Investing your money in property could go terribly wrong if you do not do your homework. Don’t be put off as the process need not be difficult.
Check out the following three main areas where there are possible risks that you can minimise by doing your research.
The property's location
There are always sources within the property industry stating which locations are the up and coming hot spots. Although this information can give you an idea of the state of the market, the information is often generalised and can be out-dated. Doing your own research about a location is always the best approach. Looking at the fundamentals of a particular area like demand for housing that you are considering purchasing in, employment, population statistics, future development and proximity to essential services, will all help you compare potential locations. Once you have done your homework on paper, there is nothing like visiting the location to get a first-hand impression.
Without doing sufficient research on a property, you could end up paying too much or, buying a property riddled with problems.
To ensure you are not overpaying for a property, you will need to look at what other properties have sold for in the area. Speak to a number of real estate agents in the area to get a good overview. Remember not to just look at the list prices as it is the value that they actually sells for that will give you real insight into property values. What properties actually sell for is recorded by RP Data. Real estate agents have access to this data which they may give you for free. Sales data for a suburb can be purchased online or extracts can be listed in various real estate websites. Our free Property Report lists details of some actual property sales for a suburb. Once you have a list of recent sales, go for a drive and look at what people actually paid for different properties in the suburb you are interested in.
Building and pest inspections will help manage the risk of buying a house in bad condition. At the time these inspections may seem like an added expense that you don’t need, but they could be your best warning of issues below the surface. If the inspectors do find problems such as termites or foundation problems, you can use these issues to negotiate the purchase price even lower if your estimate of having these remedied is in your budget. However, without these inspections, you could end up overpaying and spending thousands on repairs down the track.
The home loan
Having your finances organised well in advance is a must if you want a stress free purchase. Lending policies have changed significantly since the global financial crisis so if you haven't taken out a loan since then, it pays to check in with your lender. Making offers only to have to withdraw them due to issues gaining finance can be embarrassing and stressful.
The next step would be to lock in a formal pre-approval so that a lot of the groundwork is done BEFORE you have found the property to purchase. The formal pre-approval gives you confidence to go house hunting, make an offer or participate in an auction, knowing you are conditionally pre-approved for a home loan. Having already started the process you will be in a good position to snap up a bargain quickly.
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.