A List of Do’s and Don’ts to Property Purchasing

Family friends were looking to buy a home a few years ago. They were savvy enough to understand how important it was to buy in the right area > suburb > neighbourhood in order to achieve the greatest financial benefits from capital growth.

But boy were they picky.

They were initially unwilling to compromise on any of their parameters: 600 square meters, flat block, 3bed, 2bath, single story, brick veneer, within 500m of a train station and shops, within a specific school zone, etc, etc. On top of that, they were really indecisive when suitable properties came on the market, and often talked themselves out of purchasing – Is it the right month to buy in, why is the vendor asking more than the property that sold last year down the road, if we buy now then what does that mean for our holiday plans in 2 months? Lastly, they were constantly dipping in and out of the market – attending 17 opens one month, then zero the next two months, then 5 the next.

The result? Over 2 years of ‘looking’, they were forced to increase their budget by 35% due to median $ price growth. And, they got priced out of the area they originally wanted to purchase in, then the next area, and then the next! As the market moved onwards and upwards, their purchasing power went backwards, dramatically.

I’ve seen a lot of property buyers make these same mistakes.

This graph explains their predicament pretty well. If you were looking for a House in Darebin in 2013, you’d have a lot of choice with a budget around $656,000 (the median $ house price at that time). A budget of about $530,000 could have bought you 1 in 4 Houses that were listed for sale. And, if your budget was about $805,000, you could afford to buy 3 in 4 of all Houses sold.

 

Fast forward a few years and your purchasing power changes dramatically. Where you used to have a lot of choice, your $805,000 can now only buy you one of the cheapest Houses around. If you wanted to buy a typical house, your budget in 2013 of $985,000 would have to increase by over 50% today. I doubt very much that you would have managed to save an additional $329,000 in 3 years. Looking for one of the better Houses around? You’ll have to spend over $1.25m now.

And, that’s one of the sad realities of property ownership in Australia… Wage growth is nowhere near keeping up with House Price growth.

 

In the last year, wages in VIC grew by 1.9% in the Private Sector, and 2.6% in the Public Sector. According to the REIV, Inner Melbourne House Prices grew by 9.3% during the same timeframe. Yes, we’ve been in a pretty strong price growth cycle since 2013, and all growth cycles eventually come to an end. But a lot of conditions remain in place for continued price increases, and, history shows us that the overwhelming trend of house prices is upwards.

Below is a list of Do’s and Don’ts to follow when purchasing a property…

Consider at least 2-3 different areas. As with most things real estate, it’s about supply and demand. If you restrict your search to one specific suburb or neighbourhood, you’re limiting your choices unnecessarily, and a few things will likely happen: you’ll suffer emotionally from continually missing out on properties; you’ll end up having to increase your budget substantially over time to keep up with other buyers; you’ll end up overspending due to frustration; or, you’ll eventually get priced out of the area, and will have to look elsewhere. Maximise your options from the get-go.

Try not to get emotional. Be as analytical and objective as you can when considering properties and negotiating purchases. Auctions are popular in Melbourne because they make buyers emotional. Don’t be the sap that pays $100k more than your budget because you got lost in the moment or didn’t do your homework.

Do your research. Most buyers (and, because we’re in property-mad Melbourne, a lot of non-buyers) regularly read property sections in newspapers and track sales results. Absolutely do this, but it’s equally important that you actively inspect properties, talk to local agents about trends and transactions, and walk the streets to get an intimate feel of different neighbourhoods. I’m a Data Analyst, so I appreciate the importance of statistics, etc, but there is no substitute for on-the-ground knowledge and contacts.

Don’t be overly choosy. The old saying ‘Don’t let the perfect get in the way of the good‘ comes to mind. It’s rare to find a property that ticks absolutely all of your boxes, and if one is found, chances are you’ll have to pay a considerable premium due to strong demand from other purchasers. Be realistic with your expectations, rank your priorities, and, be willing to compromise. The beautiful thing about real estate is that you can make the improvements needed over time.

Consider value-add opportunities. The most successful property people I know are enthusiastic about renovating, extending and developing. They recognise that rundown properties can be bought at a discount, whereas you pay a premium for turnkey dream homes. Importantly, it’s about recognising and investigating options to change floor plans, renovate, extend or develop prior to purchase (our website has plenty of examples of this). Don’t be the buyer that outgrows your house and has to move in a few years due to lack of space. Purchase with an eye to the future.

Talk to a professional. We provide a lot of free advice and insights, partly because we love real estate and we’re passionate about sharing our work. But, let’s be serious, we hope that by sharing our stories and research, people will recognise that we know how to succeed in real estate. If you don’t know where the best suburbs in Melbourne are, what type of property to look for, how to achieve great profits and/or long-term wealth, what strategies to deploy in negotiation or auction bidding, then reach out to us.

Stay away from apartments. We’ve literally written whole articles about this. Oversupply and lack of Demand means less price growth, restricted finance options, and risky business.

Get into the market. Every week, month and year that goes by without purchasing a property, your options become narrower. As much as we recommend being smart, objective, strategic and professional, the reality is that you need to eventually take the plunge in order to succeed in real estate. Indecision is a lot like procrastination – it keeps you occupied, but it doesn’t get you anywhere.

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