There are many people with many varied opinions in sourcing property and in this respect my opinions are only that – opinions. All the same, let me offer my opinions based on experience.
If you are looking to source quality “second hand” property one excellent source is a buyers’ agent.
A buyers’ agent can discuss and advise on suburbs, will have statistics at their disposal on value (which is different to price) and also expected rental amount and vacancy rates. Eventually, in consultation with the buyers’ agent you will define the property characteristics you want, and he or she will then obtain a shortlist of properties that meet the criteria. You can inspect them and only buy the one you want. You pay the buyers’ agent for this service. A buyers’ agent will look at up to 100 properties to buy just 1, you might typically look at 5-10 before fatigue takes over. It can save time and money (they will probably negotiate better than you, as they know its value).
If you are looking to source quality “brand new” property which is usually “off the plan*” an excellent source is often referred to as a “research house”. This is a very mixed area for its trustworthiness because such a business is paid by the developer. There is nothing wrong with that. When you sell your own house you engage a selling agent and pay them. This person is called a real estate agent and works exclusively (or is supposed to) for the vendor. A research house is effectively a real estate agent, as they are paid by the vendor. The BIG difference though, is that they represent themselves as working for you. This is a clear conflict. There is nothing wrong with a “conflict of interest” as long as it is declared, understood, and does not influence the recommendations. One way is to ask for a referral from someone you know and trust – someone who has used this particular business before, then trust comes from the referral. You might ask for contact details of satisfied customers. Ideally obtain this information from someone other than the research house. It is very much a case of “buyer beware” BUT if the business is one that can be trusted it is an invaluable source.
*”off the plan” is usually bought before the developer has even gone to site. Completion and hence settlement might be 12-24 months away. Some things to keep in mind:
- A lender will lend against the value at time of completion. In a falling market this presents a risk. Let’s use an example. The purchase price is $500k and you have a 20% deposit of $100k, and hence a loan of $400k. At time of settlement let’s say the bank values it at only $400k and at 80% the maximum lend is now $320k. You will have to either put in $180k or should you elect to borrow 95%, that loan would be $380k. Even still you would have to find $120k and pay a mortgage insurance premium. In a rising market everyone has happy faces at settlement time as you have made a capital gain with no holding costs, but for every benefit the coin can be turned over. When buying off the plan you must be sure you are aware of the risk.
- A lender will only lend within 90 days of settlement. (A little known fact – loan approvals and loan documents “expire” after 90 days and must be reapplied for.) This might be as simple as reassuring the lender that nothing has changed in your financial circumstances. The consequence of this in buying off the plan is that you will sign an unconditional contract for the purchase BUT you cannot apply for the loan until 90 days from settlement. It is prudent to check with your mortgage broker that you qualify for the loan now BUT then you need to realise that you need to carry that risk all the way to settlement.
Let me give an example of things NOT to do.
- Don’t give up your salaried employment and become self-employed during this time.
- Don’t take ANY other credit facilities (eg. upgrade your home and increase your home loan) unless you have checked with your mortgage broker.
Off plan purchases are becoming popular again because the market is rising. It is a concern that people will ignore the past and take imprudent risks. We have only just come out of a period of falling values in the off plan market that have created a large number of very sad stories. If a developer forces you to settle (which they can do as you have agreed unconditionally 2 years prior) then, unless you can raise the additional capital you may have to sell the asset. This can be a very sad story as you are going to be selling that asset in a market that has fallen. Once again, with off plan buying as with all property purchases, it is a case of buyer beware.
My advice would be to always seek expert advice. If you wish to purchase a new “off plan” property, ask me.
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