Investors wanting to buy properties for way below their value are in for a surprise. To bag true bargains, there are six undeniable realities that every bargain hunter has to face
The numbers are everything
If you want to find an undervalued property you need to know the market, says Cameron Kusher, Senior Analyst at RP Data.
“Data is your best source of knowledge when looking to purchase a property,” says Kusher. “When considering a purchase ensure that you look at what other properties have sold for in the local area and what price other properties are listed for.”
By assessing the local median sale price over time you gain an insight into what you can expect when buying in a suburb. Make sure you get as much information on the following as possible:
What are the historic levels of capital growth?
What is the average vendor discount?
How long does it take to sell a property?
What is the gross rental yield and median weekly rents?
According to Kusher, all these questions can be answered with data that helps the investor become better informed and more capable of targeting suitable suburbs and properties.
However, to get the true story, investors still need to dig deeper. “Look for suburbs which have a good level of amenity, but in comparison to nearby suburbs, have a lower level of growth or a lower median price.”
Median price reports from data suppliers such as RP Data can point to these suburbs quite easily, he says.
Sellers need to be highly motivated
Finding a motivated seller is a sure way to secure an undervalued property. Pay particular attention to the circumstances of the sale – why the property is being sold, what the sellers circumstances are – and try to get an understanding of how motivated the seller is.
By knowing how motivated they are you will know how much opportunity you have to negotiate.
Asking pointed questions about the sale can provide you with valuable information, says buyer’s agent Chris Gray.
“Look for someone that has bought somewhere else, is in financial trouble, has just filed for divorce or lost their job,” he suggests.
While an agent isn’t going to tell the general public that the seller is motivated, Gray says that by developing strong industry relationships investors can obtain this information from selling agents more readily. “Speak to the agent privately after an open house. If you can make the agents life easier – by offering a good deal to make a quick sale – then that will help you secure a bargain,” he explains. “A cheaper price guaranteed right this instant can be worth more to a motivated seller than the dream of a better price tomorrow.”
You’ll have to settle for an ugly duckling
Remember that age-old real estate-ism about buying “the worst house on the best street?” That saying generally holds true for investors looking to maximise their capital gain over the medium to long term.
Cameron Kusher agrees that finding something a bit run down can yield good results. “The best advice is to look for properties that need a little bit of TLC,” he explains.
According to Kusher, if the property doesn’t present well the selling point will be hampered.
“It is amazing the difference some paint, some work in the garden or some new cabinetry can make on a property which previously did not present well,” he says.
However, property investment and finance specialist at InSynergy, Jason Pitkeathly cautions investors to make an educated decision when buying property that needs a bit of tender loving care.
“These properties tend to be tired, run down and sometimes damaged. We find purchasers often pay too much for the property and then don’t fully factor in the costs of repairs, renovation and holding costs through the duration of the remedial work,” he says.
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