Avoiding the number one investor mistake
Investors often make the mistake of "buying from the heart' and, as a result, paying too much. If the numbers don't add up, don't buy. Here's how to get yourself in the mindset of a savvy investor.
“You know when the numbers don’t add up but you go ahead and do it anyway regardless because you’re hoping and praying that one day this is going to happen or that is going to happen, or this road is going to be closed off or the interest rates will drop or whatever, so when you invest hoping and praying, that’s bad,” Property Secrets' director Paul Giezekamp explains.
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“What I always do as an investor is look for the best sales in a particular street, and then the best sales in the postcode,” he says.
“I then see if I can find something similar as far as a dwelling that is $50,000 to $100,000 under market value.”
Mr Geizakamp’s search for ‘best sales’ by postcode effectively means finding the highest prices achieved in that suburb, and then using those sales as a benchmark for what he is looking for in an investment property.
Benchmarking, Mr Geizekamp says, is a way of understanding valuations in a market and, by using recent sales as a guide, looking at how much equity can be gained by purchasing under that value.
“When you think of golf, you think of Tiger Woods, when you think of tennis, you think of Roger Federer, “Mr Geizekamp says, “they are the benchmarks and they are the best.”
When researching a particular suburb, investors need to be looking for the benchmark sales for that postcode and then benchmark sales for the street.
The highest and most recent sales in the area are typical benchmarks, and from there you go about finding an identical property, Mr Geizekamp says.
“It could be original, semi-renovated or unrenovated,” Mr Geizekamp says.
“For example, I’ve got benchmark sales in Leichhardt of $1.2 million, but I can find a dilapidated property at $750,000 and my renovation is going to cost $150,000 – that’s beautiful,” he says, “instant equity.”
“In Western Sydney the benchmark might be $400,000, and if I can find a dilapidated property for $280,000 and spend $50,000 on a renovation, it’s the same principle – instant equity.”
Using data from trusted research houses such as Australian Property Monitors (APM) and RP Data, investors can find information on recent sales and identify benchmarks themselves.
However it is important to cast a wide net when looking for instant equity.
The more properties you consider, the higher your chances of securing a deal below market value.