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Do homework before taking the plunge
Publication: HOME - The Sunday TimesWriter: Evelyn Duffy
Section: Investment
Date: 11th October, 2009
With building conditions tipped in buyers' favour and housing demand rising, investing in new homes now holds distinct advantages.
However, experts advise that before you take the plunge it's important to invest time in researching everything from finance to housing options, a builder's reputation, location of choice and crunching the numbers with an accountant.
Property Wizards Buyers Agent managing director Liz Sterzel says low interest rates, strong rental returns and the beginning of a new market cycle make the current time ideal to invest.
Liz says while there is some uncertainty surrounding the impact of the phasing out of the enhanced First Home Owner Grant, she is seeing strong investor activity in both the old and new homes market.
Liz says while many investors are building new homes and renting them out, she also assists clients to buy subdividable blocks with established homes on them.
She says a lot of investors are keeping the original home and building new homes at the rear of the block, allowing them to obtain high rental returns on the new home as well as rent for the original home.
Areas such as Morley, Embleton and Bayswater offer great opportunities to subdivide and build a home at the rear.
"For example, we bought two properties for a client who has subdivided the rear lot in Bayswater and Morley," Liz says.
"He has worked out he is better off building homes on the two rear lots and renting them out than selling the lots at a profit because the cash flow from renting out the properties is so high."
Liz says there are great opportunities to buy new homes for under $400,000 in areas such as Nollamara, Tapping, Clarkson, Butler and Canning Vale.
Liz says ready-built three bedroom, two-bathroom strata properties can be bought for about $400,000 in Nollamara.
But she warns investors to ensure the new home has attributes that will stand the test of time.
She says there can be vast differences in the quality and rental prospects of similarly priced homes.
For example, while searching for a new home for about $400,000 in Nollamara, she sees many different homes for about the same price.
"We've seen homes with standard quality finishes as against superior finishes; some in poor locations; some with inconvenient layouts and others that flow beautifully; some have tiny, dark rooms and others have a nice floor plan - all for the same price," Liz says.
"These are elements that will affect resale value later on, so you really have to be astute when you're assessing new homes."
Ensuring an investment property has a point of difference or advantage over similar properties is essential, says APG Homes sales and marketing manager Leo Callisto.
Leo says the advantage should be something that will provide additional appeal to the given property when compared with another similarly priced one.
This could be anything from having good access to transport, outlook to parks, a waterway or even a third garage.
And, while location may be the common real estate mantra, Leo points out that timing is equally important.
He says it must be borne in mind that buying in the best location will not necessarily help if the purchase is made at the wrong time.
Leo says this is evidenced by the effect of the global financial crisis on property in the western suburbs.
"However, buying in those suburbs in the last six months would have provided a fantastic opportunity to enter those markets and pick up a future capital gain in a desirable suburb where history has shown excellent capital growth in better times," he says.
"The next cycle has already commenced with many potential clients wanting to build but unable to find suitable building blocks in the western suburbs. The market has already moved."
Leo says investors should maintain manageable gearing levels so they are not spread too thin financially.
He says minimising the shortfall between rent earned for a property and outgoings will protect the investor from having to make a "fire sale" at inopportune times.
"The recent downturn would have given positively geared property investors an income while the stock market was heading south," Leo says.
"So I think when all is said and done, cash flow rules. It buys time and presents buying opportunities when others are desperately selling."