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Property Purchase Checklist

Discussion in 'General Property Chat' started by Shaneo78, 6th Aug, 2016.

  1. Shaneo78

    Shaneo78 Active Member

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    Hi all,

    First time poster - I have just stumbled onto this fantastic forum. I have been over at the property investing forum for some time, but this forum seems much more active.

    I am going through the property search routine as I write this. I am confident in the choices I have made regarding this, however I find myself continually worrying about lots of small things. What have I missed, is there something I should have done earlier or have I completely disregarded a very important step.

    To counter this, I have attempted to write a thorough Property Purchase Checklist as follows:

    Pre Purchase

    1) Start with why - Come up with a vision of where you want to be in the short, medium and long term. What do you want to achieve at these intervals? Work backwards and develop a series of goals and action plans to achieve these steps.

    2) Identify property purchase budget - Analyse cash and equity in properties to identify amount available for a deposit. Identify current cashflow and serviceability for a property purchase. Allow 5% of the property value for purchasing costs. Speak to a mortgage broker to help with this.

    3) Ensure there is enough money within my budget for anything that might go wrong in the property. 6 months of living costs should be saved. This may be saved during the property search and during settlement.

    4) Get a Pre-Approval for a loan - Use a mortgage broker to get a pre approval loan with a bank.

    5) Find a solicitor for legal advice - This includes asset protection, whose name to put onto the loan and property purchase.

    Property Search

    1) Decide of where to buy this property from the following:

    2) Decide which state to buy in - Look at the property market in each state and find where it is likely to boom in the near future

    3) Within each state look for suburbs that will outperform the marker - Look at the following to decide
    • Capital growth over the last 10 years - Look for high capital growth over this period to show it has been in increasing demand
    • Median house price - Ensure the property is within my budget
    • Average days on the market - This should be low to show that properties on the market are highly sought after
    • Yield and rental increase - Ensure the yield is not really low and that the rental has been going up over time to reflect high demand.
    • Distance to CBD - Ensure this property is close to the CBD where the demand is. There should be no vacant land close by which may mean a increase in supply.
    • Auction clearance rates - This should be high as it demonstrates high demand for properties on the market.
    • Percentage of properties on the market - This should be quite low. This means there is a small number of stock available within the area and that people want to stay within the suburb.
    Property Inspection

    1) Inspect properties within the suburb - Aim for 100 properties within the suburb to get an understanding of the area and to ensure I don’t overpay. If you can't do this - Get someone to do it for you - Engage a buyers agent

    2) Find out what is in high demand within the area - You don’t want to buy a property that may not get tenanted

    3) Track sales prices of properties within the suburb

    Once I have selected a property to purchase


    1) Property contract - Ensure the property contract has the following:

    • Get a lawyer/conveyancer to look over the property contract before signing
    • Ensure the following subject to clauses have been added - These may need to be negotiated before auction
    • Subject to finance clause
    • Subject to building and pest inspection
    • Subject to the building being left in a clean condition upon settlement
    2) Use the conveyancer to set up the settlement of the property

    Once property has been purchased ensure the following:

    1) Building and pest inspection - Ensure there are no issues or pests you need to be aware about. These may need to be done before an auction

    2) Property manager - Find a respectable property manager for the property. They should be highly recommended and be interviewed before starting.

    3) Insurance is purchased from the date of purchase not the acquisition - IF something happens to the property after purchase but before settlement - This is a grey area and may lead to damages coming from my pocket

    4) Engage a quantity Surveyor - Hire a quantity surveyor to come up with a depreciation schedule for the property. This schedule will go to my accountant for tax purposes

    5) Tax withholding Variation - Once the property is tenanted and all costs of the property has been drawn up, pass these onto my accountant and put together a tax withholding variation form to get my refund weekly rather than in a tax return at the end of the year.

    6) Arrange a final inspection for settlement of the property - One week prior to settlement

    7) Talk to mortgage broker about the best loan structure - LOC, offset account, IO ect

    Settlement

    1) Arrange conveyancer to settle on the account

    2) Receive keys for the property

    3) Ensure the condition is suitable for tenancy

    4) Possible renovation or refurbishment

    5) Advertise property for rent

    6) Move in tenant

    Annual Property Review

    1) Review property manager report - Check the following:
    • Has the tenant passed the 6 month inspections
    • Is the property rented at its market price - Can it be increased
    • Pass on any documents to my accountant
    2) Has the property gone up in price? Can any equity in this property be released?
    Is the property performing? Is it a dud investment and may provide low capital returns over the long term?

    3) Consult goals and action plans - Goals coming forward - Buying more property, paying down interest, development ect.

    I am new to this, I have written this up from information I have researched. I have attempted to be quite thorough with the list and add the smaller steps that may often get missed. What do you think? Is there anything I can add to this list? Are pieces of the checklist out of order? I welcome any feedback.

    Many thanks
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Good summary

    But what about digging deeper into 5:

    - getting some legal advice on the terms of the contract before entering it.

    - Getting some legal advice on how to structure the ownership of the property.
    including considering future strategies - spousal sales, related party loans, capitalising interest, debt recycling, tax minimisation etc.


    And
    - Getting some credit advice on how to structure the loan(s) to purchase the property.
     
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  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Hi Shaneo and welcome to the forum.

    2 things - firstly are you an engineer by any chance?

    Second thing, re -
    This should all be done prior to purchase - once the loan is about to settle you're really pushing it!

    Otherwise, that's a pretty comprehensive list. Maybe even OTT in some areas, but it all depends what makes you feel comfortable. for eg -
    This can also be done by using RP data or similar so don't feel like you're done for if you inspect less than this.

    Sometimes, being too legalistic about the process can mean never buying anything.
     
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  4. Joynz

    Joynz Well-Known Member

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    Also, for auctions in Victoria you won't be able to add in any clauses about being subject to finance or pest inspection.

    If you only select areas that have had large capital growth or are in 'hot' areas, you might be missing out on future gains from suburbs that are less 'hot'
     
  5. Shaneo78

    Shaneo78 Active Member

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    Thank you for your feedback. I would like to include your suggestions into this checklist. I believe as I am a new member I am unable to edit this post.

    Hi Jess - I am definitely no engineer. Thanks for the tips.

    Hi Joynz - I have put in the checklist the following: auctions you will have to get a building and pest inspection before the auction if you are a serious buyer.
    How does this work with finance though? Once I have a loan pre approved and find a property for sale at auction - Do I need to check that the bank will finance the specific property before auction?

    My understanding is that a pre approval for a loan is subject to the following:
    • The banks valuation of the property - Although this is most likely the purchase price
    • The banks LVR for that specific type of property - Different types of dwellings and within different suburbs will attract different LVR based on the banks perception of risk
    • Your specific circumstances have not changed - No new credit cards ect
    Is there a process to follow regarding this before an auction?
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Pre-approvals are subject to satisfactory security.

    Good idea to `ask more questions if going to an auction - make sure the type of property is ok, not termite damage, kitchen in place etc

    I have had people who have bought former boarding houses at auction and no lender wanted to lend. Another had no kitchen so no one wanted to lend.
     
  7. MsAli

    MsAli Well-Known Member Premium Member

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  8. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    A teacher perhaps?

    Change 4 for 1 in pre-purchase.
     
  9. Shaneo78

    Shaneo78 Active Member

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    MsAli thanks for your comment. I had not considered other property investment strategies outside my own. I will add this to my list.

    As I cannot edit my original post - When I am happy with the changes I have made from forum feedback and further research, I will re post this list.

    Well done Colin - I am indeed a teacher. I am curious to how you guessed?
     
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  10. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Ask @Jess Peletier :)

    @Shaneo78 Its the incredible sense of detail you went to, which usually indicates either an engineer or teacher.
     
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  11. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    If the property is sold by private treaty, learn everything you can about negotiation. E.g. Tell the agent you're interested in this property, but that you are also about property xyz in suburb x. Then you have negotiating power (assuming it's not a multiple offer situation). I know people who have been suckered into paying much more than they needed to (live and learn or learn upfront?) Better to learn upfront!
    Also, if its a home you can get early access to, try doing simple renos (e.g. paint) before settlement. Get this written into the contract.
     
  12. Jacque

    Jacque Buyers Agent and Bookworm, Sydney Business Member

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    Detail is good (that's the ex-teacher in me so I can relate :D) but sometimes it can be overwhelming and get in the way of a good deal. @Shaneo78 I admire your enthusiasm and agree that property checklists are great but can sometimes prevent you from being flexible when you need to be eg: checking out a minimum of 100 properties before making a decision. In theory this sounds good but isn't feasible in many suburbs as it depends on property type, price bracket, stock availability etc.

    The most important advice I can provide is to KNOW YOUR MARKET. @Terry_w also wise advice with reviewing the contract before committing to any property- crucial as all the other DD may be a waste if it turns out the property is compromised in some way or the title has a defect etc.

    A word about clearance rates too- note that these are useful market indicators particularly in capital cities such as Sydney and Melb but are not indicative of other cities or areas, where auction isn't the norm method of sale.

    Best of luck with your buying journey and well done for listing the steps and putting a plan into action first up :)
     
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  13. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Can lead to paralysis analysis as well, that is getting caught up in the detail rather than seeing the bigger picture. I try and take an overall holistic view with reasonably accurate rough numbers to work with and engage trusted professionals to take care of the nitty gritty details.

    When clients want to micro manage the process therefore taking up a disproportionate amount of others time, it can be exhausting and sometimes not even worth the effort from a commercial perspective. Then when you need small favors done in future you will be labeled as "one of this clients" Dont be "one of those clients" is my 2 cents worth if you want things to go well.

    A little hint is to find people you can trust and let them take care of the details that involves their profession with you as the final decision maker but keeping out of their way as they go about getting you what you want.
     
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  14. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I also think that having a very non-flexible approach (to anything, not just PI) is a recipe for disappointment as things never go exactly as you hope they will.

    Have a plan, but be prepared to tweak/cut/ignore where necessary, or you'll end up with an ulcer. ;)
     
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  15. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    download.jpg
     
  16. Agent30yrs.

    Agent30yrs. Well-Known Member

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    Hi Shaneo

    I'm sure I have a skewed perspective on this, but it's interesting that there is no mention of the middle man - the agent, in your property purchase process.

    I'd like to suggest that after you have identified an area, you give consideration to finding agents that you like and developing some level of relationship with them. I'm not talking about wining and dining them - just being courteous and interactive at open for inspections will put you well ahead of most!

    Obviously, when an agent has that great opportunity pop-up, as they occasionally do, getting an early call can make all the difference.
     
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  17. Shaneo78

    Shaneo78 Active Member

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    Hi Gockie - Fantastic idea, if you can get simple renovations done before settlement you can save time later on and get the tenant moved in quicker.

    Hi Jacque - Valid points. Perhaps I should replace "view 100 properties" with apply your due diligence towards the suburb and property search. It has been mentioned, there are various websites and professionals who can help with this - Particularly if you are buying interstate or a busy professional.

    Good advice Colin - I am researching as much as I can to get a good understanding of the ins and outs of property investing so I can make informed choices in regards to my team's recommendation. I will never have the level of knowledge of a mortgage broker, lawyer, real estate agent and accountant. However with a broad understanding of each, I hope to know I am taking the best possible actions towards my investing goals.

    One of the goals towards creating this checklist is to take away the stress of property investing. Purchasing an investment property had turned into a very large task in my mind. I sometimes had little idea of the next step I should take and would often worry if I had missed something. Maybe it could have turned into analysis paralysis. However, I have attempted to break this very large task into small steps. This outlines the next steps I can take to complete my goal as well as ensuring I have not missed anything.

    30yrAgent - Great point. I will add it to my checklist
     
  18. Leo2413

    Leo2413 Well-Known Member Premium Member

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    Hi @Shaneo78,

    Lots of great feedback already mate. Your original post has more than enough info and steps to follow to make some good purchases. Now just follow your own steps. Don't get bogged down by too much detail along the way. It will never be perfect and mistakes are always going happen, some small some not so small so forget trying to eliminate all errors, your list of DD should take care of most of them. From the day you are financially capable to purchase, give yourself 3 months and if after 90 days you are no closer whatsoever to securing an IP, its safe to say analysis paralysis has got ya by the.....well you know. Don't let it come to that.

    Good luck
     
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