Street Smart Tips So You Can Buy Wisely in the 2014 Booming Market

Information supplied by We Buy Houses

We're entering into a booming property market, having experienced a feverish start that began the day after the election. I estimate this will last 3-4 years and as with all market cycles, there will be periods of peaks and troughs as prices rise.
There are 3 fundamental questions to ask that are key to buying wisely, yet most home buyers and investors often fail to consider them before they dive in.
Here's my 3 street smart tips:  
1. Where will you invest?
Know your market before buying, for example capital cities and even regional center’s are made of many submarkets. Each submarket has it's own unique set of pricing and social economic make-up. In a booming market I recommend you isolate 3 suburbs and do your research the old fashioned way - visit them in person. The information you gather is up to date and immediate, with the added benefit that you don't have to wait- especially when timing may be crucial. Here are some of my research tips:

  • Drive the neighbourhood and look for physical signs of prosperity, neglect, graffiti, proximity of government housing, closed factories, new developments, how far is it from the CBD? Ask yourself is this suburb on the upswing, standing still or still in recession?
  • What is the demographic of the suburb, what kind of cars do people drive -expensive, medium priced, older models? Are they house proud? Do you feel safe driving or walking around the neighbourhoods? Ask yourself, could you live here?   
  • Stop and talk to the neighbours wherever you see a For Sale sign on the street or building. They will tell you a wealth of information such as whether the neighbourhood or building is a good place to live, raise a family, what the local schools are like, local gossip, recent selling prices of properties (sometimes property reports in a booming market are a couple of months behind). When you gather your information, it's helpful to compare with auction and private treaty results published in the paper, property reports and the agent's comments.
2. Why are you investing in property?
People buy residential property for all kinds of reasons and the common misconception is that they are buying for logical reasons, but when you drill down often emotional reasons are the driver.
Some common reasons why people buy are:
  • Crave the security of not having to move every year (emotional)
  • Are sick of making their landlord rich (emotional)
  • Are tired of paying 'dead rent' (emotional)
  • Believe buying a house will save a rocky relationship (emotional)
  • Think they're getting a bargain (emotional)
  • Have an accountant who says they need a negatively geared property (logical)
Ask yourself whether you're buying a property for emotional or logical reasons. There is no right or wrong answer to this question. You want to be very clear about the "why" before you buy.
3. What is your exit strategy?
It's imperative to know your exit strategy BEFORE you purchase, it can save you considerable money and heartache. It's important to know the answers to these questions:
  • Do you plan to live in the property?
  • Is this an investment property?
  • Are you buying for long-term capital growth?
  • Are you buying for cash flow?

Traditionally, if your exit strategy is to live in the property, it'll be your home first and an investment second. You own home is usually an emotional purchase, whether or not it has long-term growth or potential cash flow later down the track. You're buying because of how it makes you and your family feel. You may choose to pay a bit of a premium in exchange for peace of mind.
If your exit strategy is to own an investment property, it is a logical purchase. Your motivation and reason for buying is to make a profit either specifically using a cash flow or capital gain strategy.  By knowing your numbers, you may choose to bargain harder when your focus is to receive high returns and strong yields.
If you're interested in receiving more street smart tips to give you a head start in the booming market ahead, click here for a free information pack.

Australian property investment specialist and best selling author, Rick Otton, has been investing and teaching his innovative real estate strategies for 23 years. As the founder and Director of We Buy Houses Pty Ltd, his goal is to empower people with knowledge through his cutting edge investment strategies.

Disclaimer: while due care is taken, the viewpoints expressed by contributors and/or sponsors do not necessarily reflect the opinions of Your Investment Property.

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