How to identify a property hot spot

Buying property does not automatically guarantee financial success. But make a sound purchase, choose a home loan wisely, and a buyer stands to gain tens of thousands of dollars, even in a slow property market.

Getting advice can be helpful, but be sure to take the advice from someone who has been successful. The truth about property can often be hard to find as most of the “advice” comes from people trying to sell you property.

But it’s pretty simple, says finance guru Paul Clitheroe.

“If you live somewhere where the population is growing and there is a shortage of land and housing, start thinking about buying a property,” he told Money magazine.

“If you can add employment, schools, health services, leisure facilities, a decent coffee and good public transport, then I think that with a long-term view you would be silly not to buy in that area.”

Location, location, location

There’s a lot to be said for buying the worst house in the best street, or a rundown house in a great suburb, according to real estate expert Andrew Winter, host of Foxtel’s Selling Houses Australia.

“It’s harder to overcapitalise and even the smallest renovation will add value,” he said.

Go for growth

Do your research, listen to the experts and find an area with a bright future.

“Good roads and public transport push prices sky high. But you’ll have to take a punt to make it big; there’s no use buying when construction has already started. You need to buy in the planning phase and hope that road or rail links actually get built,” said Winter.

Find an ugly duckling

But you must be prepared to do the renovation work yourself, he adds: “The price of a “renovator” is set according to how much it will cost for a professional to do the job so if you can do some or all of the work you’re bound to come out in front.”

Take advantage

It’s all about knowing a good deal when you see it and taking advantage.

“One person’s loss is another person’s gain. Look for vendors who need a quick sale like repossession, divorce or deals that have fallen through,” said Winter. “Keep your ear to the ground and be ready to grab a bargain.”

Limited supply

Buy a property with a restricted supply. An amazing view is always a good bet because we can’t make more beaches and rivers. The same rule applies for fine period architecture, said Melissa Opie, author of property guide, Find the Right Property, Buy at the Right Price.

“Buy properties in line with the dominant architectural style of their location. Period properties hold their value better than newer ones,” she writes.

It is more expensive to follow this rule, but it is low risk with stable long term growth, adds Winter. 

Choose finance options wisely for big gains

You could wait for the stars to align in your search for the perfect property. But one of the easiest ways to sweeten the profit margin long term is through your home loan, said Alex Parsons, chief executive of RateCity.

“With a few simple tips, you can reduce the amount of interest paid on your home loan by tens of thousands of dollars, if not more,” he said.

“The first is to simply borrow less. If you borrow 90 percent of the value of a $400,000 property you start with a mortgage of $360,000. Borrow 95 percent and that mortgage starts at $380,000,” he said. “That $20,000 difference at the outset of a 30-year loan term (at 6 percent interest) means an extra $43,000 in repayments.”

Next, consider the interest rate and fees on your home loan, he said. RateCity data shows that while the average standard variable interest rate is around 5.4 percent, variable rates range from 4.49 percent and fixed rates from 3.99 percent at the time of writing.

“Our calculations show that by switching a $300,000 home loan from the average rate to one of the lowest available in the market a borrower could free up more than $1800 in the first year and reduce the interest bill by close to $48,000 over 25 years.”

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