Expert Advice

Buying property with a fine-tooth comb

B2B Editor6 November 2014

Buying property with a fine-tooth comb

Have you ever visited a display unit where they’re selling great looking apartments or homes off the plan? Have you been given loads of supporting documentation and financial cash flows, along with inclusion lists and all the lifestyle promotion that has left you dreaming of living there or thinking that this could be the one that provides you with the type of wealth you would want in retirement?

After the initial excitement you look at the marketing material and wonder if it’s telling the story realistically. How can you be sure the property will deliver all its promises? How do you know that this opportunity is really good… good enough to spend hundreds of thousands of dollars investing in, be it to live in or invest in?

We regularly assist clients, some who have gone so far as to place a holding deposit on a property and are on the verge of signing the contract when something just doesn’t feel right so they seek professional advice.

When looking through a property presentation and particularly the financial cash flow projections, it’s critical to look at the assumptions that have been made. What interest rate is being used, what rental income is being forecast, what vacancy rate has been taken into account?

Has a cash deposit been applied or are the assumptions based on a fully geared investment and borrowing the associated costs like stamp duty, loan costs and solicitors fees. What are the weekly average out- of-pocket expenses to the purchaser, assuming the assumptions are correct? Are variations on the assumptions given to indicate what will happen if interest rates go up or if there is extended vacancy and the rental is not achieved??

What growth rates is being assumed, what rental expenses have been included- management costs, rates, body corporate expenses, maintenance and insurance costs? What depreciation allowances have been taken into account?

Another essential step before you start is to find out how much you can borrow. Surprisingly, many people proceed as far as to sign contracts and then seek finance advice.

At Hatch Property Australia we regularly look at opportunities and assess the critical elements of a property on behalf of our clients to either give them the confidence to proceed, being better informed and understanding of the bigger picture, or alternatively, they may decide to pass on the opportunity and investigate another property which better suits their needs.

Getting impartial quality property advice is essential and certainly creates peace of mind and reduces the associated risks.