How to Make a Smart Buy on Discounted Investment Property
If you are looking to buy an established investment property, you want to pick it up for less than others are paying in the area. However, it can be difficult to determine which discounted properties represent real opportunities, and which ones are simply a risk and liability. Here are some basic tips that you should keep in mind when thinking about purchasing discounted property.
Keep your eyes open for discounted properties
Keep an eye open for indicators of a discounted property – watch for description keywords, be aware of how long a property has been on the market and be aware of falling asking prices. The classic mistake sellers make in this market is over asking to begin with, then becoming stale. These conditions are ideal to put in a low offer, if the seller needs to move on, they will be happy to receive it.
Be mindful of the property’s location
Look at how well the area has done over the past ten years, and if it is likely to do well in the future. Check statistics like growth in median house price, rental yield, rental vacancy rate and level of seller discounting as indicators that the area is performing well.
Perform your own valuation
Use recent, updated data to perform an independent assessment of the value of the property. Most agents will supply you with recent sales data and you can then look up sold properties on realestate.com.au. Rank each property as inferior or superior to the one you are considering. Come up with a rules of thumb price guide for specific property types. If a property you a making an offer on is overpriced, submit your offer with sales data to back it up.
Visit the neighbours
Whenever I have bought a property without visiting the neighbours, I have made a BIG mistake. You want to know what they know about the area and most importantly if they are a nightmare to live next to. Many owners sell because they are having trouble with their neighbours or they cant keep tenants for the same reason. It’s a more common problem than people realise. Don’t leave it to chance.
If you need to renovate the property or planning to subdivide or develop, you want to work backwards from the finished selling price and build your profit margin in, taking into account all expenses to get you there including purchase costs and loan interest. You will want to be ultra conservative on your finished selling prices, to account for the market going down in the meantime. This is something you should do even if you are not selling… you don’t want to over capitalise or do your project for experience and no return.
Know how much you are willing to pay
Establish a ceiling purchase price and stick to it before you enter negotiations.
If you follow these straightforward steps, you’re very likely to get some great deals on discounted properties in this Buyers Market. Before deciding to buy an established property you should also weigh up building a new property, new is usually the best property type for more investors.