Don’t make a huge mistake in property! Today I want to make sure the property you’re looking at is right for you, what the costs of buying and selling property are and how to do your due diligence before making the biggest financial decision of your life.
If you don’t do well, you could set yourself back financially for the rest of your life, not all property is the same, the Australian Property Market as a whole doesn’t exist and is broken up into hundreds of submarkets that all perform differently.
Not all properties are the same
The saying “you can’t lose in property” is far from the truth, this is consistently evident in CoreLogic’s Pain & Gain report where they highlight all the properties that sold for both a profit and more importantly a loss.
In the first quarter of 2019, 12% of all properties sold at a loss 20.5% of apartments sold for a loss compared to only 9.5% of houses that sold at a loss.
Meaning the property sold for less than it was purchased for.
This is what I mean when I say that not all properties are the same. on top of this, the cost to buy and sell a property is absurd, to buy a property it usually costs 5% of the purchase price and to sell costs around 3% of the sold price.
In total it costs roughly 8% of the property’s value to trade, therefore property should never be considered for a short-term investment.
Buy and hold is a better lower-risk strategy because you need compounding capital growth overtime to mitigate this 8% trading cost.
Now you might be saying, It’s not an investment property I’m buying it to live in and it is just going to be my family home. Either way, it is still an investment, you’re leveraging your money to borrowing 10 times the amount and putting it into an asset that is either going up or down in value.
Our fundamental need to have a roof over our head can be achieved by renting, and although this is counter-intuitive to what we have been taught our whole lives, the truth is today’s market is completely different to our parents and grandparents property market.
This is why of late the term “Rent Vesting” has emerged and means that you purchase an investment property that is going to give you good capital growth while renting a property in the area that you want to live in.
How to find the right investment property?
So how do you find an investment property that is going to give you good capital growth?
Now a little disclaimer, no one can predict the future, if you asked all the leading economist 10 years ago what the cash rate would be at today, none of them would have predicted below 1%.
We can only analyse what has done well in history and hope that the same patterns cause the same results, lastly, I don’t know your situation and I would highly recommend going to see a financial advisor or buyers agent.
Like any market, the main driver of price is supply & demand, in both scenarios of low supply, low demand & high supply, high demand the market is relatively flat.
What we have to watch out for is high supply, low demand – this means the market is flooded with stock and no one wants to buy it, so the price has to come down to generate more demand to sell the property.
What we want to look for is low supply, high demand – this means that lots of people want to buy a limited type of property, driving the prices up until it reduces the amount of demand, some people might not want to buy it for a higher price.