The Top 7 things property buyers get wrong – Part 1 (Ep.170)

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In this week’s episode, Dave, Cate and Pete take you through:

  1. What are the tell-tale signs of insufficient planning?

Cate shares with our listeners the alarm bells that ring when insufficient planning is in the air. Are you short-cutting your plans? 

  1. What is an appropriate amount of planning time a buyer should invest in their search?

Buckle up, it’s not going to be a walk in the park (if you do it properly). The trio discuss the time and energy that goes into a property search. Think about how much time goes into planning a wedding or a holiday and the relative cost compared with purchasing a house.  

  1. What are the consequences of insufficient planning?

The trio dive into some of the worst outcomes that can arise from failing to plan. 

  1. What are the big ticket issues with overconfidence in your ability to renovate

TV is partly to blame, renovations look so simple when you’re comfortable on the couch with a glass of wine. But don’t be fooled, it is not easy. The trio discuss the reluctance to pay for services like painting that you feel like you could do yourself. But, in the end, it may be worth the cost.  

  1. What happens when renovations go wrong, what are the options?

The trio discuss how to plan for renovations to ensure the funds don’t run out in the middle of the project and what happens when the renovation pool runs dry.  

  1. Insufficient planning

What are the typical signs we see of insufficient planning? How does it manifest?

When people making purchase decisions and asking at the last minute and can’t see any evidence of it fitting into their strategy, how it is going to be future proofed and also that they haven’t even organised their finance yet and have to make an offer subject to finance. 

What’s the biggest holiday you’ve ever had and how much did you spend on it. Or have you had a big wedding, how much did you spend and how much planning went into that big event?

Losses are at stake if you do not do your due diligence. 

There may be nothing wrong with the property, but it’s not within their strategy or needs. 

What is an appropriate amount of planning time a buyer should invest in their search?

It’s going to take 10s of hours in searching and researching. Unless you’re fortunate in the first property you see is the one that you’ll buy. 

How much time do you spend when you get the alerts checking the properties and checking comparables. 

Location – walking to the shops, café, school, and the price point. HOw much fear goes into making people feel confident that they’ve paid the right price. 

Must have vs nice to have vs must not have

What are the worst outcomes we see?

Worst outcome is that you sell it and you’re under water. Having less money than 

Holding on to an underperforming asset – often it takes years to realise and then even more years to admit that. It’s easier to see in the share market, but not so much in the property market. By then there may not be a case, as it may be neutrally geared. Often it doesn’t even help you put more money into a better asset. 

Lost opportunity – bought off the plan, declined in value. Why did you do it? Insufficient planning and impatience because of not having the right deposit size. Bells and whistles, long range settlement period. 

  1. You rush the purchase and it underperforms
  2. You buy the wrong thing and you’re not happy with your home
  3. You buy a property that you then have to sell
  4. If you buy a high capital growth asset at the end of your working life, and you need to stay on that corporate treadmill, you won’t be happy.
  1. Overconfidence in their ability to renovate

What are the big ticket issues we see?

TV has a lot to answer for – 50 minute makeover, it’s not that easy at all

What they can personally do, how well they can do it

Sign off and permits

Cost of getting someone when you thought you could do it yourself

How you deal with your own timeline

Carpets, light fittings, curtains, sanding (it’s really hard), painting

Tiling and carpentry effort is beyond most people. 

Understand the reticence to pay right now – construction costs and materials have gone through the roof. Not just the price, you don’t know when they can complete the works. 

To someone who knows about painting, you can tell when someone’s done it themselves. 

If you’re renovating and it’s not gone right, it affects your mental health. Sad, dust and dirt, kids. Often the valuation comes in less than what you’ve paid for the renovation. Add original home value plus the amount spent on the renovation and you’ll get a bit more than the value add from the renovation. Often it’s not the case. 

What happens if a buyer gets it wrong; what are the options?

Worst case, running out of money and being forced to sell. As long as it’s liveable, you can get a normal residential loan to purchase the property. If you gut the house and it’s a shell, when you try to sell it there is no one under the sun who will touch it. It will generally be a much lower price point. 

If you’re making structural changes, you’re supposed to let the bank know. And if you haven’t and you need to go back to the bank cap in hand, the bank will not take too kindly to it. 

Gold Nuggets

Peter Koulizos – The Property Professor’s Golden nugget: if you fail to plan, you plan to fail. How many hours do I spend working out what restaurant to go to, overseas holiday. So how much money should you spend on a property purchase that will cost you many hundred thousands of dollars.

Cate Bakos – The Property Buyer’s Golden nugget: Aside from not over extending yourself or taking on more than you can actually do well. You need to work out which plans require building or planning permit, and which ones you can actually do. Even if you do it really well, you will have an issue when you go to sell your house 

Market Updates

Is the RBA oversteering the inflation ship? 

The RBA yet again ups the cash rate by another 50 bps, but how effective will it be at tackling inflation when non-discretionary items continue to increase in price. While interest rates don’t have a direct correlation to property prices consumer sentiment certainly does and it’s a scary time for many, now that the cash rate is over 2% above it’s lowest point. Dave shares some learnings from our first cash rate cycle in a decade. 

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