Many property experts tout the line that you make money when you buy property, not when you sell.
If this is true, then it’s important to ensure you’re not paying too much when you sign that contract of sale.
Of course it's more important to buy the right property than buy a secondary property at a cheap price.
Having said that, here are 3 reasons you could overpay for your next property, and how to avoid making these costly mistakes:
Reason 1: You don’t understand the current market price
The property market is always moving – but are you up to date?
Do you follow real estate sites, check out statistical data, and have your finger on the pulse of the market in the area?
Things can change quickly, and whether you’re buying a home as an investment or a place to live, you need to be abreast of the latest trends.
Look at similar properties that have changed hands recently to see how they were priced, and how quickly they sold; this is a good indicator of supply and demand.
When homes sell quickly, there is more competitive in the market, however in a slower sales season, you may find you’re able to negotiate a more favourable price with the vendor if you can promise a quick settlement.
Especially recently, as prices have come off the boil, buyers are vulnerable to overpaying. If you’re not sure if you’re about to pay too much for a property, engage the help of a buyer’s advocate or arrange a bank valuation.
Reason 2: You fell in love
Emotions can make us do silly things – like get matching tattoos or quit our job on a whim to travel the world with our one true love.
The same thing can happen with property investors who let their heart rule their head.
When you fall head over heels for a property, it’s easy to justify a higher price tag or a less favourable location. But it’s vital you remember that investing is a business decision, and emotion should play little or no part in your choice.
You don’t need to ooh and ahh in admiration as you walk through the home, you just need to make sure a tenant will find it attractive.
In fact, sometimes it’s better to buy properties that you know will rent well, but that don’t suit your personal taste, so you can avoid becoming emotionally involved.
The ability to detach from the property and make decisions purely on business terms may help you down the track, if you’re faced with coping with damage a tenant has done, for example.
You’re also less likely to let your budget creep skyward if you maintain a clear head.
A few thousand here, a few thousand there may not seem like a lot when you’re buying properties worth more than half a million dollars. But before you know it, your love for the home could see you outbid your auction rival and exceed your budget by $50,000 or more!
For those buying a property to live in, the same rule still applies. Sure, you’re looking for a home to live, laugh and love with your family. But you’re also taking on a massive financial commitment.
Just because your bank or broker says you can afford a certain amount, doesn’t mean you have to borrow that much. Do your own sums – what if one of you is injured at work, or you decide to have another baby? Will you still be able to comfortably afford the repayments?
Money worries are a huge contributor to divorce and you don’t want that house you both loved to be the beginning of the end for your love affair with each other.
Reason 3: You’re impatient
It’s become the standard mentality these days – we all want everything, and we want it now.
Thanks to super-fast internet, Uber Eats and Netflix, we’ve pretty much got the world at our fingertips.
But when it comes to buying property, patience is a virtue you’re going to need in spades.
FOMO, the fear of missing out, is real. Plenty of homeowners and investors have purchases a property that’s less than perfect, because they were terrified it was their only opportunity to jump aboard the train. There will always be another opportunity down the track.
Property markets are cyclical and we live in a big country with plenty of other markets for you to explore, so don’t make a rash decision you’ll regret.
Lots of potential purchasers also suffer from house-hunting fatigue; that overwhelming sense of dread that creeps up on you at about 9pm on a Friday night, when you realise you’ll have to spend yet another Saturday traipsing through open for inspections and feigning enthusiasm to real estate agents.
If you’re sick of looking, stop. It’s that simple. Don’t go ahead and buy anything just to avoid listening to another sales spiel. Take a break from house-hunting until you feel you can stomach it again.
There are plenty more fish in the sea, and there will still be plenty of great homes on the market when you’re ready to take action. It’s always better to pause your search so you can regroup and start again, than it is risk over-paying at the outset, thereby starting your investment journey off on the wrong foot.
Ahmad Imam is a director of Metropole Properties in Sydney, is a highly skilled wealth strategist and a passionate property investor. He has a degree in Commerce, is a licensed estate agent in both NSW and QLD and has personally coached and educated hundreds of clients to create wealth through property.
He is a regular commentator for Michael Yardney's Property Update.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.