Most investors would like to mark an undervalued property in a very difficult market. This task requires a lot of research and time, but finding a good deal could be worth it.
There are many reasons why a property could sell for less than its market value. This could be due to the fact that the seller is under financial pressure, a divorce or a quick sale. Whatever the reason, getting a good deal in an "extremely unaffordable" market could be a good win.
Here are some steps to look for an undervalued property:
Digital crunch . Knowing the market is important in finding an undervalued property, according to Cameron Kusher, executive director of economic research at REA.
"Data is your best source of knowledge when looking to buy a property. When considering a purchase, check that the other properties have sold in the area and at what price the other properties are listed, "says Kusher.
You can know what to expect when you buy in a suburb by evaluating the local median selling price over time. Here are some questions you should ask:
What have been the levels of capital growth over time?
What is the average supplier discount?
How long does it take to sell a property in this area?
What is the gross rental yield and median weekly rents?
We could answer all of these questions with data, which could help you be better informed and more able to target suburbs and suitable properties.
However, you may still need to dig deeper.
"The trick is to look for suburbs that have a good level of amenity, but compared to neighboring suburbs, or suburbs with similar characteristics, have either a lower growth level, or a lower median price, "adds Kusher.
Read also: Does the median value of a market outweigh the median price?
Find a motivated seller. Finding a motivated seller could help you secure an undervalued property. Pay close attention to the circumstances of the sale – why the property is sold, what are the circumstances of the sellers? Then try to understand how motivated the seller is to determine how far you can negotiate.
Asking specific questions about the sale can provide you with valuable information: for example, was the property purchased elsewhere? Are they in financial difficulty? Have they recently filed for divorce or lost their jobs?
Look for the ugly duckling . Remember that age-old real estate said to buy "the worst house on the best street?" This saying is generally true for investors looking to maximize their capital gain over the medium and long term.
Kusher agrees that finding an undervalued property that looks a bit run down could work.
"The best advice is to look for properties that require a little TLC. If the property does not look good, the point of sale will be hampered. It’s amazing the difference paint, garden work or new cupboards can make on a property that previously didn’t look good, ”he says.
Investors, however, should make an informed decision when buying property that needs TLC, warns Jason Pitkeathly, a real estate investment and mortgage finance specialist at Menzies Financial Group.
“There are dangers because these properties tend to be tired, dilapidated and sometimes damaged. We find that buyers often pay too much for the property, and then do not fully account for the costs of repair, renovation and conservation during the repair period, ”says Pitkeathly.
Read also: A guide for the overturning of for-profit houses
New infrastructure. The development of infrastructure and equipment could help an undervalued suburb to explode. New train lines, a mall and access to other amenities could increase rental yields and capital growth.
Pre-approval for large developments often depends on the inclusion of large park areas, therefore the purchase of an undervalued property in a tightly built area which is planned. for development can increase both rental yields and capital growth through the additional level of amenity that the new development will offer.
Pitkeathly, who is also an experienced real estate appraiser, echoes this sentiment.
“Often, newly gentrified areas can be difficult to assess. If a property has architectural significance, a unique flavor, the first of its kind in an area, an appraiser will find it difficult to find comparable proof of sale and fair market value may be somewhat subjective. If you are confident in your research and purchase decision and can cover any shortfall due to a low valuation, it shouldn't take long before you can realize some of the value clear of this property, "he explains.
Unsuccessful auctions. Properties sold at auction can offer investors a great opportunity to negotiate a good deal, according to buyer agent Chris Gray of Your Empire.
“An agent can overestimate a property. If it is worth $ 900,000 and the agent says $ 950,000, if no one goes to the auction, the property gets a label that the owner or agent wants too much and stays on the market for months, "he explains.
Purchase in a new development after completion. Buying the plan and selling it at the end could bring you good profits while attracting no ownership costs, but you can also recover an undervalued property once construction is complete. Developers pre-sell during the construction phase, and many investors may think they will make a good profit when they sell after construction. However, if the market doesn't make its way, they may want to leave the building – and this is where you can get started.
Read also: Five things to look for before investing in regional areas
Although you feel like you're hitting the jackpot to find a property below market value, you still need to ask yourself if it fits your wallet.
You should also ask yourself if the effort and the costs that you may incur are worth the investment. Consulting an expert who could guide you in your decision when buying an undervalued property (or any property, for that matter) can be helpful. Don't forget: just because it's cheap doesn't mean it's a good deal!
This article was originally published on yourinvestmentpropertymag.com.au in October 2011, and was updated for style and content in January 2020
