with Jarrod McCabe and guest Jordan Telfer.
Property advice and theories can come from all directions. Some are sound and should be considered, while others, albeit, well meaning should be taken with a grain of salt – typically from relatives or friends at a Sunday afternoon barbecue.
So we thought it was important to unpack some of the more common misunderstandings and misconceptions that can lead people astray.
Bricks, not sticks
Often people are told to buy a brick property, rather than a weatherboard. The theory being that brick homes attract greater demand, require less maintenance and are not susceptible to pests. While there is an element of truth to this, it doesn’t encapsulate the greater and more nuanced truth of the matter.
For a start both weatherboard and brick homes are susceptible to termites. In fact, according to building inspector, Peter Alexander, he sees more termites in brick homes, as they attract greater levels of moisture, which attracts termites.
In regards to upkeep, it’s swings and roundabouts. Yes, weatherboard homes require periodic painting, but they are not susceptible to cracking and rising damp in the same way brick homes are.
The choice between brick or weatherboard should come down to personal preference, value, and market expectations. In some markets, such as Adelaide, brick houses are the norm, which means weatherboards aren’t rated as highly. Whereas, in Victoria, weatherboard homes in particular areas are appreciated and sought after.
While weatherboard homes are an anomaly in the inner Melbourne suburbs of Fitzroy North and Carlton North. If you push a little further out to suburbs, such as Brunswick, Thornbury and Northcote they are the predominant older style housing stock, and very much appreciated.
This also applies to more premium suburbs, including parts of Hawthorn and Prahran, where weatherboards are an appreciated part of the streetscapes. An interesting example is Cambridge Street, Armadale. The street consists entirely of Victorian weatherboards – not one brick amongst them – and it’s one of the best performing streets in the suburb.
We’re not here to say that weatherboards are better than brick. With two Victorian homes side by side in a suburb like Hawthorn, the brick house will typically be more expensive than the weatherboard. However, from an investment perspective, in terms of annual growth, brick is not necessarily going to outperform the weatherboard home.
Never buy at auction, always put in an offer beforehand
The theory goes that people pay an emotional premium at auction, as they get carried away with the drama and fear of missing out. Bear in mind, often the person giving this advice has been burnt at auction in the past, paying too much for a property and later regretting it.
Ironically, by putting in an offer before auction, you run a significant risk of paying more than you need to. You may blind side one or two people that haven’t got themselves together yet, but if there’s others in a position to counter your offer, the only person with full line of sight over all of the parties to the negotiation is the agent. At least out on the street at an auction, you know who the competition is, adding a greater level of transparency.
Never bid before the property is declared on the market
This common misbelief goes by the line that it’s never a good idea to show your hand early, and instead it’s best to wait until you’re playing for keeps.
For those on a limited budget, who don’t want to show the agent their upper limit for the target home, or others in the future, this may be valid.
However, it’s definitely not a blanket rule. One major problem being, if no one bids, the home may never make it on to the market. Or if someone else bids, and the home gets passed in, you may miss out, as you’re locked out of the exclusive negotiations for the property.
Ensuring you’re amid the bulk of the bidding enables you to maintain a degree of control over the process, quickening and slowing down the tempo of the auction in your favour. Your input within the proceedings might actually force or encourage the agent’s and vendor’s hand to actually put it on the market.
If you don’t place a bid before the home is on the market, you can very quickly lose control of the bidding process. An auctioneer may assume the price is beyond you or that you don’t have any interest. And they then start focusing on other potential bidders.
We’re not suggesting you have to make the first bid, but having a blanket rule of not bidding before the property is declared on the market is not going to serve you well.
Manage the property yourself
This is often said when the property is situated close by. Proponents argue that it’s cheaper, allows for greater control, greater oversight; and that property managers don’t really add much value.
It’s a cynical attitude, but to be fair, it often comes from people who have been burnt in the past, having paid good money, for poor service. That’s understandable if they’ve been treated badly, however the advice needs to be taken in that context.
Having said that, when it comes to simply not wanting to pay the price, that’s where it becomes a false economy.
Property managers take on responsibilities most of us aren’t equipped to, or don’t have the time or inclination to. There’s an insurance type value with property managers. Sometimes it’s simple. The rent and bills are paid on time, but it’s when things get more complicated that good property managers show their true value. This includes chasing up a renter, who hasn’t paid, organising and advising on repairs and upgrades, as well as adhering to the ever evolving and increasingly stringent Victorian Residential Tenancies Act.
If you break down the numbers, $600 a week in rent would probably indicate an asset of $1.1 to $1.2 million under current values. Paying seven per cent, plus GST as a management fee, after tax comes to around $30 a week. That’s about the cost of three beers at the AFL footy. It adds a little perspective, considering we’re asking someone to oversee an asset and investment worth around $1.2 million.
Buy a property with as much land as possible
This has an element of truth to it, but nuance and context is important. Land is definitely what appreciates, so having a strong land component is really important. However, it’s not so much about the size of the land, but the location of the land. Bigger is not always better when it comes to property investment.
If there are two properties in a sought after suburb, on a great street with good access to services and surrounding development, then all things being equal, you’d definitely go for the bigger block.
But if you’re compromising to buy a bigger parcel of land, and perhaps moving a suburb further out, or going from a quiet street to a main road, then that’s a compromise that isn’t going to deliver value.
Buy the worst house in the best street
Of all the theories we’ve covered, this probably has the most merit, as it factors in the importance of location.
The concern from a buyer’s perspective is, why is it the worst house? And is it going to be rectifiable?
If it’s rundown and in need of an upgrade or renovations, then that’s completely doable and definitely bears out the adage.
However, in many cases, the worst house hasn’t already been changed and improved, because it simply can’t be.
This may be because it’s in a street that’s covered by a form of heritage overlay. Or it could be an irregular shaped block, a steeply sloping hill, or adjoin a noisy freeway or factory.
Take home message
While well intentioned advice from friends and family members should not to be dismissed out of hand, it should never be relied upon in and of itself – especially when it’s your money and future wealth at stake.
Time and resources spent researching and garnering impartial expert advice is an investment that will pay dividends well into the future.