O'meara Property

There are obviously risks and disadvantages for purchasers buying off the plan, but most of these can be minimised by doing some research while some can even be turned to the purchaser’s advantage.

Developers often offer units or townhouse for sale before they are completed because it reduces their risk and makes it easier for them to raise any necessary finance; not only do they know the properties are sold, but the price is already set in concrete and lenders can feel confident.

One of the main concerns for buyers is that the property market may fall between exchange of contracts and taking possession, but of course the converse is also true: it could, in fact, rise. This is where the research is important – it would make sense to buy off the plan in a rising market, when the property could be secured at a price lower than the value upon taking possession, and less sense to buy off the plan when the market is undergoing a downturn.

Other disadvantages include the possibility of the developer going into liquidation before the project is complete or the potential for the quality of the finished product to be inferior to that utilised in the display. Purchasers should ask for the addresses of other buildings – completed or in progress – which the developer can lay claim to, and where possible talk to owners of individual properties. It is also possible to assess a developer’s reputation with a few well-placed phone calls.

No matter how good the reputation, make sure the contract includes a reasonable completion date. Some delay between the purchaser’s deposit payment and taking possession is normal and may suit some people as it means they have time to sell an existing property or shop around for a loan, but anything longer than twelve to eighteen months increases the risks posed by market forces or the developer’s liquidity.

Some buyers do very well out of buying off the plan and intending buyers can minimise risk by doing their homework properly and by making sure the contract is reviewed by their legal adviser.

Research shows that about 40% of day to day energy use comes from heating and cooling the space we live in. In these days of climate change awareness, passive solar building design is not just a do-good feel-good gimmick – it means measurable day-to-day cost-saving which will also be reflected in higher sales prices when the property is eventually sold.

Many home owners realise that by the time they sell (homes sell on average every seven to ten years), energy-savvy design will be even more highly sought after as energy prices come to match environmental impact concerns.

Read on to find out what’s involved in incorporating passive solar design into your building or renovation project.

Passive solar design – in its simplest form – means keeping the heat of the sun out of the home in summer and attracting the sun inside in winter. Most passive solar features cost little or nothing if incorporated at the design stage so if you’re building or renovating a home, it’s worth talking to whoever is designing your home.
The following points will help you ask the right questions and get the energy efficient outcomes you are looking for.

1. Orientation
Orientation comes down to intelligent use of the sun. It doesn’t cost anything but the decision about which way the home will face must be made before the foundations are laid. Choose the ideal direction to maximise sun use during winter and restrict sun use at the hottest times of year (in the Southern hemisphere this means a north orientation for day use areas and south for night use).

2. Zoning
Clever zoning means placing the daytime areas of the home towards the northern side and the night time areas to the south or east (it’s easy to stay warm in bed and days are spent in the living areas.)

3. Glazing
Well-placed and well-sized windows reduce the need for artificial lighting during the day. At the same time, the fact that glass is a poor insulator needs to be taken into account; double glazing or some other form of insulation such as heavy curtains may be necessary at night time or on sunless winter days in most climates. Unprotected single-glazed windows lose ten times more heat in winter than the same area of insulated wall. Windows can also be designed to let sun shine on interior walls and floors that can be built of materials that have the thermal mass to store it.

4. Insulation
No matter what the climate, insulation for walls, roofs and floors is crucial in energy-efficient design, keeping heat inside the house during winter and outside in summer. In some cases the building material itself may be the insulator (e.g mud bricks, double brick).

Most home sellers probably know someone who has ‘staged’ their property for sale even if they haven’t done it themselves. Making the home look good in order to sell it is becoming more common and is certainly a way of getting more sales dollars, especially when an empty house is furnished and decorated to have the wow factor and camouflage unattractive areas. But some people overdo it, thinking that any staging (even bad) is better than no staging at all. When does staging go too far?

Most experienced agents will tell you that anything overly contrived and unreal is unlikely to convince purchasers to believe in (let alone identify with) a lifestyle and is therefore unlikely to make them feel like making an offer.

Many home sellers like to display pictures of super attractive people such as models or celebrities in their house as opposed to the “normal-looking” people who actually live there. This might seem like a good subliminal selling trick suggesting the upmarket, perfect lifestyle the current owners have and by association, the upmarket, perfect lifestyle buyers will live if they buy the house. The problem is, most buyers spot the trick and are put off by it. A better idea would be to hire some ‘good’ paintings to use in the staging of your home rather than pretending to be a cast member from “Sex and the City’ or The Bold and the Beautiful”.

The smell of fresh coffee might be convincing but putting flower petals in the master bathtub or tinting the water to match the décor is another overly contrived gimmick. Buyers know you don’t actually live this way and instantly feel they are being set up.

A well-staged home shouldn’t look obvious or contrived – it should look effortless and stylish as if efficient but busy people with good taste happen to live in the home.

While many investors still own every investment property they ever bought as part of a self-funded retirement portfolio, there are others who want or need to sell a property because their circumstances – personal or financial – have changed. Is it better to give the tenant notice to quit before putting the property on the market or should they sell it while the tenants are still in place?

The obvious answer is to keep the tenants in residence. This incurs the least loss of income and unless the house is really dirty and untidy, a house usually presents better with furniture and household items making it look lived in.

However, there are times when a tenant in residence could be a financially less rewarding scenario. Tenants who do not want to move can put a lot of obstacles in the way of a sale. They can limit and postpone inspection access almost at whim in spite of legally having to provide ‘reasonable access’ (what is ‘reasonable’ to one person may not be ‘reasonable’ to another). By the time this sort of obstacle is sorted out, valuable time has been lost and many purchasers have moved on. If the market is not trending up, this can result in a lower sale price as the market drops before the property can be sold. Furthermore, if the seller is using the money for another financial project, delays in having the money available could cost them the project or render it more expensive if bridging loans are required.

Disgruntled tenants can also highlight the property’s faults in order to put off prospective purchasers and while many owners are happy to absent themselves from the property to allow the agent to show the purchasers around at their leisure and improve their selling prospects, tenants have no such motivation to leave the property and many reasons to stay watchfully present.

Sometimes property owners have no inkling that tenants will behave badly in the event of a sale, but there is a bit of basic research investors can do to try and determine whether their tenants will play ball. Ask your agent how easy it has been for the agent to get access for periodic maintenance inspections or for tradespeople who have been contracted to carry out work on the property. Tenants who have been slow to concede access for activities such as repairs that will benefit them are highly unlikely to come to the party when they think they will ultimately lose their home to a successful purchaser.

Many people feel that real estate ads often exaggerate the features of the properties advertised. Yet agents frequently report that when it’s their turn to sell, many vendors just can’t help wanting to ‘oversell’ their property by insisting that every feature of their home is highlighted in every ad, or by insisting on ‘four bedrooms’ rather than ‘three bedrooms and a study’. But what does a real estate ad really need to achieve?

There’s an important distinction that needs to be made: the ad is not the property. Furthermore it won’t sell the property by itself. A real estate ad has done its job if if makes people want to come and carry out an inspection. Then it’s up to the property to live up to the description if a sale is to be made. If purchasers feel disappointment that the property does not live up to expectation, they are unlikely to make an offer.

As such it is better to claim less for the property rather than more. Underselling works better than overselling. There should be a buildup of desire and excitement that reaches its peak by the time people set foot in the property. Purchasers should be delighted to find that the property is everything the ad said it was – and more. Purchasers are frequently buying a lifestyle and rather than listing all the features of the property, it is more effective to evoke the kind of life they might be able to live as owners of, and dwellers in, this particular home.

Secondly, too much information can actually make people decide not to inspect the property at all. To the inexperienced, this seems an unlikely situation. How could an ad that highlights the property’s desirability actually go against it in the long run? They don’t realise that potential purchasers may decide without seeing the house that it would not suit them. Some vendors think that purchasers who have already made up their minds against their property weren’t ever going to buy the property anyway, so it’s a good job they didn’t waste everyone’s time on an inspection. This approach is a short-sighted one, however, as it overlooks the very real potential for the house to sell to someone who falls in love with it even though it doesn’t outwardly meet all the criteria on their wish list, or had a feature they had decided they didn’t want.

Remember, most purchasers have to compromise on some features, and the home may meet their needs so well in some particular way that is special to them that they overlook the glaring lack or supply of something else they thought they needed.

The financial security that flows from owning residential property investments is well-documented. Not so well known are the reasons why some experienced investors (landlords) have been more successful at managing their investments to produce optimum yield and maximum capital appreciation.

1. Keep vacancies, arrears and repairs to a minimum and tenant harmony to a maximum by setting the rent at ninety five percent of the current market value.

Novice residential property investors often fall into the trap of trying to obtain market rent or even five to ten percent above the market.

Rental properties which are placed on the market to let just below market value

• Attract the best referenced tenants, and
• Maintain minimum levels of vacancy, arrears and repair / maintenance.

2. Tenant references are essential. Give the most weight to the response to the question

Do you believe the applicants would be able to
pay $x per week for y weeks and keep the
property clean and in good repair?

Always obtain reference checks. The prospective tenant’s previous real estate agent or owner (landlord) and employer are essential references. If possible also ask the above question of their accountant, lawyer or banker.

Don’t be influenced by personal references. Successful investors readily confirm it is rare indeed to be provided with poor personal references.

3. Always utilise the services of an experienced, well-referenced, professional managing agent unless you have the time to gain a detailed up-to-date knowledge of the residential tenancy legislation, an understanding of local vacancy and rental movements, a background in repairs and maintenance, a bank of reliable tradespeople, an awareness of housing price movements and other governing factors such as insurance and property taxation.

Managing rental property is a role for experienced well referenced experts not enthusiastic amateurs.

Only a fool has him / herself as a client

  4. Require your managing agent to provide

 i. A monthly statement of all income and expenses with your cheque banked directly into your account.

ii. An annual written report of state of repair (internal and external) and cleanliness.

iii. A mid year written kerbside report of state of apparent repair and cleanliness.

iv. A six monthly written report of the current rental value and the local area vacancy rate.

v. An annual written report of the current reasonable selling price of your property.

5. Carry out an internal inspection with the agent every two years.

Let the agent organise the appointment. Insist the agent accompany you and let them do all the talking with the tenant. Remain as anonymous as common courtesy will allow and never exchange telephone numbers or contact details with a tenant. It’s the agent’s job to be just that…..the agent between you and the tenant.

6. Until you get to know the agent (usually three to six months) require all expense items to be referred to you (other than emergencies) prior to the agent spending any money. After three to six months set a limit on the amount the agent can spend (usually about the equivalent of one week’s rent) without reference to you.

7. Always have your agreement with your agent evidenced in writing.

Irrespective of your local legislation or governing regulations insist that your service contract with the real estate agent is completed before they start to perform any service for you.

Many new investors make the decision to ‘save money’ by managing their own investment property. They work on the assumption that once they have selected and installed a tenant the only real work is done. Do they, in fact, ‘save money’ as they intended?

Once they start looking after the property on a day-to-day basis, most investors realise they don’t have the level of expertise required to maximise income and minimise expenses. They realise that they cannot do the work cost-effectively, and that tenancy legislation is best left to the experts. Most novices need to spend a disproportionate amount of time making sure they get it right. Even then they worry that they haven’t thought of everything. Most find it an enormous relief to hand over to an expert who has the up-to-date legal knowledge to prevent problems developing. Most investors report an increase in their net income as well as in their leisure time.

Happily, most people hand over to an agent before things go wrong. They realise that staying up-to-date with week-to-week fluctuations in the rental market is difficult for those not in the business. It takes a lot longer for trends to become apparent to people who are looking after just one or two properties. Do-it-yourself investors do all the work themselves and it may still cost them money in higher vacancies. It’s also very hard to keep a distance from demanding tenants when there is no third party to liaise.

Communication and arbitration is also an area where the objectivity of a third party is essential. Dialogue via a disinterested third party minimises income-reducing anger and personality conflicts. Even negotiating rent is difficult for a landlord, firstly because of the emotional involvement and secondly because of lack of experience.

What is a reasonable rent to set? What are fair and reasonable repairs? How can I make sure the lease covers every contingency?

The answers? Do your homework, find out who are the most professional managing agents in your area and ask them to manage your precious investments.

What makes some houses sell faster and for a better price than others that are to all intents and purposes pretty similar in size and features? Many of the differences between properties are hard to pinpoint and don’t come down to plain old bricks and mortar and land value. What are these elusive features that make all the difference?

 There are several factors that contribute to a home’s appeal that aren’t always immediately quantifiable – orientation, design that maximises natural light, pleasing proportions and other factors that contribute to market appeal.

What if, for example, there are two identical homes, but the living area of one home faces north and the other south? Given that more buyers write ‘north-facing’ on their wish list, the north-facing property is surely more saleable (therefore worth more) than the south-facing one. All the same, the owners of the south-facing one probably think that their home has the same features and of course value as the one that buyers prefer.

The kind of appeal that makes buyers go ‘wow’ can also come simply from regular maintenance and attention to detail in the presentation of the property. A house that looks loved and cared for is shown to its best advantage, yet it may be identical in most other respects to a less popular property in the neighbourhood.

Elusive appeal is also likely to be a function of the original design concept of the house. After all, it is not uncommon for homeowners to “save” money at the planning stage of building or extensions. They achieve the measurable features they were after but not the elusive ‘wow’ factor. Good design, especially the skilful use of natural light, window placement and correct orientation on the land adds something you can recognise but can’t always define. Many people add on, or make minor changes as the need arises without taking a holistic view of their property. They think in terms of immediate solutions to particular problems (need large fourth bedroom with ensuite to become master bedroom) rather than conceptualising the impact of the house as a whole (small living area and kitchen means scale of property is out of balance).

Extending without reference to the scale of the home, for example, creates an floorplan that is not balanced and harmonious. Such a house is likely to lack the aesthetic pull of more cohesive designs even though the number of features looks the same when listed.

Home owners who want to sve money should be aware that skimping on planning and design could mean that the house never reaches it’s full potential in terms of re-sale value, no matter how impressive its many ‘features’.

Property investment owners sometimes get impatient. They think the market is going up too slowly, or the rent isn’t as high as it should be or the the current tenants are not as good as the last ones.

In most areas there has been a rush on dwellings that fall into the first home buyer category now that governments are offering grants to help first home buyers get into the market. As a result, many investment property owners are thinking of putting their properties on the market for sale while the chances of a high price are looking good.

Is this the best way for them to go?

In fact, selling too soon often delivers the opposite of what investors are hoping for. Every real esate sale incurs costs which eat into the profits, so selling too soon often reduces the overall gain especially if they sell before they have held the property long enough to see serious capital appreciation.

It seems that investors who get itchy feet have lost the sense of deferred gratification that led them to invest in property in the first place. They are tired of making sacrifices to pay the extra mortgage and they expect too much too soon. Maybe they have forgotten that the most effective way to enjoy their increasing wealth is to let capital appreciation and rent increases do their job over time. Holding investment properties long-term means greater wealth when it is needed (usually on retirement when income from work ceases.)

Instead of selling, investors who really want to improve their long-term wealth would be better off increasing their loan and buying a second investment property (provided they bought sensibly in the first place of course!) Astute investors keep buying more properties as their borrowing power increases with the rise in equity that accrues with capital appreciation.

It is true that some short-term self-sacrifice is involved in this strategy. Investors buying their first property are usually stretching themselves just to get a foot on the investment ladder and there is little money left over for luxuries. It is not until their portfolio grows in size that they will be less stretched and more able to increase their lifestyle spending without selling a property to do it.

The best strategy for most investors is to embark on a program of planned property investment at their earliest financial convenience – usually when the equity in their family home reaches a fairly high level and after consulting their accountant.

Then they simply keep adding to their portfolio until they increase their assets to the level that suits their aims and aspirations.

Many home owners who extend or renovate their homes make money when they sell, while others wonder why they have trouble getting their money back. What are the main things to consider before embarking on a renovation or extension?

Firstly, ask yourself whether improvements will make your house significantly better than the others in your street. The best-house-in-the-street phenomenon is often an unhappy one as the values of the other houses in the street affect the upgraded one – after all, this is not a street where purchasers will be looking to spend the higher prices the vendor is after. Those who renovate above and beyond the level of surrounding homes are less likely to get good capital appreciation when they sell.

Furthermore, do the changes you are making really improve the home? Many home owners simply increase the cost of their home without necessarily adding to its value, because some alterations don’t improve the standard of the property enough to compensate for their cost. Others leave a mishmash of disparate styles, or serve only to emphasise the datedness of the original house, or are too personal in their application to have wide appeal and so end up worth less than they cost.

It is not even uncommon for home owners to sacrifice one feature to gain another, thereby adding cost but not value. Frequently reported examples of this sort of expenditure include turning a bedroom into a dining room or a garage into a rumpus room.

Ideally, extensions should be seamlessly integrated with the original home. Many three-bedroom homes don’t “work” once a fourth bedroom and family room are added – the original rooms may be too small to balance the extensions. Furthermore, bad design resulting in poor natural light or an inconvenient floor plan will be reflected in the sale price of the property. Many of these problems could be avoided if architects were consulted before the work was undertaken. “Saving” on the cost of an architect is nearly always false economy.

Sometimes renovators over-capitalise by deviating from their budget during the course of their renovations. Many homes and locations don’t justify the top-of-the-range appliances and fittings some renovators choose. And if renovators run out of money before completing the work or have to skimp on the finishing touches, the overall effect can be disappointing and limit the ultimate selling price.

Home owners concerned about investment potential should also think twice before making changes for their own unique needs. Above all, major work should not be carried out if homeowners plan to sell in the near future. Sometimes a homeowner will ask a question such as: “I am planning to sell in a year but the house could do with a new bathroom. Should I undertake the work?” It could be argued that the home owner will get the benefit of using the new bathroom for the year until the property is sold, but unless they are in a location or marketplace or price range where the cost of the bathroom will be easily absorbed in the overall capital increase during the next year, it would be pointless to renovate the bathroom only to sell it. Prospective buyers may want an entirely different bathroom, or a bathroom that is very new might make the kitchen or other areas of the house look as if they need work.

The state of the market can also be an important factor in the overall cost-effectiveness of renovating a property. In a buyers’ market, such as we are currently experiencing in most parts of Australia and New Zealand, it often makes sense to take advantage of someone else’s hard work and expenditure rather than embark on costly and time-consuming renovations of your own, unless you are so attached to the property that you can’t bear to leave it, or unless you live in an area or type of home where there is always strong demand and low supply. Trading up in a buyers’ market should actually produce a financial advantage as you inevitably ’save’ money when you purchase a more expensive house on a slow market. (For example, do your sums and work out why a 10% ‘loss’ on a $500,000 home that you are selling is less than a 10% gain you make on the $750,000 house you are buying which is also ‘losing’ its owner 10%). Trading up makes even more sense in areas where First Home Buyers’ Grants are raising the price of the kind of house you might be selling but not affecting the cost of the home you are planning to purchase.

At the same time, quality of life is also important and the good news is that if people stay in a property long term the cost of idiosyncratic changes will usually be absorbed in most locations experiencing growth. The question of whether they would have made more money by making different choices often simply doesn’t come up.

Homeowners wanting to maximise the investment potential of their homes should consider consulting an estate agent with whom they have a good relationship before making improvements. In many instances, agents aren’t called until the work is nearly completed and it’s too late to choose a different path. Builders can tell you what your renovations will cost but only an experienced, well-referenced estate agent can tell you whether the value is worth the cost sufficiently to justify the expenditure.