O'meara Property

Property investment owners sometimes get dissatisfied with their investment, especially as an old year gives way to a new one and forward planning is on the agenda over the holiday break. At times like this they are tempted to be impatient, thinking the market is going up too slowly, or the rent isn’t as high as it should be or the current tenants are not as good as the last ones. They decide that selling their investment property is the answer. Is it?

It’s understandable that once the excitement of owning an investment property has settled, some investors  get sick of making sacrifices to pay the extra mortgage and start to think there must be a better way to spend their money. After all, many things in life that are started with enthusiasm turn out to be a harder slog when the novelty wears off. But investors who get itchy feet and  decide to move on have lost the sense of deferred gratification that led them to invest in property in the first place. They want the instant gratification they think selling will deliver.

In fact, selling too soon often delivers the opposite of what investors are hoping for. Firstly, every real estate sale incurs costs which eat into the profits, so selling too soon often  reduces the overall financial gain, especially if they sell before they have held the property long enough to see the market deliver its cyclical capital appreciation.

The most effective way investors can enjoy their increasing wealth is to practise good old-fashioned patience. If they really want to make things happen, they are better off borrowing more money and buying a second property than selling the one they own (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 and rising rents.

Holding investment properties long-term means greater wealth when it is needed (usually on retirement when income from work ceases).

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 inexperienced  residential property investors start talking about selling their investment property when the market slows down. After all, the market is bad, therefore it’s time to get out of the market – right?

Wrong!  Is the investor going to realise a good return on their investment by selling when the market is slow? Of course not!  Shrewd investors – whether they invest in the stock market, antiques, art or property – have a more fruitful strategy. When the market is low is the time to borrow more money and buy a second property. Selling now will be a poor return on their investment, but buying now means greater rewards when the market does improve. After all, experienced investors know that the market is cyclical They know that when the market is hot is the worst time to buy as buyers tend to outnumber sellers and they end up competing for stock that is snapped up at alarmingly  increasing prices.  In fact they may well profit from the faulty logic of the inexperienced property investor by buying the very investments being dropped onto the slow  market by the less experienced who think property is no longer the go.

When the market slows down, the smart investors speed up, so that they are expanding their property portfolios when the market is in their favour inorder to be sitting pretty when the next boom comes along.

There is a lot of misunderstanding in many sections of the community about the use of Public Auction as a mop-up marketing strategy. Many home owners think that Auction is a great ‘last resort’ selling strategy – the ultimate eraser of past marketing mistakes and righter of all poor decisions made in their earlier Private Treaty marketing.  While it is true that many vendors go to Auction after failing to sell by Private Treaty, it is not hard to work out the flaw in this argument.

Vendors often think they will try to market their property by Private Treaty at an  inflated price just to see what happens. When asked for an explanation, many say ‘Oh, if I don’t get my price I can always auction it.’ But what happens at Auction when months of marketing at an inflated price haven’t secured the dream price the vendor was looking for?  

Sadly, by the time the vendor has given up on Private Treaty, the property is likely to be over-exposed and it will attract bargain hunters, no matter what method of sale is used.  Valuable time has been lost, and unless the market is trending up, the sale price is likely to be lower than if it had sold more quickly.

Once a property has been on the market for a long time, buyer interest falls.  Auctioning at this point rarely creates the competition needed for a high price.  Buyers know the vendor is unrealistic and often stay away from the auction – a death knell to hot bidding. The best case scenario is that the auction will attract bargain hunters – another great way of keeping the price down.  

In reality, no method, used as a last resort, will deliver optimum results. Holding out for an inflated price, no matter which marketing method a vendor starts with, will usually end  badly – no matter how good the ‘last resort’ selling technique of choice is. There is no safety net fix-it strategy for selling over-exposed properties.

Whichever method a vendor chooses to sell their property, it is important they do proper research into the market in their location and set the reserve (auction) or the asking price (Private Treaty) so that the property sells within the first month or so of marketing. ‘Last resort’  options shouldn’t be in the vocabulary of a home seller who wants to get the highest price for their property and they certainly don’t replace realistic response to market conditions and a firm hold on the reality of price expectations.

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.

29 Government, Nelson Bay, Nsw
Land For Sale – $1,600,000

Stepped back into the slope of the hillside, this proposed North facing development site has been approved for 9 two storey townhouses. 8 x 3 bedroom, 2 bathroom, rumpus with DLUG 1 x 2 bedroom, 2 bathroom, rumpus with SLUG. The higher levels expect some distant waterviews once completed.

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1/16 Thurlow, Nelson Bay, Nsw
Unit For Lease

Immaculate three bedroom apartment with views over the waterway between Nelson Bay and Dutchies beach. Featuring spacious open plan living with a second living area downstairs, three bathrooms, dishwasher, double garage and two enclosed balconies. Available for $600 furnished or $650 furnished.

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29/1 Trafalgar, Nelson Bay, Nsw
Unit For Sale – $230,000

New to the market in the popular Bay Breeze Resort Nelson Bay. This loft style apartment would make the perfect investment that you can also enjoy. The light filled kitchen and living area is air-conditioned for comfort after a day at the beach. There is also a powder room on this level. Upstairs consists of two large bedrooms both with ceiling fans and the main bathroom has a corner spa. Laze around the lagoon style pool or dine at the resort restaurant. With approximately 100 mtr to the beach a short walk to town and showing a strong return, what more could you want.

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16 Nelson, Nelson Bay, Nsw
House For Sale – $379,000

This 1950′s cottage is located right in Nelson Bay, just a short walk to Dutchies beach, marina and town centre. It features three bedrooms, two bathrooms, modern kitchen, spacious living areas and sunny decks front and back. Being in good condition, it is ideal for holidays or permanent living. A single garage and easy care gardens are a bonus.

This could be your little treasure.

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27 A Christmas Bush, Nelson Bay, Nsw
For Sale – $699,000

This Torrens Title duplex is located in a most sought after area near Dutchmans Bay. Designed to live upstairs with visitor accommodation downstairs, it is currently a popular holiday destination, but would make an ideal permanent home. The property is in excellent condition, has double garage and low maintenance gardens.

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39/61 Donald, Nelson Bay, Nsw
Unit For Sale – $559,000

This lovely ground floor unit is located in the Cote d’Azur building right in the heart of Nelson Bay. It features three double bedrooms, three bathrooms, stunning kitchen, ducted air con, and spacious living areas opening to private outdoor courtyard area. The building provides a range of resort features including pool, gym, bbq area and tropical gardens. Lift access and security parking make this the ideal holiday destination.

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