When you purchase a property, whether for investment or to live in, there are always risks involved.
As an astute buyer, it’s up to you to do as much as you can to mitigate these risks. This is where having an experienced conveyancer on your team can really pay dividends, as we can help you review the risks and mitigate them if required.
Here are a few of the most common risks you might face when buying property, and how to mitigate them:
Risks when buying new properties
1. Building or structural issues:
Just because a property is new, that doesn’t mean it’s going to be completely free of faults and issues. If the builder has cut corners or taken shortcuts, it could result in costly and time-consuming repairs, not to mention the hassle of chasing the builder for rectification work. Mitigate this by: Asking questions about the builder. Do they have a good reputation and a strong track record for delivering quality projects?
2. Low capital growth:
Some buyers purchase real estate ‘off the plan’ in the hope that the property’s value will increase by the time it is constructed. If this fails to eventuate, they can find themselves financially tied to a property they can’t afford, as it may be difficult to secure finance for the full amount.Mitigate this by: Ensuring you don’t sign a contract on a property that you can’t afford to settle. You should have access to enough funds to settle the purchase even if no growth happens between contract date and settlement.
3. No ‘unique factor’:
Some larger off the plan developments can deliver dozens or scores of identical properties to the market. These are all similar homes and it can therefore be difficult to set yourself apart from the competition when trying to find a tenant or buyer.Mitigate this by: Redirecting your search to smaller, boutique property projects with 20 or less units within the building.
Risks when buying older properties
1. Hidden damage:
Sometimes, this can be as low risk as the cupboards being a little mouldy inside. Other times, this could mean there are substantial structural issues that could cost tens of thousands of dollars to repair. Mitigate this by having a professional building and pest inspection carried out on the property before you buy. Be sure to go through the results of the inspection with your conveyancer, so you can identify any areas of concern.
2. Low depreciation:
When you’re purchasing a property to invest in, part of the tax benefit you will derive is generated from depreciation. This is a tax deduction that allows you to legally claim your property’s depreciation in value as it gets older. Obviously, the older the property, the lower the depreciation benefits, which makes the investment less profitable for you.Mitigate this by: Ensuring you can afford to own the property before any tax incentives have been factored in. You could also consider investing in properties that have been renovated, as they would potentially offer higher depreciation benefits.
3. Smaller returns:
Given the choice between living in a new property and an older one, most people would choose the more modern accommodation. As a result, in many real estate markets newer properties can attract a premium rental return of 20-50% more than similar, older-style properties in the same suburb. Mitigate this by investing in good quality properties that are either newly renovated (or have renovation potential), with plenty of features and amenities that local renters are looking for.
These are just some of the risks of investing in different types of properties and ultimately, the right property decision for you will depend on a number of personal factors. As conveyancers, we are part of your team of experts on hand to help you make informed property decisions. If you have any questions or wish to discuss your situation in further detail, please contact our friendly team on 1300 932 738.
This article is provided for general information purposes only. Its content is current at the date of publication. It is not legal advice and is not tailored to meet your individual needs. You should obtain specialist advice based on your specific circumstances before taking any action concerning the matters discussed in this article.