Wednesday, April 16, 2014

Investors... Power in numbers.

The market is definitely running hot, some sectors more than others and motivated buyers seem to be everywhere. Unfortunately for me, the investor/first home owner space is one of these and it's also a market I'm currently looking to buy in. I was out and about looking at property last weekend and buyers were swarming. Properties in a great location, in the $450,000 to $550,000 range are going well over reserve at auction. 15.4% of activity in the Adelaide market are first home buyers and 38.7% are investors. It's no wonder the competition is so tough out there, and from what I'm seeing, it's the properties requiring a full makeover that are attracting a lot of attention.

Last weekend's efforts got me thinking about my approach and what stacks up...

When looking to purchase an investment property, updated bathrooms, kitchens and bedrooms with built in robes go a long way to add value to your bottom line. Tenants see value in these features and it will show in your returns.

After hunting around and missing out on a few properties that not only sold for well over the auction reserve but also required large maintenance works such as roofing, flooring and painting... I have to ask: At what point does the new build become a better option than the 'renovators delight'?

When looking at what to buy, you need to consider not just the purchase price and expected capital expense of the renovation, but also the downtime taken to complete the repairs and how this will affect the rental return. This is a trap some investors can fall into when considering the character home that 'needs work'. I'm as guilty of this as anyone.

Looking at property and working to fix them up is embedded in my DNA and I can't help being drawn to the bluestone cottages and the sandstone villas. This emotional tie is something I am struggling with… "The property has great potential but can I really afford it, knowing I will need to spend in excess of $50,000 just so it's ready to meet the rental market?"

Being objective in the residential property industry is an important discipline and one I am reminding myself to adhere to daily. So before you buy, make sure you look at all your options - whether it's a new build and suitable for a tenant right away or an older character home - and compare them. It's important to know what you're in for either way.

So, it's back to the drawing board for me and to try hard not to get (too) swept up in the emotion. I do love the process and the intensity, but I'm happy to be reminded it's also about the numbers.

Suzannah Toop

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