What’s going on guys Its Jordan de Jong here and today I want to make sure the property you're looking at is right for you, what the costs of buying and selling property are and how to do your due diligence before making the biggest financial decision of your life. Misleading news headlines, BBQ conversations and unrealistic social media posts usually play with our emotions and give us a fear of missing out when all our friends and family are talking about buying a property. In combination, these cause a sense of urgency to go out and buy property irrationally, otherwise the markets going to boom back up and we’ll never be able to get back in. The first property you buy is by far the most important financial decision you’ll make in your life, and if you do well you will generate equity and have a massive compounding impact. If you don’t do well, you could set yourself back financially for the rest of your life, not all property is the same, the Australian Property Market as a whole doesn’t exist and is broken up into hundreds of submarkets that all perform differently. The saying “you can’t lose in property” is far from the truth, this is consistently evident in CoreLogic’s Pain & Gain report where they highlight all the properties that sold for both a profit and more importantly a loss. In the first quarter of 2019, 12% of all properties sold at a loss 20.5% of apartments sold for a loss compared to only 9.5% of houses that sold at a loss. Meaning the property sold for less than it was purchased for. This is what I mean when I say that not all properties are the same. on top of this, the cost to buy and sell a property is absurd, to buy a property it usually costs 5% of the purchase price and to sell costs around 3% of the sold price. In total it costs roughly 8% of the property’s value to trade, therefore property should never be considered for a short-term investment. buy & hold is a better lower-risk strategy because you need compounding capital growth overtime to mitigate this 8% trading cost. Now you might be saying, It’s not an investment property I’m buying it to live in and it is just going to be my family home. Either way, it is still an investment, you're leveraging your money to borrowing 10 times the amount and putting it into an asset that is either going up or down in value. Our fundamental need to have a roof over our head can be achieved by renting, and although this is counter-intuitive to what we have been taught our whole lives, the truth is today’s market is completely different to our parents and grandparents property market. This is why of late the term “Rent Vesting” has emerged and means that you purchase an investment property that is going to give you good capital growth while renting a property in the area that you want to live in. So how do you find an investment property that is going to give you good capital growth? Now a little disclaimer, no one can predict the future, if you asked all the leading economist 10 years ago what the cash rate would be at today, none of them would have predicted below 1%. We can only analyse what has done well in history and hope that the same patterns cause the same results, lastly, I don’t know your situation and I would highly recommend going to see a financial advisor or buyers agent. Like any market, the main driver of price is supply & demand, in both scenarios of low supply, low demand & high supply, high demand the market is relatively flat. What we have to watch out for is high supply, low demand – this means the market is flooded with stock and no one wants to buy it, so the price has to come down to generate more demand to sell the property. What we want to look for is low supply, high demand – this means that lots of people want to buy a limited type of property, driving the prices up until it reduces the amount of demand, some people might not want to buy it for a higher price. To identify shirking supply in an area we can look for a decrease in stock on the market compared to the last 3, 12 and 36 months. Depending on the type of dwelling, look at a number of House vs Units, how many in total in the area and how many are currently on the market. To identify an increase in demand we can watch the population growth in specific areas, the time on market indicating how quickly a property sells and vendor discounting which is how much the vendor discounts the property by. From here the following due diligence either impact supply or demand and should also be considered when analysing a potential investment property. Areas that higher-income earners want to live have historically had good continual capital growth, specifically, young families with double high incomes. A cheaper type of dwelling is an easy trap to get caught in, the biggest example of this is apartments which are built in large numbers and close proximity. This creates a huge oversupply of apartments, hence why they are cheaper they have to decrease the price so that they can generate more demand. Zoning is another huge indicator, if an area has recently been re-zoned, there may be a whole bunch of new buildings being established. Which will most likely continue to be approved by the council, significantly increasing the amount of supply of those types of dwellings in the area on the market? Extending the conversation on brand new buildings, I would avoid these altogether as they include the developer’s margin in the price of the property that you will be paying for. Remember that materials depreciate over time and having sparkly new tapware and home features might be nice now, but they lose the most amount of value and become outdated in less than 5 years. Travel and commuting are getting worse in our major cities, majority of people would prefer to be walking distance to trains, schools and within 10-12km to the city, this reduces commute time and gives us more time with our families, increasing the demand for these areas. Along with this, it’s also nice to be close to amenities such as parks and riding tracks, and be in walking distance to cafes, restaurants & shops these all increase the livability of the area in turn increase demand. Ultimately, owner-occupiers are the ones who drive the demand for property, investors are just looking for a good return and want to spend the least amount of maintenance and repairs as they can. I would buy in areas that have a high ratio of owner-occupiers compared to investors, this can be done by looking at the number of properties that are rented, a higher number of rentals means more investors in the area. If you buy in an area swamped with other investors and something was to go wrong with the market that forced you to sell, well the same forces would impact all other investors and you don’t want to all be selling your property at the same time. I would completely avoid areas that are heavily industry reliant such as mining towns or temporary working areas, although these might drastically go up in value, I would consider this short-term investing and you have to time the market perfectly to make your money. I would look out for government spending in the area, this usually provides services that benefit the population and should increase the demand for the area once spending is complete. When I said the Australian Property Market is broken up into submarkets, these submarkets are largely Neighbourhood based, on top of all those previous checks I just discussed that impact an area, you do generally want nice, friendly neighbours. This can’t be analysed by trends or statistics, you need to walk around the area, get a feel for the layout, grab a coffee from the local coffee shop and meet some people. These submarkets can also be street specific, and example of this is one side of the street has city/ocean views, while the other side just looks at a road. So be mindful when you see good capital growth statistics, it might only be one side that’s outperforming. Finally, once you have done your research, analysed the area and found a property that matches your criteria, you should focus on the specifics of the property before making any financial commitments. There’s an old saying that land appreciates while the buildings depreciate signifying that the materials that make up our home deteriorate over time. We can implement this saying with the land to asset ratio, for good measure the land component for houses should be 60-70% of the asset or 30-35% for units. Ensure the asking price is accurate, you need at least 10 good comparable sales in the area to ensure you’re not overpaying for a property. Getting finance pre-approval is imperative, without confirmation from a lender that you can borrow the purchase price, all of this research has been a complete waste of time. I would have a conveyancer thoroughly check the contracts before signing, and find a good conveyancer, you get what you pay for here and if a conveyancer is only charging you $700 you should ask yourself what you are not paying them to do. I have heard stories of people buying a tiny strip of land down the middle of two blocks when they thought they were buying the block of land on the left, a good conveyancer should cost around $1,300 - $1,500 and is worth every cent. I highly recommend getting a professional building and pest inspection done, these are often disregarded because of the cost. Spending $500 to confirm that there are no structural or pest damage will help you sleep better at night and could save you $100,000’s of dollars in the worst scenario. You should also think of your exit strategy, is this property always going to be easy to sell, re-finance or rent out quickly with a good rental yield? In the worst-case scenario, and it’s your only investment property, you should consider if it's suitable for you to live in for both your current & future situation, consider kids even if you don’t plan for them anytime soon. We have had it pretty good here in Australia over the last 25 years, whilst watching other economies fall from a distance, we are not immune to crashes and the recent markets movements have only just touched the surface of what could potentially happen, so always have an exit strategy in place. As always, seek your own professional financial, legal & property buying advice for your current situation, these videos are just my opinion and checks I do when looking for a property. I’ll be going over these due diligence items in further depth in my future videos, so hit that subscribe button and the notification button on youtube so you don’t miss them. Until next time, happy house hunting.

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