Property investors negotiate around emotional buys
On show day buyers fall in love with the kitchen, the garden, or the proximity of the home to schools and shops and make a buying decision based partly on emotion and partly on the maximum bond, a bank will grant.
Often buyers forget to check the condition of the roof and the hard-to-see areas of the house. Buying with the heart rather than the head is not a good business strategy. Property investors are a less emotional breed who made sensible decisions based on an evaluation of the potential profitability of the purchase.
Property investors fall into three categories:
- Buy to flip. Some property investors make their money by buying older houses in good neighbourhoods – then renovating and “flipping” the house.
- Buy to rent – usually leveraged with the rent receiving being used to pay off the bond
- Developers of new homes
Flipping is a good business strategy if you can buy cheap, renovate quickly and then sell at a profit – after allowing for transfer costs and agents’ commission.
Buying a flipped house can also benefit the buyer of a home for the family – who can often get an upgraded and modernized home in a well-established older area. Such homes are usually spacious by modern standards with bigger rooms and large, well-established gardens.
The strategy for the “flipper” is to buy a run-down home at a low price to allow enough margin to pay for renovation and other costs and then quickly put the home back on the market at a competitive selling price.
A professional home inspection will assist both the “flipper” and the buy-to-rent investor. Impartial inspections help the investor to understand the true condition of the properly and what it will cost to fix.
Investors who are buying to rent should find an inspector who is able to prepare a 10-year maintenance and repair budget. Buyers of renovated homes need to be cautious because the quality of the renovations can vary greatly. There are dodgy flippers who use cheap unqualified builders and inferior materials and design.
It’s always a good idea to always make your offer to buy any existing property contingent on a satisfactory inspection.
The inspector should check the roof covering and structure, flashing, drainage, the waterproofing, the geyser, plumbing and electrical installations. The inspector should use a moisture meter and a trained eye to look beyond the fresh coat of paint. Are the corners square? Are the floors even? Is the workmanship up to standard?
If walls have been removed then the inspector will check out the plans and identify the load-bearing walls. Safety aspects regarding balustrades and decks will also be inspected. Buyers should ask for approved plans and check that the “as-built” structures conform with the drawings.
Home inspectors also have a snagging role to play in new developments. In fact, some developers offer an independent snag report to demonstrate their confidence in the quality of their building.