The property market in many parts of Australia has experienced substantial price growth over the past year and when the market starts heating up, it's more important than ever that you are well-prepared with a strong strategy. In this article from the December edition of Property Investor, Chris Gray, CEO of Empire, a company that builds property portfolios for clients, shares his advice for buying in a hot market.
Secure finance pre-approval
It's imperative that you get pre-approved for finance, so you know exactly how much you can afford to pay for a property. Many buyers waste valuable time looking at properties they can't afford, and in a rising market a property they could have afforded earlier in the year may now be out of their reach.
Know what you want and be realistic
I recommend creating a checklist to ensure that you are able to recognise the right property when it comes around. This checklist should include a list of all of your essential must haves and what's optional, allowing you to quickly and effectively 'rate' a property. You need to build some flexibility in to these criteria, as none of us can afford the perfect house in the perfect location, as it nearly always comes at too high a price. If you get too picky you'll miss out on the property you wanted - I believe it pays to be realistic - you'll find that dream property before you know it.
Do your research
The most effective way to gain an accurate expectation about the price points of various properties is by viewing lots of open homes and keeping track of the price they sold for. At auctions, try to note whether it's a one off high price with two competitive bidders pushing the price up, or if there's ten or more people all bidding seriously, as that will give you a better idea of market demand and price expectations for that type of property.
Compare like with like
When you go to the inspections make sure you get the size of the property (internal and external), strata fees, likely rent and other important figures so you can ensure that you're comparing like with like. Seeing ten open homes a day can lead to confusion when you're looking back at them a few weeks later - try constructing a simple spreadsheet and then comparing what the agents were quoting, to what the property finally sold for.
Retail today = wholesale tomorrow
While we all want to bag a bargain, it's not always possible, especially in a rising market. Paying a fair price for a property today can be the same, or perhaps even cheaper compared to buying at a discount tomorrow. Firstly, tomorrow often never comes and secondly, if you do find a bargain, it may be in six months time when the property's value has gone up $50,000 which far outweighs the $20,000 discount you received from the vendor.
Accept that the market moves quicker than you can save
It's tough saving for a deposit, especially when you're young and starting out. While saving is a good practice to get into, properties often rise in a boom faster than you can save. So even if you have to pay lenders mortgage insurance (LMI) today, it may be better to buy now with 10 per cent deposit than wait until next year when you have saved a 20 percent deposit.
Know what to do at auction
Before turning up to an auction, you need to be 100 per cent sure of what the property is worth to you and feel comfortable bidding against others. Go to as many auctions as you can before bidding on one and see how the professionals bid compared to the public. Consider getting a friend or hiring someone to bid on your behalf if you're unsure - it might cost a fee but it takes the emotion out of it.
Overall, you need to remember that action is essential in a moving market and you have to be prepared to re-set your expectations every few weeks as prices and opportunities change. The property market is never going to be 100% perfect when you purchase, so try to get as confident as you can and then make your move.
For more information visit www.chrisgray.com.auand follow Chris on Twitter: @ChrisGrayEmpire.