For many investors, particularly experienced ones, the hardest part of growing a property portfolio lies not in securing adequate finance, but in identifying strong property investment prospects. How does an investor assess whether or not a property is likely to deliver the capital growth and rental returns that they expect? And furthermore, how can they be sure that they are paying a good purchase price? To help answer these questions, and more, I've decided to share the following piece by Empire CEO, Chris Gray, which appeared in the February 2013 issue of Century 21 Wentworth's Property Investor.
How to buy and negotiate like a professional and bag a bargain
Buying property cheaply isn't about ripping off unsuspecting sellers or finding a never-before-seen, too-good-to-be-true deal. Professionals make money from property by understanding the market and knowing what to buy.
It's true that buying a property for less than market value does make you money, but since you can only buy the property cheaply once, you will only make a profit once. A property in a bad area may be priced cheaply, but if no one wants to buy or rent it from you, there is little chance of achieving significant capital gains.
A true bargain can be a regular-priced property that has a uniqueness which not everyone recognises. The truth is that you have to spend money to make money. If you understand how professionals buy and negotiate to get property slightly cheaper, you could bag the ultimate bargain.
RESEARCH
This is a crucial element, so set aside a good amount of time. The first step is knowing what to buy:
Are you investing for capital growth or for rental yield?
Are you buying to hold or to renovate and sell?
How much cash and income do you have available?
How much time and effort are you willing to put into your investment strategy?
My advice? Anyone earning a reasonably high income and who can service the cash flow on a property should focus on capital growth. Median priced properties that are closely situated to the main capital cities, where the fundamentals of supply and demand are good, are the most profitable purchases.
Next, do some research into the best suburbs to buy and median property prices. There are free sources of information:
Newspapers;
Magazines;
Property websites;
And sources where you have to pay:
Australian Bureau of Statistics;
RP Data;
Residex;
In my experience, you get what you pay for, so it's worth investing in the most up-to-date and unbiased information.
GROUNDWORK
In order to have a sound understanding of property values and what's available in a new area, you need to inspect and analyse at least 50-100 properties. After your research, combine all the vital statistics on a spreadsheet and compare like with like. Consult with local real estate agents and property managers who can provide you information on what's in demand.
KEEP A FINANCIAL PERSPECTIVE
Buyers can often get emotional over a property purchase which can freeze their decision making. It's important to remember to keep a financial perspective as there's a lot of money at stake. Property investors need to make factual decisions and have a firm understanding of what to buy and what not to buy.
YOU GET WHAT YOU PAY FOR
Everyone wants a bargain but the truth is that you always get what you pay for. It's important to concentrate on the bigger picture and focus on the capital gain that you can accumulate in the long term. There are ways to get a property slightly below market value, but purchasing a blue-chip property in a blue-chip suburb will give you the best returns in the long term. There's a limit to how much you can save, but no real limit to how much you can make.
About Chris Gray: Chris Gray began investing in property at age 22 when he worked out that it was cheaper to own a three bedroom house than a one-bedroom unit. He turned an initial deposit of $35,000 into a portfolio that is today valued at over $10 million. A qualified accountant, buyers' agent and mortgage broker, Chris is passionate about inspiring others to achieve financial freedom through property. He is the CEO of Empire which builds property portfolios for other people - searching, negotiating and renovating on their behalf. Chris is the host of "Your Money Your Call" (Fridays on Sky News Business Channel), a position that sees him interview other leading industry figures. Further information is available at www.chrisgray.com.auand www.yourempire.com.au.