October 2013 - What Buyers Really Want & Subdividing Your Way to Profit

By Rich Harvey, Managing Director propertybuyer

Welcome to your October propertybuyer market update.
In this edition we will look at;

1. What Buyers Really Want!
2. Best Buyers Agent Award Winners 2013 - REINSW
3. Subdividing Your Way to Profit

1. What Buyers Really Want!

Buying your next home is a very personal thing and is also one of the most expensive purchases you will make in your lifetime.  It’s wise to spend a few moments considering what type of home will suit you not just next year but also in 5 and 10 years time.  You don’t want to rush into a decision to buy a home on an emotional whim, only to discover that you have paid 20% too much and the property only meets 50% of your needs!

As buyers’ agents, we’ve reviewed thousands of buyer’s “wishlists” and found some common themes that buyers find highly desirable.   Your first step is to take out a sheet of paper (or an excel spreadsheet if you are analytically inclined) and jot down a list of everything you want in your next home….this is your true “wishlist”. 

The next step is too hard for most people - you then have to separate your list into “Essential” and “Desirable” criteria. Our human nature means we don’t really want to compromise – we just want it all!  That’s fine as long as you have an unlimited budget.  But for the majority of home buyers, we will need to cut the cloth to fit our financial budget.  Below is a list of the requests we commonly get from our home buyer clients.

Just remember, you can’t move the position of property you’ve bought, but you can add value and make changes via renovations/ extensions.  Many buyers are put off by poor cosmetic appeal, yet this should be a secondary consideration in comparison to the location of the property.  The maxim of location, location, location holds true for home buyers and this is reflected in the price you pay.

In looking for a new home, don’t confuse “research” and “search” – research comes first.  This is about identifying the right suburbs where you want to live.  This decision will be largely driven by your commute to work, schools for the kids, family and friends network and your lifestyle and desire for amenities – close to bushland, beaches, waterways or sporting facilities.   Don’t be too narrow minded when it comes to picking your preferred suburbs.  Speak to the locals to find out what makes the place tick and hang out at a few local cafes. Examine the demographics to see if it feels right for you.  There are over 15,000 suburbs in Australia and 670 in Sydney alone.  My team of buyers’ agents can give you the inside knowledge into the most suitable suburbs for your budget as well as those suburbs undergoing gentrification.

The second stage is the “search” – seeking individual properties within your target suburbs.  We all know the drill here – you’re out every weekend dragging the family around to open for inspections and competing with a never-ending line of other aspirational buyers.  The current market is very strong and likely to get stronger in coming months, so it pays to have a strategy to be able to shortlist properties quickly and easily.  To get a real perspective on the local property market you need to inspect somewhere between 50 to 100 properties.  Taking notes and keeping records is a good idea, as it’s easy to forget or get confused by seeing lots of properties.

Our team of buyers’ agents assists clients refine their “Wishlist” into a realistic “buyers brief”. We work with our home buyer clients every step of the way to shortlist both on and off-market properties, appraise the value accurately and then step in and negotiate the lowest possible price.  Using a buyers’ agent helps home buyers find their dream home faster, gives them the confidence to pay the right price and beat other buyers to the exchange.

In the current market, many home buyers are catching FOMO disease – Fear of missing out.  If you are a home buyer it’s important to take a step back, work out exactly what you need, then search strategically for the right home and get the right advice.

If you are in the market for a new home, please call us today on (02) 9975 3311 to discuss our Full Search service or our Appraise and Negotiate service which will give you the edge.   Or you can download some further tips from our website:
http://www.propertybuyer.com.au/resources/free-downloads/

Happy house hunting!

2. Best Buyers Agent Award Winners 2013 - REINSW

We are delighted to announce that we were awarded the highest honour for Buyers Agents at the annual Real Estate Institute of NSW Awards night last week.

We won the category for the 2013 best "Buyers Agent Award for Excellence".  This award is judged by three independent judges that look at a range of criteria including expertise in property sourcing, conducting appraisals, managing client expectations and the buying process, managing risks and contribution to the industry.

I would like to sincerely thank all our faithful clients and my wonderful team for their support and dedication to make this award possible.  Thank you for placing your trust in us to help you achieve your property goals that in turn has enabled us to win this award.

3. Subdividing Your Way to Profit

Subdivisions are a brilliant strategy to make money from property investing, but they can be a potential minefield for the uninitiated.  In a relatively short space of time, you can make a handsome profit by either selling and taking profit, or otherwise refinancing to create equity.  The trick is to find both a suitable area and a suitable property where this strategy works.

The beauty of the subdivision strategy is that it does not rely on a rising market in order to make a profit.  The typical long term property investor is relying on rising population pressure to create capital growth.  The subdivision strategy relies on the ability to split a property into two or more parts and then be able to sell (or revalue) in the current market conditions.  You can do very well provided the area has sufficient demand and turnover for the block size that has been subdivided and you set your pricing realistically.

Before you set out trawling the internet and inspecting potential sites there are several key steps you must take.

1. Market Research - Analyse the availability (supply) and demand for property in your chosen area.  Discover the median prices, days on market, and understand the dynamics of the local area.  Will it take 45 days or 200 days to sell your subdivided property? Time is money!
2. Search for potential properties that can be subdivided.  This takes some digging.
3. Consider your exit strategy - are you going to sell, retain and build or a combination of both?  Get your accounting and tax advice upfront before signing any contracts.  This will save you a packet down the track.
4. Study the council's Local Environment Plan (LEP) and Development Control Plan (DCP).  You need to know these documents backwards so you can accurately assess if a site has potential for subdivision.  Each council area has vastly different requirements for minimum lot size, set backs, frontage, overlays, floor space ratios, easements, water run off, tree preservation and other building controls.
5. Feasibility study - Your target should be 20% return on costs.  The accuracy of your estimates will make or break your deal.  You need to know the costs of all headworks, council fees (including the massive Section 94 contributions), consultant costs, interest etc....and don't forget to factor is some delays and over-runs-these are inevitable.
6. Engage a team of smart consultants to help you with the due diligence.

Beware of drainage easements and sewer lines and bushfire zones or anything that can restrict the development upon a subdivisible site. It’s no good to subdivide only to find you can only build a shoebox on the site!

If I had to pick the two most important things to consider in the subdivision process it would be completing the comparable sales analysis and picking the right consultants.  Don’t take short cuts on your due diligence – this is your safeguard.

Case Studies

Sally* approached us to find a subdivision site. She had a seriously negative geared portfolio and limited servicing ability. The goal was to create a cashflow strategy to grow her portfolio. We found a suitable site in NSW that already had two dwellings on the one site giving a total rent return of $580pw.  We negotiated the site for $372,500 which gave a yield over 8%.  It was more cost effective to conduct a strata title subdivision of the site which then enabled the client to recoup their initial deposit, plus gain further equity, giving a total equity profit of $94,625.

Robert* wanted an investment property that would assist him to create strong equity growth for his 10 year investment plan. We found a site in NSW that was a mixed use zoning (resi and commercial) where the sewer had just been connected and that could be split into three blocks.  With a purchase price of just $340,000 we also negotiated a 4 month settlement and early access for consultants to complete surveys and other estimates.  The block will allow for building of a commercial premises which will add significant value. We confirmed sales prices with many local agents and confirmed subdivision costs with all consultants.  The total equity profit after subdivision will be approx. $112,000.

                                                                *Names changed to protect identity of clients

The decision to build or sell after subdivision will be determined by your objectives and individual financial situation. Make sure you get the right advice.

As independent Buyers Agents, we offer a fixed price service to source profitable subdivision sites and help you every step of the way. Our fees cover:

1.   Identification of subdivision sites

2.   Assessment of profitability

3.   Project management of the subdivision process

To find out how propertybuyer can help you uncover a suitable site, please call us on 1300 655 615 or email info@propertybuyer.com.au