December 2002

Caution! Be careful in a busy Sydney Market

When thinking of investing in property there are many issues to consider. It is important to make prudent decisions regarding location, the property, the amount you want to spend and the anticipated returns. Consumers should do their homework regardless or the type of property they intend to buy.

Here are a few tips I have learnt over the years that will help you survive a highly active market.

Do appropriate research

Reading and understanding a contract of sale before signing it, sale prices of target property and following through with building and pest inspections are the most common forms of research people do.

The biggest pitfall is not researching the area in which you intend to buy. Local government searches have become vital in determining how an area will develop in the next 5 to 10 years and enduring that major changes such as new major roads/freeways are not planned for your backyard. An indication of potential capital gains can be seen by recent estimates on land property prices in Sydney’s South following the construction of the M5 east and the Woronora Bridge. The Sydney Morning Herald has stated that since the opening of the M5, land prices on arterial routes have increased by 10% in the last 6 months on the expectation that traffic flows will decrease and residential amenity will improve.

A solicitor should normally be able to supply buyers with a list of all the searches necessary for sensible purchase.

Network with Others

Network and exchange ideas with fellow investors and professionals in the field. Become acquainted with fellow real estate investors who are financially independent and use them as points of reference or role models. Always ask yourself the question “What would they do in a similar situation?”

Establish contact with accountants, real estate agents, financial planners and lawyers. Find the best person in each field and make use of their talents as input for your own decision making.

Get financial approval

Another common pitfall for buyers is beginning the property search without financial backing. You should talk to your bank or financial institution about your borrowing power before starting to look around; this will enable you to enter negotiations without delay. In a busy market buyers with pre approvals in place can move more quickly when they wish to make an offer and hence have less chance of missing out on the property because of timing delay.

Avoid verbal agreements

Verbal agreements have no legal standing and buyers can find the negotiated price they reached verbally no longer applies. As a rule of thumb, have your appropriate research and finance pre-approved before making a verbal offer and sign the contract as soon as acceptance by the vendor is granted. A good old trick of the trade is to sign the contract and have a 10% cheque with it before going to the vendor. This will show you are genuine and put more pressure on the vendor to commit (a bird in the hand is worth two in the bush).

In conclusion

As the activity in Sydney changes in the future, there will be change in the way the banks and financial institutions consider investment borrowing and to the way investment properties are sold to us. There will be new property types, different ways to make income from property and innovative and clever ideas for managing property – with this ongoing change comes great opportunities.

Becoming more educated about investing and never letting the bias opinion of others cloud your better judgment are the keys to success in property. Leave your emotions at home and be smart about how you can look at property and consider the financial impact of any investment purchase on your life today and most importantly the future.