Shopping around for an investment property to purchase
Shopping around for an investment property differs from buying for yourself because you have to look for qualities in a property that you can see others enjoying.
Once you’ve decided on you want to make an offer for a property there are two main methods to purchasing: auction and private treaty.
At auctions you’ll be bidding against other potential buyers, will have to make fast decisions and will generally know if you will own the home when the auction concludes.
If you’re negotiating through a private treaty you’re negotiating the sale price with the vendor and the initial price is set by the market value of the property, not a price reserve. The process can take days or weeks longer than an auction.
Buying at an auction as a Property Investor
Buying a home at auction is an exciting time - the crowd and competitive atmosphere means it’s easy to get caught up in the passionate bidding. Remember these tips:
- Knowing your maximum bid is just one part of being prepared. Knowing how much each extra bid will cost you in weekly repayments can help you make the tough decision of whether to keep bidding or not.
- At an auction there is no cooling off period, the property is sold when the hammer falls.
- If you are worried about getting too emotional in the auction process you can make someone bid on your behalf, with your instructions to purchase.
- Ensure you know the conditions of the sale before you bid so you know when the property would settle,
- If the property is passed in and you’re the highest bidder you’ll have the opportunity to exclusively negotiate with the vendor.
If you're the successful bidder at an auction, you’ll have to sign the sale contract and a 10% deposit on the spot. Your solicitor or conveyancer will then carry out the research needed on the property and arrange the settlement date. When you buy at Auction there is no cooling off period.
Buy in private treaty as a Property Investor
Some buyers prefer buying through private treaty because it’s a slower, less emotional process than buying at an auction. Some buyers view it as a ‘fairer’ way to agree to a property price and conditions of sale. Keep these tips in mind if you’re going to buy through private treaty:
- You can take your time making bids on the property
- You can negotiate certain terms and conditions of the sale in your favour
- You can delay getting inspections and reports done on the property until after you’ve agreed on a price.
Once you’ve agreed on a price to purchase the property there is a cooling-off period that depends on the state you live in.
Ask about Rental and Vacancy Rates
One of the biggest concerns in an investor's mind is that their property may sit vacant on the rental market. This problem can be helped by selecting a home in an area with a high population rate and a low vacancy rate. Look at areas where the vacancy rate is below 3% because this is a sign of rental demand.
At the same time, find an area that has steady growth in value, especially if you choose a negative gearing option as you'll need the growth in the long-term to offset the losses.
Before you enter into negotiations for a specific property, find out:
- Has it been rented before?
- How much rent was paid?
- Were there any vacancy periods?
- How long it was vacant for, and why?
If you're thinking about investing in property, get in touch so we can talk about your options.