Property Essentials

#1. What makes property a good investment?

Prices for just about everything rises, which is inflation. But property has consistently outperformed inflation in Australia.

For the last 50 years, property has risen exponentially - doubling at a rate of about every 10 years. In Sydney that means:

Year Median House Price (Sydney)

1970 $18,700

1980 $69,700

1990 $175,000

2000 $328,000

2010 $624,000

2018 $1,150,000

Pro tip: In 2010 everyone thought that a $1.2M median house price by 2020 was just as impossible as some people think $2.3M will be by 2030.

What drives the growth

There are several key drivers behind this growth, here are some:

land in capital cities is hard to come by (supply)
the population continues to grow (demand)
Finance is much cheaper and easier to access
Australia's prosperity continues to grow

Leverage

One major advantage of property is that, unlike most other investments, you can borrow the majority of the value which means you get to use the bank's money in order to (hopefully) earn returns for yourself.

So even if growth is slower than other asset classes, you may still generate more

Tax

Unlike most other investments, Currently there isn't any tax on the increase in value of your primary place of residence. Which means whatever profit you make is all yours.

What about market busts

There are three certainties about markets.

Markets of every kind go up and down at times.
Every time the property market is hot, commentators and economists desperate for their minute of fame go on air predicting doom and gloom on a scale that is never recoverable from.
Every one of those commentators has been wrong

CAVEAT: The future is that because it is unpredictable. This post is not offering a guaranteed prediction of the future. It merely looks to the past in order to shine a light to a potential future.

The reality is our market has a number of stabilising structures which make this much less likely than in other property markets around the world.

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#2. The 9 stages of purchasing property

Property in Australia runs under the system of Caveat Emptor, a Latin term which means ‘buyer beware’.

When buying real estate it means the buyer assumes the risk that the property may not be what they expected or may have defects.

1. Get clear about what you want

Take the time to plan out and differentiate the must-haves from the good-to-haves and likewise the absolute dean breakers from the things you can live with.

2. Inspect the property

Take your time and go back for a second look. Carrying an inspection checklist may not sound romantic but it will save a lot of second guessing.

3. Make an offer

In most states any offer in writing must be presented to the vendor which means if you want it taken seriously - send it via email.

4. Negotiate a price

There are many schools of thought about the best way to negotiate. The golden rule is it’s easier to go up than down.

5. Exchange conditional contracts

Here each state differs, but in most you can conditionally exchange with minimal deposit so that the vendor is committed while you do you checks without risking the full 10% deposit typically required.

6. Contract Advice & Negotiation

The devil is absolutely in the detail with property. There can be a lot lurking in those 40 to 50 pages of paper. The next step is to review the contract for sale with your legal representative and negotiate any changes suggested and agreed to.

Most frequently these are things like a lower rate of penalty interest or 5% deposit but can also run much deeper.

Pro tip: Finding a good conveyancing / lawyer really matters!

7. Searches & Inspections

Depending on what type of property you have you may want to commission reports and searches to make sure you are not buying a lemon.

The most common are pest & building reports for houses and strata searches to see if the sinking fund has enough money and there are no current maintenance issues.

Pro tip: With Auctions, there is no conditional exchange which means you have to spend the time and money on the legal advice and searches/inspections BEFORE you bid at auction. If you are the highest bidder when the hammer falls you are liable to purchase the property, no ifs buts or excuses.

8. Exchange contracts unconditionally

Once you are satisfied the property, contract and loan offer is in the right conditions, you can exchange unconditionally. At this point the remainder of the 10% (or 5%) deposit is payable.

Cheque Directions & Settlement Booked

Legal representative from both sides calculate the pro-rata amounts of paid in advance / outstanding rates, strata fees and alike and send final directions to all parties.

In-going & outgoing lenders and purchaser & vendor legal representatives then communicate to book at time and place for everyone to go and exchange documents.

9. Settlement

At settlement, bank cheques, documents and title deeds are swapped and the whole thing is done. Congratulations! You’re a property owner.

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#3. The ongoing costs of home ownership

Aside from your mortgage repayments, here is an un-exhaustive list of the kinds of ongoing costs you'll need to know:

Council Rates

For thh provision of civic services and infrastructure (you'll be paying to keep the road workers in their job). Generally council rates are higher for houses than apartments.

Water & Sewer Rates

When you own a home all the utilities are your responsibility.

This can come as a bit of a shock for those who come from renting an apartment where gas, water and sewerage have been included. Obviously, the larger the property and the more residents, the higher utility bills will likely be.

Building Insurance

Insuring your new home against damage is imperative to protect your investment. Your lender will require proof of insurance to ensure their investment in your property is covered should the unexpected happen.

Maintenance

For apartments most of this is covered in the Body Corporate fees (see below). Maintenance will be higher for older houses and can range from the cost of a tip of paint from Bunnigs to a full roof restoration or rewiring the house.

Strata or Community Title Fees & Special Levies (Body Coprorate)

These are the fees payable to maintain the shared services (mostly apartment complexes, duplexes and some community title land subdivisions). The more services available, the higher the fees.

Special levies can be common where unplanned maintenance or repairs are required.

Lender fees

These are often forgotten and will include fees and charges relating to refinancing, switching or renegotiating.

Don't forget if you have a packaged loan there may be an annual fee attached to the loan.

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