Tips on Buying

Tips on Buying

Thinking of Buying?

Buying a property can be a lot of fun for some and highly stressful for others. The key is to be prepared and to do your homework.

First step is to have your finances organised. We work with Nicole Cannon, a mortgage planner from Pink Finance who will guide you in choosing the best loan to suit your needs.

Research the area you intend to buy in; scout the metropolitan and local papers and browse the real estate internet sites. Understand the market value of your area of interest and its recent market trends; it won't hurt to attend a few auctions, not only will it provide you with a snap shot of the current market value but it will make you more aware of the auction process.

When you have chosen a selection of properties to inspect, get to know the agents and understand the sale situation of each. After you select your property, make sure you have a solicitor or conveyancer to oversee the contract. Cordeau Marshall has a number of solicitors and conveyancers they can recommend. You may be advised to conduct a pest and building inspection, this will allow you to make an informed decision before you sign a contract of sale or attend an auction.

Once contracts are exchanged, congratulations, it is time for a celebration.

Tips on Budgeting

Whether you are saving a deposit for a home or you are ready to buy now, a budget is a great tool for finding out where your ‘spending leaks’ are and how you can save more money. Every person can benefit from doing a simple budget. The more you know about your incomings and outgoings, the more control you have over your finances.

Start by making a list of all your ‘incomings’. That includes your salary, any interest from bank accounts, rental properties, dividends or any other money that comes in. If it’s easier you might want to work it out on a yearly amount and then simply divide into 12 for your monthly incomings. (And don’t forget to make it after-tax, particularly when you are considering your salary.)

Next step is to work out your ‘outgoings’. And this is the trick to a budget. First start with your ‘big picture’ outgoings. Rent or mortgage, credit card payments, school fees, utilities, food bills. Again you might want to make this a yearly figure and divide by 12 to get your average monthly outgoings. These major outgoings are generally a good starting point, and will show you how much is left after you deduct the outgoings from the incomings, for your average monthly ‘disposable income’. However you also have to consider what you spend on clothes and shoes, school uniforms, memberships to clubs, the amount you spend on toys or gadgets, birthday and Christmas presents, eating out and so on.

To get a fuller picture of what goes out try keeping a ‘spending diary’ for a month. We guarantee it will throw up a few surprise ‘leaks’ in your financial bucket! Just one example: if you buy coffee and toast at work every morning, and that costs you $5 per day, over a year that could add up to $1,300. Or if you miss a payment on your credit card and get charged additional interest or a late fee, that will really add up over the year. Something as simple as making the payment on time by direct debit, or making your breakfast at home can save you literally thousands of dollars per year. With very little sacrifice on your part. Why not make today the day you start to work out your own budget. Think of the home you could put all that extra money towards!

Buying a home or buying an
investment property?

Firstly, if you are looking for a property to purchase you will find our website a great resource. Register for Property Alerts to be automatically sent the most up to date listings. Talk to your local CENTURY 21 agent about the property you are looking for, because we’re the experts in any neighbourhood and might be able to tell you about upcoming sales or auctions.

Once your agent knows the kind of property you are looking for it will be like having an extra pair of eyes with your aim in mind – when they receive a new listing they will consider whether it fits your requirements.

How to buy a home to live in?

Make use of calculators that show what your repayments would be per month on a certain loan figure. Shop around for the loan that suits your lifestyle but always factor in the possibility of interest rate increases – could you still afford to make your repayments at a higher interest rate?

Very Important - Set yourself an upper limit when bidding at auction and when you reach it, stop bidding. Often people find themselves having to borrow extra money from family and friends to cover an emotional extra bid made to secure a property – when they have not been approved for that much from the bank.

How to buy an investment property?

The most important piece of advice when investing in the property market is to do your homework.

Check your finances

Assess your budget realistically so you know whether or not you can afford the monthly cost of an investment property. Fixed interest rate loans are very popular with investors as these allow you to accurately budget for your repayments, knowing your levels won’t increase. And because it’s only the interest that’s tax deductible, most investors believe that repaying more is not tax effective.

Always remember, your owner-occupier home repayments should take priority over your investment loan because your interest payments on your investment loan are tax deductible. We can advise you of the real costs of buying an investment property. In addition, Nicole Cannon, our mortgage consultant, can show you how you can best structure your finance to maximise your returns.

Estimate your capital gains and rental return

While your choices regarding your homeowner property will be primarily influenced by emotional reasons (such as personal taste), your property investment will need a different approach. The best way to view your investment is in purely financial terms of risk and return. You need to consider both the rental return and the potential capital growth.

How long will you keep it?

It is important to have a plan upfront of how long you intend to hold your investment property. Most financial advisors believe that the minimum timeframe for investing in property is five years to allow sufficient time for capital gain.

Location, Location, Location!

There’s a reason why the catchcry, “location, location, location!” is such an over-used phrase: it’s because location is your potential trump card in property investment. Spending time researching areas before you invest can save you effort and wads of cash; and choosing the right areas is not as straightforward as it sounds! Put yourself in the shoes of your future tenants when deciding upon location; those who are renting usually value convenience, so include proximity to public transport, public amenities, shopping centres and parks in your choice. It can also be a good idea to buy property within convenient driving distance of your own home, so you can check on the property with relative ease.

Talk to the experts

Talk with us about vacancy levels, rental levels and expected future capital growth of the area. Make sure that you have a really good understanding of an area before you purchase a property in it.

Dot your i's and cross your t's

Reassess your budget with a view to gauging exactly how much you want to spend; of course, the choice of unit or house will have significant bearing on this. Units are generally a more popular choice for several reasons; less maintenance is involved, larger tenant demand and generally lower price range. Many investors look for newer properties where the maintenance is going to be less than older properties but find that depreciation tax deductions are higher.

Who looks after your property?

While some property investors choose to take the management of the premises upon themselves, most people prefer to arrange for a real estate agent to manage the property for them. We are fully versed in all aspects of property management and can assist you so that you can sit back and enjoy your investment. Remember that if you do decide to take up the role, there will be a number of aspects to consider: finding and vetting the right tenants, collecting and accounting for rentals, paying outgoings such as body corporate fees and rates, arranging maintenance work and conducting ongoing inspections. Think carefully about whether you’ll realistically have the time to cater to these pressing needs.

Assess the risks

Any entrepreneur will tell you that calculated risks are a necessary factor of the money game. In terms of property investments, the key is to balance risk against your projected returns. Be aware of the following risks before you buy an investment property:

  1. Your property may prove difficult to let
  2. The rental may turn out to be less than you expected
  3. Interest rates could rise, increasing your repayments
  4. Maintenance costs may be higher than you budgeted
  5. Problems with tenants may arise creating unexpected hassles
  6. There may be no capital gain; or worse, your property could decrease in value
  7. You may have difficulty finding the monthly shortfall from your other income sources

To succeed in property investment you need to devote time to some serious planning and preparation. However, if you are prepared to do your homework upfront, investing in property can be extremely satisfying as well as financially rewarding.

Negative gearing

The term “negative gearing” is classic jargon that is often misunderstood. An investment property is “negatively geared” when the mortgage interest and other tax deductions such as management fees, rates and maintenance costs are greater than the rental income.

This results in a net loss that may be offset against your other income (such as your salary) which then lowers your overall tax bill. In this way, the taxman as well as your tenant helps you pay for your investment property. And hopefully, your property is steadily appreciating in value. Most people feel more comfortable “gearing” or borrowing to pay for an investment property or properties than borrowing to purchase shares that are generally much more volatile.

Buying At Auction

Do your homework

  • Check out the neighbourhood and its facilities - schools, public transport, restaurants and other amenities;
  • Monitor property sales in the area and attend several open houses so you can confidently assess property values;
  • Inspect the property two or three times before the auction to be absolutely certain it is the one for you. Remember: there is no cooling off period;
  • Attend some auctions to get an understanding of how the process works so that you are confident on the big day.

Bring in the experts

  • Arrange for finance beforehand. Make sure that you contact your loan consultant and know exactly where you stand prior to bidding at auction;
  • Have a builder or architect thoroughly inspect the property you are interested in buying;
  • Always have your solicitor check the contract thoroughly before the auction;
  • If you are not comfortable bidding and you are very interested in the property, then make a pre-auction offer or arrange for a friend or relative to bid for you.

Have a plan

  • Prior to the auction, set a firm limit on what you are willing to spend and stick to it;
  • Try to get a realistic understanding of the price range but remember that no one has a crystal ball: what the agent quotes as the likely selling price may not be off the mark;
  • Decide on your bidding strategy. As you get close to your limit, don’t be afraid to increase your bid in small bites: the auctioneer will usually accept these;
  • When you do bid, bid with confidence.

Stay calm

  • Avoid getting into a personal bidding war with another bidder;
  • Try not to get too emotional about a property: there will always be other places to choose from. If you want it at all costs, that is exactly what may happen.

Be ready for action

  • Always take your chequebook to the auction. If successful your deposit will be held in trust until the settlement;
  • If you bid, but the property is passed in, the auctioneer may invite you to negotiate. The highest bidder is normally given the first right to negotiate;
  • If your auction bid is successful, once the property is “knocked down” to you as the buyer, you are required to sign the contract and pay a deposit, which is usually 10 per cent of the purchase price.

Jump into action

  • Immediately organise insurance cover to protect your interest in the property. Do your research and comparison-shopping of policies prior to auction;
  • If you need to sell a property to purchase at auction, speak to us beforehand to see if you can arrange for an alternative settlement date;
  • Access to the property is not a given right before settlement. Arrange this with the seller through the agent.

Pre-auction offers

If you really want the property and don’t want to bid at auction, you can put in a pre-auction offer. Many properties are sold this way. Some vendors will still want to go to auction, but many are willing to negotiate.

Glossary of Terms

When buying or selling a property you will hear a lot of terms that may not be clear to you when you start. Here's our Century 21 insider's guide:

Authority to sell: this legally binding document signed by the seller details the agreement between the seller and the agent.

Body corporate: when a property is on strata or community title each owner, for example in a block of flats, becomes a member of the body corporate. This group is responsible for the maintenance of the common property like walkways, lifts, gardens etc. As a lot owner you will pay a contribution to the body corporate, generally on a quarterly basis. Always factor in the body corporate fees when assessing whether to buy a property, as this cost is on top of your council and water rates, and any other regular property ownership outgoings.

Buyer's agent: will search for properties for you, conduct background checks on the property and area, negotiate with agents and bid at auction for you. Payment may be a percentage of your purchase price or a flat fee.

Capital Gains Tax: based on your marginal income tax rate in the year you sell an investment property, this tax applies to the gain your property has made between buying and selling, less inflation.

Certificate of Title: the document that shows who owns the property as well as all the associated detail of size, whether there is a mortgage registered on the title, etc. Your solicitor or conveyancer will conduct a titles search as part of your purchase procedure.

Commission: paid by the seller of a property to the estate agent, generally on the sale of the property and usually a percentage of the selling price. This commission is negotiated in advance and stated in the ‘Authority to Sell' document.

Conveyancing: the legal process of transferring the property from one owner to another, including all appropriate checks and searches. Your conveyancer will usually liaise with the other party's conveyancer to arrange deposits and settlement payments.

Depreciation: you may be able to claim depreciation on an investment property based on the time you have owned it.

Negative gearing: when the costs associated with owning an investment property exceed the income received in that tax year. This may be offset against the tax you pay on other income that year.

Open for inspection: a set time each week when a property will be open to the public.

Reserve: the price set by a seller as a minimum at auction – once this price has been reached at bidding, the property is ‘on the market' and will be sold under the hammer to the highest bidder.

Settlement: the date on which the sale of a property becomes final and the title passes from one person to another. The balance of the sale price is paid on settlement day and the new owner takes possession.

Vendor: the person who owns and is selling a property.

If there are any other terms not listed here that you are confused about, don't hesitate to ask your local CENTURY 21 Cordeau Marshall Group agent. We're at your service!