If you are looking at buying or selling a residential property there are broadly four ways to looking at residential real estate and these are:
- Buying a property as a home.
- Buying an investment property.
- Buying a home that will become an investment property.
- Buying an investment property (beach house) that will become your home.
Buying Real Estate.
The generally recognised pattern of home buying is based on 3 cycles being:
1st home – about 9 years or until the kid’s need their own rooms.
2nd home – about 9 years or until the kid’s leave home, so lets make that 30 years then based on current research.
3rd home – retirement home.
Ideally you would keep each property in the above pattern and have a nice retirement home and two debt free investment properties.
1st Home – single or beginning of a relationship with or without young kids.
Assuming you fit into the traditional pattern above then buy your first home on the basis that you going to sell it.
What does that mean?
Your aiming to buy a property you can get equity, that is the difference between the properties value and the size of the home loan, in quickly.
The three ways to do this are:
Debt reduction, pay off the debt quicker.
Capital appreciation through renovations and or buying in an area experiencing a property boom.
A combination of the above 2.
2nd Home – kids over 8 to when they leave home.
OK you’ve gained equity and are now moving to a large home where most of your lifelong memories and your kids childhood memories will happen. Think about that for a moment.
Give you a different perspective doesn’t it?
This is the place your family will be putting down its “roots” for the rest of your lives, birthday’s, Christmas, school formals, engagements etc.
So the boring stuff, how many bedrooms, bathrooms, garages will pretty much work themselves out.
The big issues with this purchase are:
What sort of area do you want your kids growing up in?
What sort of people do you want your kids playing and learning with?
What sort of neighbours do you want, think on this, with kid’s most of your entertainment once you’ve spent Saturday & Sunday being a taxi service for your kids will be with your neighbours purely because you’ll all be stuffed from running around all day.
A rule of thumb we use is to drive around the area your looking at early in the morning and see how many people are either walking and/or walking their dogs.
Generally better areas will have a number of people doing just that.
3rd home – retirement.
If you can buy a beach house or hobby farm about 10 years before you intend to retire, why?
For pretty much the same reasons as for property purchase 2 above only refocus on yourselves and remember your own kids will be adults bringing the grandkids along.
You might notice some homes in holiday areas have large master bedrooms and very small other bedrooms.
This is deliberate, the idea is based on the accepted reality you can pick your friends but not your relatives.
The child who at 10 was a delight is now in their mid 20’s married to someone you can barely tolerate and has developed their own set of opinions that you may not share.
Being family you can’t say no and its always great to see the grandkid’s but a short happy visit is better than a long unhappy one.
So small bedrooms help get them out the house quicker.
It also means if an adult child has to move back home they don’t get too comfortable.
Of course if the statistics are right the average age of kids leaving home is in their late 20’s, so if you have a “professional student(s)” you’ll need to accommodate them as well.
The Qld Government has produced a reference source for housing in Queensland for all life stages. This information can be accessed via the link below http://www.qld.gov.au/housing/
The technical stuff.
Valuation or what is the property worth?
Purchase valuation.
You can use the most popular method being the “I know what I like and what I can afford” method or you can use the other method getting a valuation done by a professional valuer.
At the moment if you have a smart phone you can use free app’s like the one from onthehouse.com link at http://www.onthehouse.com.au/ to do some research online.
Unfortunately most people are forced to adopt the square meter rate method.
House 1 sells for $450,000 and is on a 700 m2 block = $642.86 per m2
House 2 sells for $455,000 on a 600m2 block = $758.33 per m2
Average rate ($642.86 + $758.33) divided by 2 = $700.60 per m2 average
House for sale on a 650m2 block is worth $455,386 being 650m2 x $700.60 average.
The problem with this method is that it does not take into account some major variable such:
the configuration of the house, is it 3, 4 or 5 bedroom?
How many bathrooms, garages?
Fully landscaped with a pool and tennis court?
Air conditioned with security screens?
Bank Valuation.
Basically a bank valuation is based on a repossession sale or to use the correct terminology “mortgagee exercising power of sale”.
Bank valuations assume the property has been vacant for some time, requires repairs and overdue maintenance. As a rule of thumb its was generally considered a bank valuation would be between 10% to 20% below the sale price of the property.
On the eastern seaboard of Australia the ideal orientation or aspect of the house is facing north east.
A north east aspect gives you summer shade and winter sun, that is one end of the house will be great the other not so great as it gets summer sun and winter shade, pick wisely.
If your “dream home” has the wrong aspect then look for other solutions and factor that into the amount you’ll pay. A combination of landscaping, some screens and sails can do wonders.
This is a personal choice but some common things people focus on are:
Kitchen not being able to be seen from the front door.
Toilets not being visible from other common rooms like the lounge and kitchen.
In hotter climates a wide full length hallway as this helps generate breezes in the house.
The classic “Queenslander” is about a meter off the ground on stumps or higher with a 1.5 meter wide full length hallway in the centre of the house with the rooms running off it and surrounded with at least a 3 meter (or 9 foot) verandah on all sides and build using timber.
This design effectively “creates” breezes even on a still day by using the heat on the roof to draw air up through the floorboards.
If you see an older “Queensland” with verandah’s only on one or two sides, check the aspect, find northeast and you’ll understand why the verandah’s are only on those sides.
Placement of the bedrooms, if you have babies and younger children then all of the bedrooms close together if a pretty good idea.
When the kids are older say 23 and they like “clubbing” and bringing new friends home you might prefer to be at the other end of the house.
Public Services.
Public transport stops or stations, hospitals, schools, work out the relevance of these to you.
For example if you work in town and live across the road from the school and the bus stop in front of the school but don’t have kids maybe your better off being down the road opposite the shopping centre with the library, medical centre and pub.
Shops and entertainment.
Living across the road from Bunning’s is great while your doing the renovations but what about when they’re done?
If you live to shop then maybe a townhouse across the road from the biggest or best shopping you can find is for you.
If your into the rural lifestyle then a block further out on the same road as the shopping centre is an idea.
As a broad rule of thumb allow another 5% of the properties cost to cover purchase and moving in costs. Within this is a small amount to do any maintenance or repairs needed either picked up or not in the building inspection.
If you go through a real estate agent the agent will talk to the vendor about price and the conditions of the purchase.
For a complete list please go to this link and download the PDF file
More commonly used terms:
- Vendor is the current owner of the property
- Purchaser is the buyer.
- Stakeholder is the person/business holding the deposit, usually the real estate agent.
- Real Property Description – this is different from the address, each property has a unique set of identifiers and these are filled in with the details under the “Property” being sold description.
- Off market sale – no real estate agents involved in the sale, these are typically properties sold between family members.
- Conditions – these are various requirments of both the vendor and the purchaser that have to be met for the sale to “complete” or “settle”.
Typical conditions are:
- Finance – this is where you specify if the sale is subject to a finance approval or not.
- Building & Pest – sale is subject to satisfactory building & pest inspection.
- “Cash unconditional” this means that settlement will happen on settlement date, if you find that you cannot get finance or the building does not pass its building & pest inspection you still have to settle.
Negotiating the price.
Most people go in with a lower price to that being asked, do not do this verbally.
I’ve seen many contracts fall over when the vendor & purchaser have agreed to a price verbally and a few days later when the contract is presented for signing one side or the other won’t sign.
Otherwise you learn all about “Gazumping” see link here
Gazumping occurs when you have a verbal agreement with an agent or seller to buy a property at an agreed price but the property is not sold to you in the end. This usually happens when the vendor (the person selling the property) has decided to sell the property to someone else, usually for a higher amount.<
This practice is legal in some states and not in others so check first otherwise you’ll learn the hard way.
Get the agent or yourself if your doing it to present the contract and a pen for signing.
If the other side wants to counter the offer then put a line through the price, write the new one in, initial it and then get the other side to initial the change and sign the contract.
Terms and conditions.
These comprise:
Deposit to be paid – amount, if a deposit bond is OK, stakeholder is usually the vendors solicitor.
You may see a staged deposit, for example $500 on signed the contract with the balance of 5% deposit paid once a satisfactory building & pest inspection has been completed.
Subject to satisfactory finance.
In most states once the contract has been accepted the purchaser must insure the home.
DISCLAIMER –Any advice contained in this buying or selling a residential property article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this article, Esdale Sinclair & Associates recommends that you consider whether it is appropriate for your circumstances and recommends that you seek independent legal, financial and taxation advice.