium price and the other one selling at fair market value. You’d have to say the reason there probably aren’t more no-reserve auctions is because, as you hinted at the start, sellers are just not willing to roll the dice.
Justin: Yes. It’s a huge risk. I think every seller wants to get the best possible price, but they also want to mitigate as much risk as they can. Putting your property out there at the mercy of the buyers on the day without a safety net – which is your reserve price in essence – is probably not a feeling that sits well with most owners. I think that’s the reason we don’t do more of them. They’re great fun for us as auctioneers. The marketing agents generally have a pretty good time, as well. But from the seller’s point of view, it can be an incredibly stressful environment for them.
Kevin: The Office of Fair Trading are looking into that auction that I mentioned at the start, the one in Chelmer. Despite the bidding reaching $640,000 the property was passed in. From what you’re telling me and from what I know, that shouldn’t have happened. The property should have been knocked down for $640,000, shouldn’t it?
Justin: The short answer is yes. The long answer is… Look, obviously, the Office of Fair Trading do their enquiries, and I wasn’t at the auction. I only know whatever everyone else knows, which is what the articles that have appeared there have said.
One of the key terms and conditions in the Conditions of Auction here in Queensland is that the property is offered subject to a reserve price and the seller’s approval. That plays a really significant role in this case here, where if you read that to the essence of the law, it’s offered subject to a reserve price – which is not in play – but it’s also offered subject to the seller’s approval.
Now, if the seller hasn’t granted approval to sell the property at $640,000, by the absolute wording of the legislation, you can’t sell the property. I understand the agent, the auctioneer, the principal, and the seller were all the same person, which blurs the lines, as well. But in that case there, that’s the protection I guess you’ve got under the terms and conditions of auction.
What we see, I guess, on most weekends and anyone who’d been to an auction will know there’s always someone in the crowd who yells out “Are we on the market?” question. As an auctioneer, it’s actually not a question you can answer because of the fact that even if you are past that reserve price, without seeking the seller’s approval, legally by the absolute lettering of those terms and conditions, you can’t put the property on the market without that permission, anyway.
Kevin: I’ve quite often seen properties knocked down where they owner hasn’t been referred to because the reserve has been met and exceeded. Are you saying that that could even be challenged once the auctioneer knocks it down?
Justin: I’m saying best practice, Kevin, under the terms and conditions of auction is that they should always confer with the seller for their instructions, because again, the wording is very, very, clear. It’s offered subject to reserve price and the seller’s approval. It’s not “or the seller’s approval”; it’s “and the seller’s approval,” meaning if you don’t have both of those things prior to selling a property, if the seller did get upset for whatever reason or they felt they were pressured or whatever it may be on the day, potentially you open yourself up and you could be challenged there.
Kevin: Not wanting to split hairs here, but if we go back to those terms and conditions subject to a reserve, surely if it’s a no-reserve auction wouldn’t the reserve be $0?
Justin: Yes, that’s correct. There is a difference between not having a reserve and having a reserve that’s basically $0. In essence, if w don’t have a signed reserve form, we can’t start the auction, because the seller hasn’t set a reserve. If it is a no-reserve auction, then generally that reserve should be written as $0.
But again, I don’t think that takes away the fact that the second part of that is pretty clear in that you need to seek the seller’s approval prior to selling the property. But again, like a no-reserve auction, that line becomes incredibly blurred and you get a scenario like happened on the weekend where it’s left up to greater legal minds than mine and everyone else’s is to decide what is appropriate and what should have happened in that case.
Kevin: Still on that auction in Chelmer, a number of people are concerned and expressing some concern about the fact that they didn’t know that the principal of the office who actually also was the auctioneer was the owner of the property, and that wasn’t disclosed until later. Does the selling agent have to disclose that they are also the owner of the property. Is there a requirement for them to do that?
Justin: There’s not a legal requirement, no. Again, a lot of this stuff, Kevin, as you know is a legal requirement and then a moral requirement. I always think it’s in your best interests to disclose it. If you’re as transparent as you can be with the buyer throughout this process, I think it ends up having a better result and a better relationship at the end. They don’t need to disclose that. If they’re buying the property, there certainly needs to be disclosure made there, but on the selleing side, that doesn’t have to legally take place. But again, if you come back to what is the best thing to do, I think the best thing to do in most cases is definitely to declare it.
Kevin: Justin Nickerson, a director of Apollo Auctions, a professional auctioneer does it all the time, and he knows what he’s talking about.
Justin, thanks for your time.
Justin: My pleasure. Thank you, Kevin.
Michael Yardney –
Kevin: Wow, haven’t we seen a spectacular growth in the Sydney market? I guess to a lesser extent Melbourne, as well, and Brisbane is now on the horizon of people tipping that that’s going to have a fairly good 2016‑2017. The temptation is great if you don’t live in those cap cities to actually invest there, to make sure you’re on that bandwagon, as well.
Michael Yardney joins because I’m curious to know where can you go wrong with investing interstate? What should we be aware of before we jump in, boots and all?
Michael: Thanks Kevin, I agree with you that a lot of people are tempted to invest interstate, and I think they should – not as much to time the market, but maybe to give themselves a bit of diversification in the property portfolios.
But Kevin, there’s a whole range of other people who just are too scared not investing in their own back yard. They want to see their properties, they want to feel their properties, they want to drive past it, and that’s one of the first mistakes: actually not investing interstate and only investing in your home town if it’s not the right place to invest in.
Kevin: Yes. It’s really a double-edged sword here, isn’t it? You shouldn’t not invest in your own back yard, but that shouldn’t be the only investment strategy you have.
Michael: Exactly. Open your horizons and your opportunities elsewhere. But then as you said, that opens up a whole potential bag of worms. There are some traps people have fallen into by investing interstate. One of the big ones is they buy off the plan.
Too many of the new off-the-plan properties, particularly in the Melbourne and Sidney CBD are being marketed to interstate investors, and while they look really pretty in the ads and the brochures and the models, there is no scarcity value in these properties. There is no supply pressure to underpin property price growth, and these properties in general are dominated by property investors who are often speculating rather than owner-occupiers who are going to underpin the demand.
One of the other big mistakes is buying off the plan and then usually end up paying a premium for it anyway.
Kevin: I call it low-hanging fruit, because that’s the easy thing to do if you’re going to buy interstate, to buy off the Internet. You’ll always be drawn into those off-the-plan type schemes.
Michael: That’s right. Another one is buying new house and land packages in those master planned communities, those new estates. They may look like they have all the bells and whistles, people consider they have a reasonable land component, but again, the problem is in these outer suburban areas there’s a minimum amount of scarcity because there’s another new estate, there are other new homes around the corner, and the demographics of those areas tend to be young families who are price- and interest-rate-sensitive, so this also is going to minimize your rental growth and capital growth.
Kevin: One of the other problems I see, Michael, is this temptation to buy sight unseen. It’s very easy now with so much information on the Internet to think you won’t even have to travel there. Do you hold that theory?
Michael: Kevin, I agree with you, you should never buy sight unseen. There was a bit of publicity recently in the papers and on TV about a house being sold in Sydney that had a huge water tank behind it – three or four stories high – but because of the angle of the photos – they didn’t Photoshop them, but because of the angles of the photos taken – you just couldn’t see it.
I’ve heard horror stories of people who bought sight unseen, thinking their investment probably had incredible views – it did, but maybe only from the laundry – or who didn’t realize there were large power lines that dominated the streetscape because they relied on the agent’s photos.
The moral of the story is don’t risk purchasing sight unseen unless you’ve got a trusted representative such as a local – not an interstate – buyer’s agent or somebody on your side reviewing the property on your behalf. You don’t have to see it as long as one of your team sees it.
Kevin: That raises an interesting point, if I could ask you about that. You mentioned there are buyer’s agents. You said not an out of town buyer’s agent or somebody who flies in, has a look around, does your homework for you, but you’re talking about someone who lives in the area and knows the area.
Michael: Of course, I have a bias towards it, because my team are buyer’s agents, but there are lots of great professionals in every state doing this, so my recommendation would be to use a local professional who knows the market, who knows why one side of a street is better than the other, which properties are in school zones.
One of the problems I’m seeing currently is people are flying in and flying out. They don’t have the perspective, they don’t have the depth of experience that one needs to understand what makes a great investment property in a particular location and what doesn’t.
Kevin: On that point, I guess you have to be careful when you’re dealing with these experts that you’re not dealing with marketers. How can you tell that you’re falling into that trap?
Michael: I’m not suggesting that all property marketers are trying to scam you. There are a fair few rogue operators out there who add a significant premium to the property’s sell price to account for their commission.
I guess it’s important to know if you are dealing with somebody interstate, who are they working for? Are they being paid a fee by the person that they’re representing, the seller, the vendor, the developer, or by you? The only person who is likely to make a decent profit out of that transaction, though, isn’t the investor.
I’d be paying your faith in somebody to represent you if you’re buying interstate, otherwise you’re going to pay a huge fee in a different way. I call it a learning fee. I call it a stupid tax by making the mistake some investors make buying interstate.
Kevin: I suppose you could always tell if you go to someone who may be a marketer and they have already some stock that they want to sell you as opposed to finding out what is actually going to fit your portfolio.
Michael: Definitely. If you’re going to get somebody to help you, to be on your side, what they have to do is work out where you are, where you want to head, what your risk profile is, what your timeframes are. They can’t just open a drawer and pull out a brochure with something that they have on their list to sell. You want somebody on your side who is independent.
Every state has got a swag of good, professional buyer’s agents who can represent you. It comes at a cost in some people’s mind, but in my mind it’s actually an investment, a form of piece of mind that stops you paying that learning fee.
Kevin: Always good talking to you, Michael Yardney from Metropole Property Strategists. Thanks, Michael.
Michael: My pleasure, Kevin.
Helen Collier-Kogtevs –
Kevin: My guest this time is Helen Collier-Kogtevs from RealWealthaAstralia.com.au.
You wrote an interesting article that I wanted to talk to you about, Helen, and that was about the budgeting errors that investors should avoid or quite commonly make. What are those errors?
Helen: There are quite a few, Kevin. Firstly to start off with, it’s preparing a budget without any real goals in mind. There’s a lot of conversation around “We must be doing some budgeting, we must look after our pennies, we must save for the future,” but there is no real structure or framework in place for people to actually implement.
With that, sure, you can go online and you can download an app and do all that kind of thing, but people are like, “Yeah, yeah, I’m doing a budget because I feel like I need to and I should be managing my pennies better,” but they’re not factoring in goals. What Is the purpose of it? What are you trying to achieve? What is the outcome? What is the desire you’re wanting?
Kevin: Yes. You make a very good point there, and that is what I call the “why” – “Why am I doing this? What is the outcome that I want?” That’s going to help you make that plan, Helen, isn’t it?
Helen: Exactly right, Kevin.
Kevin: You mentioned there about budgeting, but probably budgeting without enough understanding about what the real costs are.
Helen: Yes. It’s one of the areas people don’t realize, and what I want to share from personal experience is that the very first property we ever bought… And I know this is a nincompoop thing to do, but you know what, Kevin, back in the days I had no idea what stamp duty was. So when calculating out a deposit, I thought, “Yes, we’re going to engage a solicitor so we’re going to need some money for that,” but when it came to it, oh my gosh, we got this $15,000 bill for stamp duty, and I didn’t realize that or I didn’t anticipate that.
For the newbie investors, understanding every cost is important. For those investors who have been in the market for a while and understand the basics, some of the costs they underestimate or don’t even consider are things like trips to go and view the property – if you’re going to jump on the plane if the property happens to be interstate, whether you get in the car and drive to view it – or what about the data reports that you might be buying? Some of those aren’t cheap. It’s those sorts of costs that people need to factor in and take into account
Kevin: When it comes to budgeting, too, especially for some new investors, I guess, they don’t know what they don’t know – all the more reason to cast that net wide and get some experts involved, isn’t it?
Helen: Exactly right, Kevin. I never buy anything really without consulting my accountant and my finance broker first – even with something like buying a car. I’m in the process of looking at buying a car; the first call I made was to the accountant to say, “How do I structure this? What’s the best way as far as asset protection goes? What’s the best structure for buying it? Do I put it under finance, or do I buy it with cash, etc?” Then I went straight to my broker and said, “Look, I want to buy this car. This is roughly how much I want to spend. What’s the impact on my borrowing power for when I want to buy my next investment property?”
Consulting the experts in all areas of your life when it comes to money really does make the difference between being able to get into that next deal and potentially not.
Kevin: The final point that you made, and it follows on from what you’ve just been talking about there, Helen, is how we tend not to take some insurance, I guess, by way of a buffer. Explain to me about the buffer and how big should it be?
Helen: Great question, Kevin. With a buffer, it’s that bucket of money that you keep aside that you don’t touch. Now that bucket of money can be cash in a savings account, it could be equity in your home or in an offset or redraw account, but it’s money you have access to that you keep aside for a rainy day.
A buffer is not the, “Hey, I’ve been saving for a couple of months. I have $5000 in the bank and – oh, upsy-daisy – I want to go on a holiday, and I think I’ll just take it out of that account.” That’s not a buffer. The buffer is something you just keep aside purely for your investing and to protect you should and if life gets in the way.
An example of how much a buffer should be? Some investors say to me, “Helen, $10,000 is plenty.” That’s okay if that’s where their peace of mind is at and if $10,000 set aside gives them that sleep factor, great. But then there are other investors I’ve spoken to who say to me, “Helen, $10,000 doesn’t cut it. It needs to be more. I want to take a more conservative approach.”
I have got a rough calculation that I share with people and it goes like this. Annual expenses: you look at your total annual expenses for that property minus the rent, and whatever the balance is, you multiply it by 12 months.
For example, if your expenses are $25,000 and the rent is $20,000, therefore you have a balance of $5000 and you multiply that out by 12 months and that gives you $60,000 as a buffer.
Then some investors will keep that $60,000 aside because that gives them the sleep factor.
Kevin: Gee, that’s a really good formula there. I guess the other two points, too, that you make in your article are that a budget is flexible – you need to be adaptive – and also to redo your budget when you reach your goals.
Helen: Absolutely, Kevin. We call it “rinse and repeat.” When you’ve actually achieved the goal of, maybe you’re purchasing that property a set time, then you have to redo your budget. You have to see what the impact that property is having on your disposable income and on your day-to-day cash flow or month-to-month cash flow.
If it’s drawing more money out of your budget, then you need to reassess so that you still have your buffer maintained and you still have your lifestyle, you’re not living off baked beans while you’re going through this journey of creating wealth through property.
You’re just taking stock. It’s doing that constant stock-take once you’ve achieved your goal and then resetting yourself, where you go, “Okay, great. I’ve bought that property. It’s only costing me $50 a week. The budget can handle it. The buffer is in place. I still have $150 a week in savings. So I’m ready to go now and do another deal.”
Tat way, when you’re looking at purchasing the next property you are crunching the numbers, and you already have a really good idea as to what it’s going to cost you and that your budget can sustain it.
There are investors who sometimes go and buy that second property without reviewing the budget, and then they realize, “Oh, my gosh,” after they’ve done the deal that their budget is really tight and they’re scrambling to find more cash flow.
Kevin: Helen Collier-Kogtevs, my guest from RealWealthAustralia.com.au.
Helen, it’s always great talking to you. You make so much sense. Thank you very much for your time.
Helen: Thanks, Kevin.
Jennifer Duke –
Kevin: When you’re looking to buy a home there are probably many reasons why you would and many reasons why you wouldn’t buy a particular property, but what are some of the red flags that agents have seen in the past that have turned buyers off? A very interesting article written following some research by Jennifer Duke from Domain.com.au who joins me.
Jennifer: Hey, how are you going?
Kevin: Good. Thank you very much for your time. I would imagine that structural issues would be right up there at the top, would they?
Jennifer: Yes, definitely. I think one of the top warning signs was wooden retaining walls, because it’s one of those things that can be sort of tricky. With most warning signs, it’s things that you see that look a little bit dodgy that should have you asking more questions. It’s not necessarily a turn-off straight away, but you should definitely be researching into it a little bit more and maybe getting that building and pest inspection.
Kevin: Yes. As well as wooden retaining walls, I think retaining walls generally are a bit of a warning sign, especially if they’re on the boundary because quite often sometimes, they could be either one side of the boundary or the other. The other thing I’ve found too, Jennifer, with these retaining walls is who maintains it? Is it the person on the top side or is it the person on the bottom side?
Jennifer: Definitely. You don’t want to be in a neighborhood dispute when you’ve only just moved in.
Kevin: No, you don’t. That’s right. One of the other important things we talk about or tell sellers is to make sure you de-clutter. I can imagine buyers walking through a very cluttered home and not being able to get a feel for the home.
Jennifer: Definitely. I think that’s one of those things that buyers need to be wary of, that they aren’t distracted by the clutter that’s in there, maybe the old-looking furniture, and that they give the property a proper chance. I think that for sellers, it is important that they maybe consider staging, taking out their really, really, personal items. But at the same time, it could be a good opportunity for a buyer to get in ahead of other purchasers who might not be able to keep their mind off the rubbish that’s there and focus on their own furniture in the place.
Kevin: Yes. That’s a very good point that you make. It could give you a buying opportunity or a buying advantage if you can look past that. I think any good agent’s going to tell someone to make sure they de-clutter, but I’ve seen many houses that aren’t. And you’re right; it can be a very big turn-off for buyers, as well.
Jennifer: Definitely. And it’s hard, as well, because especially with functional rooms where you could get in quite a lot of furniture, some people over-cram them in to show that you can get in that furniture, and it does them a disservice.
Kevin: Yes, exactly. Let’s have a look at units for a moment. I know that sinking funds and levies and so on are always a somewhat contentious issue. You have to ask a lot of questions when you’re buying a unit, don’t you?
Jennifer: Absolutely. One of the main questions you should be asking is whether there’s any money in the sinking fund. If there’s no money in the sinking fund, that’s definitely a warning sign. It means you need to be asking a few more questions. You basically want to know whether or not there’s been any damage that they’ve had to use the sinking fund for, or perhaps it’s been mismanaged and there hasn’t been any money collected in the first place. These are important things to look out for.
Kevin: Yes. While you can get these strata searches done, sometimes it doesn’t hurt to roll your sleeves up and read through them yourself, because they’ll only go back maybe one or two meetings. I’ve had an experience particularly with rain inundation where it might not occur for even several years. We’ve seen this in the Sydney market where houses that were flooded in some really bad rain that didn’t reoccur for quite some years later and therefore it didn’t come up in the minutes, so you really have to go back a fair way to have a look at these minutes.
Jennifer: Definitely. Most of them should be completely available to you. I think that if there aren’t very good minutes in there, it’s a sign that there is potentially some mismanagement happening.
A lot of people get concerned about things that they don’t need to be concerned about. There’s that one point where you’re doing thorough research and there’s another point where you’re doing so much and getting hung up on the tiny details.
Kevin: Yes. One of the other things, I guess, as you’re looking back through those minutes of the meetings, is not to get too hung up on any high strata levies.
Jennifer: Definitely. The interesting thing is that “high” is a relative term, and it depends how much you’re willing to pay and what there is in each building. You might be looking at two different apartments and one of them might have a swimming pool and a gym and all of those sorts of amenities, and if you’re not willing to pay for them, which is [4:09 inaudible] that has fewer amenities, and you should be willing to pay for what’s coming with that building.
At the same time, some high strata levies aren’t necessarily comparable and you should be knowing exactly what you’re paying for, where that money is going, and you should feel free to ask those questions.
Kevin: One of the other things to watch out for, as well, is the history. How focused should we be on that, Jennifer?
Jennifer: One thing that’s very interesting with sales history is whether or not it’s different to the local area. Once you’ve done your research and perhaps you’re looking in a tightly held enclave, if the one property you’re considering is the one that hasn’t been tightly held, you have to be asking why. Is it because the neighbor is a little bit dodgy? Maybe it’s because there are other developments happening that people find out about or there’s something wrong with that particular property. It’s worth knowing whether or not it’s common for that area, or if it’s a red flag.
Kevin: A bad ad, of course, is something I always watch out for. Being in the industry I look for bad ads, bad photos. That shouldn’t be a turn-off, though. It might actually be an opportunity.
Jennifer: Definitely. Everyone says that a bad advertisement doesn’t do any favors for a property, but it does do favors for a buyer because it might turn off other people who think, “Oh, that looks like a dodgy front photo of the house,” and the house might actually not look that bad. If you just do a drive past it might actually be perfect for you and you might get it at a discount.
Kevin: What about that vacant block next door? Goodness only knows what’s going to happen there. You should really find out what can be done to the vacant block so that you don’t run the risk of losing your view or even being overshadowed.
Jennifer: Definitely. A quick call to council does wonders. Sometimes you want to know why that block has been left vacant. Perhaps it’s just a residential home that’s going up next door, but it could be a huge apartment block, and you just need to find out whether or not that’s happening and whether or not it’s possible. Zoning is pretty crucial.
Kevin: Yes. A lot of things around a property can be rectified, of course, but bad street appeal does actually tell you a lot about a property, I think, doesn’t it?
Jennifer: There’s only so much you can really do about the front of a house. You can render, fix up the lawn, and stuff like that, but if it’s just in a bad part of the street, if it just looks a certain way at a certain angle on the block, that’s something you can’t fix. And if it’s something you can’t fix, it’s not something you can make money on later on and it’s going to be a turn-off for future buyers.
Kevin: Yes. I’ve actually seen people make a decision about a property from the car. In other words, if the street appeal is so bad, they won’t even get out of the car to go and have a look at it. That could be holding back a lot of buyers.
Jennifer: Definitely. At the same time, while it’s important to try and get an advantage over those other purchasers, they’re the people who are going to be buying it off you in the future.
Kevin: Yes. Exactly. A bad feel: you can feel it when you walk into a place, can’t you? You can get a vibe about it. We’ve talked about de-cluttering and some, but this is a real thing. How real is it? Should we be concerned?
Jennifer: I think the buying sixth sense and the goosebumps you get when you walk into the place that you think is yours; a part of that is important. Obviously when you walk in, you want to have a feeling like “This is my home,” but at the same time most of that is going to be made when you’ve moved in, when you’ve repainted, when you’ve refurnished. Those things are fixable, and I think being turned off by a bad feel that isn’t really based on anything concrete isn’t necessarily a great idea.
Kevin: I think we have to remember here, Jennifer, that we bring the personality to the house. If it does have a bad feel about it, just think about what you can do to change the feel of that particular property.
Kevin: Jennifer Duke from Domain.com.au and some of the reasons why buyers might be turned off from a property.
Jennifer, thanks for your time.
Jennifer: Thank you so much for having me.
Shannon Davis –
Kevin: It’s always an interesting conversation when we look at the most affordable suburbs or areas wherever you live – all around Australia, it does vary. That’s one of the most common questions that are asked, because affordability is such a key issue nowadays. Joining me to have a look at this, Shannon Davis from Metropole Property Strategists in Brisbane.
No doubt this is a question you’re asked from time to time, too, but I want to take this in a different direction, Shannon. I know you’re always looking at investment stock, and I want you to overlay that on what you believe homebuyers or homeowners may want when they’re looking for an affordable suburb. I know it’s a bit of a challenge for your. Good morning and welcome to the show.
Shannon: Good morning, Kevin. Thanks for having me.
Kevin: Let’s have a look at what you think are the most affordable, and for the sake of this exercise, if we can concentrate around that $400,000 mark, because I think that does represent great value and there are still a lot of areas around South East Queensland where you can achieve that sort of a property at that price, aren’t there?
Shannon: Yes, definitely. I would caution first-home owners not to overstretch themselves but also to try and buy the best piece of dirt they can, because some areas are affordable for long-term reasons, and it’s going to be cheap in and cheap out. It’s a dual concern: you want the best piece of dirt you can without overstretching yourself on a mortgage.
Kevin: Okay, so what makes a good property? What are the indicators you look for? Is it things like employment?
Shannon: Yes, definitely. Capital growth is about population growth, wage growth, and job growth. Those areas that have lots of employment hubs there are going to be really in demand for homeowners, because they don’t want a longer commute than about half an hour is what research shows.
Kevin: Okay, let’s have a look at a few suburbs, because we asked you to have a look around and give us your opinion. Let’s have a look at a few Brisbane suburbs that you’d choose. What would be on your list?
Shannon: I’ve tried to stick close wherever possible, just because there’s more scarcity with the land, and I don’t want an abundance of land out there, because those suburbs take a little while to settle, there’s a lot more infilling to happen. I picked Tingalpa, there we can still buy under that $500,000 mark, and also Fairfield. There are some streets in Fairfield you want to watch out f or for flooding reasons, though, but apart from that, it’s pretty close to the CBD and shows good value.
Two favorites of mine are for schooling, getting closer to that 15k ring, at Ferny Grove and Ferny Hills. They have some good school institutions out there, which is popular with owner-occupiers, and also a train station suburb.
Then Chermside, as well, for houses and townhouses – not apartments right now; I think there’s going to be a lot of oversupply there for now. Chermside will go on to be as Parramatta is to Sydney. When people can’t afford the inner and middle rings anymore, it’ll be those secondary hub suburbs – like your Chermsides, your Indooroopillies, your Carindales – that are in demand.
Kevin: Okay. Let’s have a look at some of the cheaper suburbs, or if we can pull down under a median price of $400,000 – areas like, say, Rockley and Gailes. How do you feel about Rockley?
Shannon: Rockley, apart from the CBD and the airport, is the biggest employer in Brisbane, so that has to do with jobs, and jobs is what people need to live around, so definitely a good pick.
Kevin: I notice in that area, too, just having a quick look at the Internet now, there are ten listings under $400,000. With a median of $390,000 and a median rent of $350, it doesn’t offer a brilliant return, but it’s certainly acceptable around 4.6%
Shannon: Yes, another one of those suburbs we’ve got to watch out for some slight risk, as well.
Kevin: Yes. What about Gailes? I mentioned that as another suburb that we were looking at. A median rent of $290 in there and a median house price of $260,000, offering about a 6.2% return. How would you feel about Gailes?
Shannon: Yes, definitely a good value. High yielding, which sometimes can be lower growth, but has good access and infrastructure existing already. Gailes would be a good pick if that’s what you’re looking for.
Kevin: Let’s go a little further out to, say, Bundamba, and I notice currently the median price in Bundamba is $290,000. We have about 41 listings on the market, and so far this year, 46 sales. The turnover is reasonably average, but the return there at 5.5% is not too bad. Median rent of $300 a week. How do you feel about that area?
Shannon: Yes, it’s fast growing and Ipswich City Council is very conducive to growth, so it’s an area with a bit of upside.
Kevin: Yes. Eagleby: once again a median price of $277,000 and days on market on there is 90 days – stretching out a little bit, but still a reasonable return at around 6% with a median rent of $320 a week.
Shannon: Yes, a lot of improvement to the Eagleby area recently and new development that’s come up. Good access to highways and everything there. I think investors could do worse. It’s switching over to the Logan council there, but yes, very well priced.
Kevin: Thank you very much for your insight. My guest has been Shannon Davis from Metropole Property Strategists, and a quick look there at Shannon’s picks: Tingalpa, Fairfield, Ferny Grove, Ferny Hills, and Chermside, and we also talked about Rockley, Gailes, Bundamba, and Eagleby.
Mate, thank you so much for your time. We look forward to catching up again soon.
Shannon: Anytime, Kevin.