The problem with buying property bargains

Expert Advice with Brett Warren

If you ask me, one of the many over-used words in property is "bargain."

For novice buyers and investors, sure, price is important.

However, it’s nowhere near as important as the inherent risks of buying a secondary property.

The truth of the matter is that if you buy a property for a bargain, you will ultimately sell it for a bargain price too as it's likely to be a secondary property

Why is that?
It’s usually because the property has a number of issues that put off the majority of potential buyers and drive down its price potential.
Here are three of them: -

1.    Location

While properties with the potential to manufacture equity via renovation are rightly considered investment grade, there is one aspect that you can never change – and that is its location.

Remember...your property's location will do around 80% of the heavy lifting in its performance, so it's important to buy in the right suburbs as well as in the best location within a suburb and then even in the right street in that suburb.

It’s a no-brainer than properties in the most desirable locations are worth more than those that are not.

Perhaps a property has water views that can never be built out, which means that its price will always be elevated because of strong demand from buyers.

However, a property that is adjacent to a train line or on a very busy road will always struggle to secure buyers because noise is a big turn-off for most people.

Of course, fewer buyers means a lower price.

Regardless of whether that property is held for two years or two decades, its price will be inferior because of its unattractive location.

2.    Lack of scarcity
Another reason why a property might be selling for a bargain price is because there are so many others that are exactly the same.

What I mean is it could be a new house in a new subdivision where there is ample supply of similar properties, plus there is oodles of land left to build more dwelling doppelgangers to boot.

Similarly, it could be a one-bedroom unit in a suburb overrun with similar stock because developers got carried away for a few years.

Clearly, both of these dwellings are missing the scarcity element, which drives up prices.

While supply issues can ebb and flow over time, these types of property bargains are unlikely to ever turn into capital growth superstars anytime soon because there were simply too much of the same stock built in the first place.

3.    Transport
While properties can be bought for bargain basement prices because they are too close to transport nodes, the opposite can also be true.
Being too far away from public transport options in particular reduces interest in a property because it will mean the new owners will forever have to drive to work or play.
It usually also means that property is located on the outskirts of a major city, which generally depresses the sale price that can be achieved due to the entrenched distance issues.

On the other side of the equation, however, are properties – usually new units – in areas with high density and too few car parks, either in the building or on-street.

Again, potential buyers are likely to be unimpressed with the possibility of having to sell their vehicle or spending previous time at the end of every day trying to find a car park that doesn’t attract fines.  

As you can see, if a property is on the market for a bargain price, it is usually for valid reasons.

Savvy investors understand the factors that are a big no-no for buyers and tenants and give these properties a wide berth.

Other, unfortunately, will get seduced by a cheap price – and will likely pay dearly for it in the years ahead.

Remember...price is what you pay, value is what you get!

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Brett Warren is a director of Metropole Properties in Brisbane and uses his 18 plus years property investment experience and economics education to advise clients how to build their portfolios.
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.

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