Inner city strata Investments
A recent report from Smart Property Investment has identified 20 suburbs within a five-kilometre radius of CBDs where a quarter of all unit sales were less than $300,000. To the surprise of many, Perth had 4 suburbs at the top of list. The suburbs are: Mt Lawley, Leederville, North Perth and Highgate so all very close to each other. (In case you haven’t heard of Highgate, The Queens Pub on Beaufort St is located in Highgate).
These 1 bedroom, 1 bathroom apartments can be a great investment and with signs that the market in Perth has bottomed out now is a great time to invest.
In general when looking at investing in apartments there are a couple of things to consider. The first thing to keep in mind is your rental return. When looking at the rent vs purchase price it is important to consider what extra charges you are facing. In an apartment complex there will always be strata fees that needs to be taken into consideration. Also, before you make a decision on which unit to purchase you need to consider the condition of the strata. Ask for a copy of the last strata budget and the minutes of the last AGM. In the minutes you will see if there is any major works planned, such as replacing the roof etc. The minutes will also provide you with an insight into how the strata is managed, if there are any problems you need to be aware of etc. The budget will give you an idea of how healthy the strata is and if there is any sinking fund. A sinking fund is funds put aside for major works down the track. If there is no spare cash in the strata and something needs to be repaired, it is up to the owners to pay for that out their own pocket which can be a costly affair and such requests for cash may be made at a time when you can least afford it.
I have heard from some investors that stratas are to be avoided, however, there are two things to bear in mind. Because stratas are units or apartments with less land, they are cheaper to buy into. Secondly, with a strata you are sharing the cost of the insurance, maintenance etc with other owners. If you own a property is a small complex (3-4 units) you can organise your own insurance, however, often it is cheaper to have a common insurance.
Stratas can be just as good an investment as a green title property, but like anything else, do your research and understand what you are buying into.
Rasmus Nielsen is an Area Manager with LJ Hooker Victoria Park. For more info and tips contact Rasmus on 0430 015 796 or email Rasmus here.
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The selling process once under offer
The selling process once under offer
When selling a property it is common to focus on the pre-sale activity such as preparing the property for sale, setting the sales price and getting the best possible price. Without a doubt that is very important, however, once a property is under offer and waiting for settlement there are a number of things that need to be considered. I have included below the more common events that may take place, but always discuss the process with your real estate agent.
Finance period.
Most buyers in WA makes offers subject to finance approval from a financial institution. Some purchasers are well prepared and have organised a pre-approval. A pre-approval is a conditional approval and is not to be mistaken for a cash offer. A pre-approval can be withdrawn at any time by the financial institution (bank). As a seller you should allow at least 21 days for the buyer to obtain finance approval, even if they have a pre-approval.
Building inspection and pest inspections
Most buyers want to have a building inspection and a pest inspection carried out and this should not take any more than 21 days as well. In my experience these inspections can be carried out within 10 days of the offer being accepted. As a seller you don’t have to organise anything as it is the responsibility of the buyer to organise and pay for these inspections. As a seller, you need to provide reasonable access to the property for these inspections and your real estate agent can help with access. My recommendation is not to have the buyer present at these inspections as this delays the time the inspection takes and it also provides the buyer with an opportunity to try and re-negotiate the contract, which the buyer should never be allowed to do. As a seller you want to make sure that you understand the building and pest inspection clauses as they can have a big impact on the sale of the property. Make sure the contract is written up to protect you as much as possible.
Electrical compliance
In WA all properties must be fitted with a minimum of 2 RCD and smoke alarms (usually hardwired). The number and type of smoke alarms is determined by a licensed electrician and it is their responsibility to report any installations they carry out to the government. If you are unsure if your property complies, organise for a licensed electrician to carry out an inspection. Heavy penalties apply to the seller if this is not in order at settlement.
Final inspection
The buyer has the right to carry out one final inspection up to 7 days prior to settlement. The purpose of this inspection is to make sure that the property is in the same condition as when the offer was made (subject to reasonable wear and tear). If the contract was subject to any special conditions, such as electrical, gas and plumbing to be in working order, then the buyer can use the final inspection to check this.
Settlement date
The settlement date is set out in the contract. It can be a fixed day or it can be subject to a specific condition, such as 21 days from unconditional finance approval. Discuss this with your real estate agent and settlement agent to determine what suits you the best. If it turns out that a different date is better suited to both parties your real estate agent can draft a variation to contract. If there is a delay in settlement, due to the fault of the buyer or seller you are best to seek advice from your settlement agent.
As soon as you have accepted your offer on your property, get started straight away and prepare yourself. You want to speak to your settlement agent as soon as possible and find out what you need to do to ensure that you are not delaying the settlement. If you are unsure how much you have borrowed against your property, speak to your bank (you should have done this before you listed the property for sale anyway). This is even more important as Landgate has recently introduced identification check for all sellers to minimise property fraud.
A number of things can happen that can make a sale fall through or delay settlement of your property that are outside your control. Therefore, it is very important to have good experts on your side, such as your real estate agent as well as your settlement agent.
Rasmus Nielsen is an Area Manager with LJ Hooker Victoria Park. For more info and tips contact Rasmus on 0430 015 796 or email Rasmus here.
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Early possession – watch out
Occasionally, a buyer would like prior possession to settlement and it can very easily put the seller on the spot. Early possession is generally to the benefit of the buyer and includes a lot of risk for the seller.
There are a number of risks that the seller needs to be aware of. First of all, what happens if settlement doesn’t take place? Recently in Adelaide a cash buyer was not able to come up with the funds at settlement. The seller had written an offer on another property subject to the sale of their existing property. The process went sour very quickly and it affected a number of parties. In the end the seller had to go to court, submit a default notice to the buyer and have a locksmith get them back into the property. This took some time and caused a great deal of financial stress to the parties involved. This was despite the offer being an unconditional cash offer.
Early possession also raises a lot of questions. Who is responsible for the condition of the property for sale, who pays the bills including outgoings and is rent to be paid and if so how much.
In my experience, early possession is a very bad idea for the seller, however, there are circumstances where early possession makes sense and there are ways to overcome or counterbalance the risks.
A variation to the contract can outline who is responsible for what, when, where and what happens if etc. Make sure that if your real estate agent writes up a variation to contract it is checked by your settlement agent. At the end of the day, it is your signature that matters, so be certain that you know what you are signing and what will happen as a result.
Recently I had such a situation where the finance was approved, however, the property was pending titles to be issued and the buyer was in a rush to find a place to live. The buyer offered to pay above market rent for the time being and offered to make an advanced payment for part of the sale price to the seller. The advanced payment was non refundable should the buyer pull out of the sale for whatever reason. This option was preferred by the seller as they had received a part payment of the sale price that they could use to reduce their mortgage payments. The alternative was that the buyer increased their deposit which would have been held in trust.
Early possession should always be discussed with your settlement agent as well as your real estate agent. Make sure that you understand all the consequences of a worst case scenario. Only in exceptional circumstances should you as a seller consider granting early possession.
Rasmus Nielsen is an Area Manager with LJ Hooker Victoria Park. For more info and tips contact Rasmus on 0430 015 796 or email Rasmus here.
To see what others say about Rasmus click here
Using the right pricing strategy
The price tag is the most important part of your marketing strategy, when marketing your property for sale.
When marketing your property the price tag attached is the most important part of your marketing strategy.
When first going on the market with a property, the seller has a price in their mind. Sometimes they tell the agent what they want and sometimes the agent has no idea and as a result the lack of communication can cost a lot of money. In the current market a price tag that is too high will result in the seller being left with no offers after the first couple of weeks/months. However, there is another way to market your property which does the opposite. This strategy takes into consideration buyer behaviour and increases demand when executed correctly.
When the strategy is executed correctly the agent will write multiple offers after the first home open and one or more of these offers will be above the asking price. It is possible even in this market (still somewhat of a buyer’s market) but it requires an understanding of the strategy by the seller as well as the agent. Here is a summary of how it works.
When buyers are surfing the real estate websites and see a property with a good (low) price they instantly gets interested. They look at the images and the text and makes sure that they are available at the first home open because they realise this property will be gone quickly. If one buyer thinks it is a good deal, rest assured that other buyers will think the same which means that you as the seller will have a number of potential buyers turning up just before the home open.
When viewing the property (at the first home open) the buyers see instant value, they want to write an offer as soon as possible. Often what happens is that they will tell the agent straight away (this happened for me again on the weekend) which also means that other potential buyers hear this. The buyers instantly realise that others are interested in this property which creates the maximum sense of urgency. As a result, these buyers are entering into a bidding war where they don’t know what the other party is offering. The only person who knows exactly what is going on is the real estate agent who (if any good) will make sure the best possible offer is written. In my experience this means that the highest offer is above the asking price (other factors may also come into play here).
Even if the offer falls through, there is already a number of very interested buyers who missed out the first time. There is a good chance that they will still be interested in the property which is a great back up to have available.
Using this pricing strategy requires skill and nerve. You cannot price your property too low as you will attract the wrong buyer who cannot afford the price you really want and you cannot (by law) mislead buyers into thinking that the asking price is say $400,000 when you are really looking for $500,000.
If you are hoping to sell your property for around $500,000, I recommend setting the asking price no lower than $485,000. If the offers come in around the $485,000 it is worth noting that the property may only be worth $485,000 and not $500,000. Historically, sellers receive the best offers in the first couple of weeks of their marketing campaign, so waiting out for the dream offer is not going to happen. The worst thing you can do as seller is to price your property out of the market, yet it happens to many sellers.
Rasmus Nielsen is an Area Manager with LJ Hooker Victoria Park. For more info and tips contact Rasmus on 0430 015 796 or email Rasmus here.
To see what others say about Rasmus click here
Adding value – a practical example
Recently we upgraded from a home with two bedrooms and one bathroom (two toilets if you include the one in the laundry room), to a fully renovated four bedroom and one bathroom home (also with two toilets). Since we bought our new home in December, we have created a vegetable garden; planted half a dozen trees and have also bordered off the garden using bamboo fencing.
We have repainted the interior of the whole house and we are now planning to build an ensuite bathroom, as well as a carport, but it will take some time before we have enough money to complete this.
The home we bought was renovated over a period of three years; the previous owners made a crucial mistake which cost them a lot of money.
The bedrooms are large (as they are in older style homes) and when renovating the house, the wife decided that she wanted a large walk in closet. She did this by moving the dividing wall between two of the bedrooms.
The outcome of this was a walk in wardrobe the full length of the room; with deep shelves on either side. Every woman’s dream. The room next door was then a little smaller, but still a good size with plenty of space for a queen sized bed; perfectly serving as a guest room. The other outcome was that there was still only one bathroom. This is unfortunate as an ensuite is very popular with buyers these days. Instead, a large bathroom with a toilet was created with a separate toilet next to the bathroom.
It was very important to the wife to have space for all her clothes and shoes, thus facilitating her needs. However, as the new owners, it does not really suit us (although my wife loves the walk in wardrobe).
Our solution is to cut the walk in closet in half and install an en-suite bathroom. This will probably set us back around $30,000 and so it is not a cheap exercise but we are hoping it will be worth it.
Had the seller chosen to renovate the property with an en-suite bathroom (even a small one); they would have paid less to build it as they would not have had to extract half of a walk in closet first. They would have added over $50k in value to this particular property.
The other thing to remember is that in an area where most people’s homes have two bathrooms already, not having an en-suite will make a number of buyers not even consider the property.
Then there is the parking or lack of parking more specifically. Currently the cars are parked on the edge of the property, so adding a carport and a driveway also makes a lot of sense. The lack of secure parking would have been a deal breaker for some, therefore, should we choose for whatever reason to sell the property in three years (which we have no intention of doing), we have added value to the property with our changes.
Yet there is one change that we have made that will not necessarily improve the resale value of the property in three years. This change is the addition of solar panels. As much as I hate to say it, not many buyers see the added value in solar panels and they don’t see a need to pay any extra for a property with solar panelling. So why did we do it? We like to think that we are making a difference to the environment (maybe turning off the air-conditioning would have been a better idea), but the primary reason for this change is that it makes things much simpler. We loathe energy bills that keep going up and up every couple of months. So if you don’t like to pay heaps of money for energy every two months and are planning to stay in your home for more than five years, go ahead and install solar panels. If not, spend the money on something that will add value to your property.
Rasmus Nielsen is an Area Manager with LJ Hooker Victoria Park. For more info and tips contact Rasmus on 0430 015 796 or email Rasmus here.
To see what others say about Rasmus click here
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