Monday, February 5, 2007

Simple Tips for purchasing your first home or investment property in Melbourne

Many young Australians are quickly feeling the pinch of renting and the pressure to invest in real estate. Starting the hunt into the daunting and great property market can take time and headaches. Over the next few issues we will cover what to look for in a property, how to secure a mortgage and first homebuyers grant and finally how to add value to your property once you have purchased it.

This month we look at small ways to help you locate a property that will keep you smiling all the way to the bank.

Things the banks may want
Many banks will place basic requirements on loans they believe to minimize their risk.
Don’t forget the banks are the ones essentially purchasing the property; they like to make sure that if you fail to repay the loan they won’t loose!
Common requirements include:
- Size, the property should be over 50sqm internally
- Location, a 10% deposit for suburbs such as Melbourne CBD and South Melbourne usually apply and 20% in Southbank and the Docklands.
- Usage, many banks prefer not to lend to apartments in a partially serviced block

Things to ask the sales consultant
When talking to the sales agent ask lots of questions. It’s a good idea to make note of their answers and check them yourself if possible. Check with councils, neighbors, solicitors and in the vendor’s statement. Some useful things to ask about include:
- Car park location, particularly in apartments and the accessibility of street parking for your guests
- If the property will be sold via private sale or auction
- If the previous occupants were owners or tenants, generally a property will be in better condition if it had an owner living in it
- Comparative sales in the area to compare price
- Which direction it is facing, generally north and east are preferred for light
- How long the property has been on the market for, generally if it’s taken a long time to sell there’s a good reason why. If a property sells quickly today, more then likely it will sell even quicker next time!
- For a copy of the section 32 or vendors statement
- What are the property outgoings such as council/water rates, body corporate
- What appliances etc. will remain with the property

Things to look for in a property in general
The above lists of questions will hopefully give you a good overall idea of the quality of the property. When inspecting the property it is good to take note of some things yourself, such as:
- The properties overall condition by checking carpets and walls for marks, and bathrooms and ceilings for water damage etc.
- Storage, check there is enough storage available in bedrooms and kitchens particularly, does the current occupant look like they have enough storage for their belongings?
- Inspect the property at different times of the day, this can help reveal the brightness of the property through out the day and if traffic noise increases in certain periods
- Surrounding construction, is there plans for large infrastructure development or buildings planned near the property? If so, will it affect the properties charm or value?

Things to look for in an investment property specifically
When looking for an investment property the number one thing to remember is that you’re NOT looking to live in it yourself. Most owners purchase properties with great views or in great condition etc. because they would prefer such luxuries. A good investor realizes that tenants will pay good rent without these expenses. Key elements include:
- Rental return, make money in the short term with a return of 5%-7% eg. Simple rule of thumb is, if you purchase a property for $450k you should rent it for at least $450pw. Remember to include all outgoings in this equation.
- Capital appreciation, longer term returns come in 3< years for houses and 6-10< years for apartments when you sell them at the hopefully higher market rate
- Lease terms, if the property already has a tenant how long have they committed to and for how long? Will this contribute enough to repaying your mortgage?
- Lease type, look into the returns possible through leasing the property residentially, commercially, fully furnished or serviced etc. each have their own pros and cons depending on your time line and strategy
- Location, many investors try to position their properties near institutions such as universities, hospitals and army barracks for the people whom study and work there. Also near public transport and in areas where there is strong capital appreciation.

Costs to remember
Many people thinking about purchasing a property can omit many costs that may make or break the deal. Sit down and do your numbers carefully and decide are you comfortable with this level of financial commitment continuously for the next few years. Cost include:
- Interest repayments, fixed and variable interest rates which may increase quarterly or annually,
- Mortgage fees, such as withdrawal, set up, late and management fees
- Stamp duty, in Victoria Stamp duty is paid on most used properties, check how much is owing for properties in the price bracket you are looking at
- Legal and solicitors fees to go through documents and managing the purchase and to assist with a will if one is often required when you purchase a property
- Annual outgoings such as body corporate, water and council rates
- Maintenance, maintaining and improving the property for yourself or tenants including the occasional unexpected and often expensive large issues

A lot of stuff hey? How can we young people possibly make the right choice? This is the risk that everyone in the property market faces. Unfortunately real estate is not a guaranteed way to make money but money can certainly be made if you try, are diligent in your research, act quickly and have a little bit of luck! First homebuyer’s grants from the state and federal government are available to eligible youths but be careful not to use this to purchase a lemon! Make the right choice today and leave the others to making their lemonade the hard way.