7 Mistakes to Avoid when Buying
Buying a good home or investment property can be a fantastic financial asset for you and your family. Patrick Bright’s tips below can show you how you can avoid making costly mistakes when buying your property.
1. Lack of research
Before you can decide whether you’re getting a good deal or not you need to do some detailed research to work out the market value of the property. The process is called comparative market analysis (CMA) and it’s extremely powerful when you’re trying to negotiate the best possible price.
You need to select a maximum of three suburbs and see as many properties as you can in preferably a 6-12 week time frame, because 2-3 months is a long time in real estate and prices can move quite substantially. As a general rule I would advise you to inspect at least one hundred properties within that time frame and document all relevant features.
If you’re serious about getting a good deal and saving yourself thousands if not tens of thousands of dollars then you will be prepared to invest the time. If not, then the selling agent will certainly have the upper hand when negotiating the price with you!
2. Searching without finance approval
Another common mistake is searching without finance approval. The last thing you want to do is to watch the home of your dreams slip through your fingers while someone else is exchanging contracts, especially while you’re trying to arrange an interview with a mortgage broker or your local bank. It can be a very emotionally draining experience. Don’t waste your time and put yourself on an emotional roller coaster ride. Make sure you know how much you can borrow before you start your search.
3. Overstretching your finances
We’re currently seeing the heartache of thousands of people across Australia who have financially committed well beyond their means. Don’t repeat their mistakes.
I have two rules that if you follow you shouldn’t get yourself into trouble.
- Despite what the bank says, make sure your repayments are no more than 25% of your total household net income.
- Don’t borrow more than 80% of the property’s value. That way, you avoid paying mortgage insurance and you actually have some equity in your property in case there is a down turn in the market.
These days, you can obtain loans for 90, 95 or even 100% of the purchase price. Why would you want to put this sort of financial pressure on you and your family? I believe that if you don’t have a 20% deposit, then you can’t afford to buy that property. Remember, it is much better to be able to sleep well at night in a smaller house, than to be at the mercy of a bank and constantly worried about having your home sold from under you.
4. Not factoring in running costs
Unfortunately the price you pay for your home or investment property is only the first in a series of home ownership expenses. Before you rush off and make an offer on a property you should determine whether you can afford the running costs on top of the mortgage such as council rates, water rates, land tax, etc.
If you’re buying an apartment, find out how much the strata fees (Body Corporate fees) are and how much money is in the sinking fund. Strata fees typically range from $500 to $2,500 a quarter, sometimes more.
5. Buying property sight unseen
Buying property sight unseen is a recipe for disaster. Sure you can do virtual tours on the web but how many times have you read the ad, looked at the photos, the virtual tour and then upon physical inspection the property looks nothing like your expectations. It may look out over a car park, into a brick wall, or face a busy road. This goes for buying off the plan as well.
Unless you do a site inspection yourself or have an exclusive Buyer’s Agent acting for you, who knows exactly what you want, then I would suggest you are being foolish. You’re parting with hundreds of thousands of dollars – surely you can take the time to inspect it.
6. Limiting your selection choice
A lot of people come to me for help with buying a property but they don’t want to go through the auction experience. They perceive it as too stressful, emotional and out of their control. The problem with this perception is that they are significantly reducing their property selection pool and automatically cutting out potentially good buys because they are not comfortable with the method of sale.
My advice is to again do your research. Go to a number of auctions and see how it works. Do your research so that you know the value of the property. Set yourself an auction plan including a maximum bid price and stick to it.
Be honest with yourself. If you know you are likely to get carried away in the auction hype, then hire yourself an expert to bid for you. Auctions are growing in popularity as the sales method of choice nationally. You can no longer ignore them if you want access to the entire market.
7. Listening to too many people
Everyone’s an expert when it comes to real estate. Family, friends, work colleagues will all offer you advice – some with strings attached and some without. The only way that you will know whether you have secured a good property at a good price is if you put in the necessary hours and do the research. If you don’t have time, then I recommend that you find a Buyer’s Agent to do the work for you, a good one will save you thousands.