5 worst traps for buy­ers

In­vestors should know ex­actly what they are get­ting into be­fore sign­ing on the dot­ted line

NT News - Real Estate - - Market Place - AN­THONY KEANE

BUY­ING real es­tate is a big step, and with in­vest­ment prop­er­ties the com­plex­ity can in­crease dra­mat­i­cally.

Aus­tralia’s grow­ing army of first-timers join­ing the two mil­lion-plus ex­ist­ing real es­tate in­vestors can save thou­sands of dol­lars by un­der­stand­ing the po­ten­tial prob­lems.

Here are a few to watch out for.

Bin­nari Prop­erty man­ag­ing di­rec­tor David Han­cock said wealth sem­i­nars that used high-pres­sure tac­tics were catch­ing out plenty of new in­vestors. “A lot of peo­ple have re­alised later in life that they won’t be able to live off their su­per, a de­gree of panic sets in and they get sucked into th­ese sem­i­nar-based en­vi­ron­ments,” he said.

“Be­ware of sales agents that re­quire you to sign a con­tract im­me­di­ately, and do your re­search be­fore mak­ing any de­ci­sions.”

Prop­erty in­vestor, au­thor and univer­sity lec­turer Peter Kouli­zos said buy­ing off the plan from de­vel­op­ers was a po­ten­tial trap.

“Gen­er­ally in a de­vel­op­ment, it’s the de­vel­oper that makes the money — not the in­vestor,” he said.

Un­der­stand­ing the fi­nan­cial side of a prop­erty pur­chase was cru­cial. Prob­lems could arise from some­thing as sim­ple as choos­ing a fixed-in­ter­est loan in­stead of a vari­able rate loan.

“If you de­cide to sell out be­fore the end of the term, you have penal­ties,” Mr Kouli­zos warned.

Mr Han­cock said many peo­ple signed con­tracts with­out un­der­stand­ing the mort­gage process or know­ing if their loan would be ap­proved.

“Prior to mak­ing any de­ci­sions or sign­ing con­tracts, see a mort­gage bro­ker or bank for a fi­nance assess­ment,” he said. “Keep in mind that you’re buy­ing an in­vest­ment, not a place to live.”

In­vestors should ig­nore their own tastes and in­stead fo­cus on things such as nat­u­ral colour pat­terns, func­tional lay­outs and things that ap­pealed to a wider au­di­ence, he said. “An in­vestor may dis­cover a hid­den gem while on hol­i­day and be con­vinced that others will fall as madly in love with it as they have,” he said.

“But buy­ing blindly with­out un­der­stand­ing the sea­sonal na­ture of the area may neg­a­tively im­pact their rental in­come.”

Prop­erty in­vest­ment is not a get-rich-quick scheme. Mr Han­cock said fees, stamp duty and other taxes could eas­ily erode a 10 per cent an­nual gain in a prop­erty’s value. “Any­one who can hold a prop­erty for more than 10 years gives them­selves an op­por­tu­nity for sig­nif­i­cant cap­i­tal growth and in­come growth,” he said.

If an area had an ex­cess sup­ply of in­vest­ment prop­er­ties, rental in­comes got driven down, Mr Han­cock said.

He said lo­cal prop­erty agents should have a good un­der­stand­ing of plan­ning and sup­ply is­sues.

Mr Kouli­zos said prop­erty in­vest­ments of­ten strug­gled if they were too far from the city or too far from the sea, or were based on a short-term trend such as a min­ing boom.

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