Wednesday, 11 April 2012

Investing in Real Estate: House hunting

This is the fourth part of my Investing in Real Estate series and the focus of this post will be how to effectively house hunt. At the broadest level investors only really have 2 concerns:

  • What budget do I have for this investment?

  • What yield am I looking to get?

Unfortunately this can make house hunting a nightmare as these can yield several suburbs / towns or even cities which conform to the minimum requirements that you seek. Further it is rarely possible to run a screening tool either from real estate listings as each area has it's own rental market (i.e. within the same city you may have some areas which are currently strong for rental properties while others are very weak)

I have put together a checklist of questions / suggestions that an investor should look at before looking at any properties or calling an agent:

  1. What is the amount that I can afford to invest in this one investment? (note that this is very rarely the maximum you can afford). Once you have this price get rid of all areas with a median price above your price point. I don't necessarily believe that you should buy around the median like some authors teach but simply that you're more likely to waste your time on properties that are out of your price range.

  2. Am I more interested in capital growth or yield? This is an especially important question in countries which allow negative gearing (such as Australia). There is often (though not always) an inverse relationship between the two in property markets. This will dictate whether you look at inner city house / land type properties (high cap growth / low yield) or whether you look at outer suburbs or inner city apartments (high yield / lower cap growth)

  3. How good am I at doing repairs / maintenance and do I want to do this? Quite simply if you are not a very handy person or you tend to pay others to do your repairs etc don't bother looking at properties that require a lot of work. They may look cheap but unless you can do a lot of the work yourself you may just end up in the same spot as you were before

  4. Try and target renters areas. There are some areas that are typically inhabited by renters and have a high number of rental properties. This is a good thing! Areas such as those around colleges / universities or even those which tend to have yuppies or young families tend to have a constant level of demand.

  5. Once you have answered the above questions limit yourself to 3 or 4 suburbs which are around each other. This saves on travel when you are searching but also means that you will narrow your prospects quite quickly. You will also get a feel for the area and what is good and bad in the area (especially those streets that are good or not so good)

  6. Figure out what the specifications are of the property you want. Be really specific and once you set this you can be flexible but it will focus your search. Also real estate agents are typically more likely to be helpful if you say you want a 3 - 4 bedroom, 1 bath, low maintenance with access to schools etc rather than saying 'I'm looking for an investment property'. You'll actually find you get shown properties before they are even advertised

  7. Call every agent in the area and let them know what you are looking for. Also tell them that you are not interested in anything that doesn't fit your criteria. They will get the idea that your a serious and experienced investor (even if your not) and you'll only get shown relevant properties.

  8. Go and look at every property which fits all of the above requirements. You're now at a stage where it is not wasting time any more to look at every property because you know exactly what you want and you know what is good and what is not.

If you follow the above 8 steps it will save you a lot of hassle in the property search process. You may not get the perfect property even if it is for sale because there are always going to be people that will pay more / too much.

In my next post I will outline the negotiation process.

1 comment:

  1. I am on the lookout for a nice housing investment which I want to give to my family. I have always liked to buy my own home so that I won't rent anymore...

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