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Property investment 101: Sale methods and land titles

by Bianca Dabu | December 03, 2019
research
1 minute read

Property investment 101: Sale methods and land titles

December 03, 2019

Before jumping into the market and purchasing a property, investors are advised to do thorough research on the multiple facets of property investment, including sale methods and land titles.

The preliminary research for property investment typically involves setting goals, getting familiar with the property market and investment suburbs, organising finances and knowing the kind of properties to buy as well as the kind of investor that one can be.

Sale methods

The method of sale can be decided by the seller, with the help of the buyer’s agent, based on the method commonly used for comparable properties in the area.

While there are many options for investors, the most familiar methods across markets are buying through private settlements or via an auction.

Private treaty

Purchasing through a private treaty involves property owners setting a sale price or asking price based on market value and a real estate agent negotiating with buyers to achieve the highest possible sales price. Therefore, buyers can negotiate the price. In most cases, the buyer will also have more time to inspect the property since the time pressure is not as heavy as in a public auction.

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The contract of sale will come into force once the buyer exchanges contracts with the seller. After the exchange, the buyer will need to pay the deposit, or around 10 per cent to 20 per cent of the purchase price.

This method of sale will have a cooling off period, which will allow the buyer to review all aspects of the sale, from finances to contracts, or cancel the transaction altogether. Buyers may opt to waive their rights to a cooling off period.

Some of the most valuable tips for buying a property through private treaties are:

  • Compare sales: In order to know whether or not the seller is asking too much for property, look at comparable sales in the area and study market trends like clearance rates and other sales statistics. Doing independent research on fair market value will equip the buyer for negotiations.
  • Be careful with agents: Try not to disclose too much information to the agent, particularly about finances, because they might use it to negotiate a higher price. Moreover, be wary of agent tactics such as creating a sense of competition or urgency to pressure the buyer into a purchase. Engage a buyer’s agent to help in sticking to the set budget.
  • Make a low first offer: First offers are rarely accepted so it’s fine to make the initial offer a little bit below the budget to be able to manage negotiations well. Make sure to submit it in writing so it is presented to the seller. No offers are binding until a contract is signed.

Public auction

Buying a property via an auction means bidding on the property at a fixed time and location, with the highest bidder of the day taking the property. The bid has to match or exceed the reserve price and the winning bidder must be able to pay 10 per cent of the property price as deposit right then and there.

Unlike properties sold through a private treaty, properties sold at auctions are advertised without a price guide.

If the buyer ends up as the winning bidder, the sale is final and they will not be allowed a cooling off period, so make sure to do due diligence before the auction, including arranging for building and pest inspections, reviewing the contract of sale and asking questions about any aspect of the auction that is unclear.

Some of the most valuable tips for buying at auctions are:

  • Prepare through groundwork: See at least five other auctions before participating in one in order to get familiar with the process and gain confidence for when it’s your time to make a bid.
  • Sort out finances: If the buyer comes out as the winning bidder, they will need money for deposit readily available right after the auction closes. In order to avoid paying too much, set a ceiling limit before the auction begins. It may also help to have a look at the sale prices of comparable properties in the area or even get a professional valuation.
  • Bid early: Bidding early and low helps you gain control of the situation. Make sure to remove all emotions once bidding starts – stick to the budget and be willing to walk away, if necessary. Buyers may also take a professional or experienced bidder with them to assist in the process.

Land titles

Land titles identify the structure of ownership of a real estate asset. Among the most basic types of land title are:

1. Torrens title: With the Torrens title, the title is registered in the name of the buyer and the ownership is transferred to them, making them the rightful owner of the property and the land on which it stands. The certificate of title indicates sole ownership of the land as well as any mortgages and situations affecting it; it will be kept by the bank until the buyer has fulfilled their loan obligations.

2. Strata title: Strata ownership usually applies to the purchase of units, townhouses or villas, where an owners corporation – all unit owners in the building or complex – is involved. This structure involves more costs, including ongoing levies on top of water and council rates, as well as strata complex by-laws that govern modification or improvement of properties, parking, garbage collection, pet ownership and other factors that affect living conditions.

3. Stratum title: While this also applies generally to units and apartments, the property is divided into lots under the stratum title, so instead of being in an owners corporation, the buyer become a proprietor of your lot. They will also hold shares in the service company that owns the common property.

4. Company title: Instead of holding an individual title, the buyer will essentially be buying shares in the company that owns the building, provided they pass an approval process spearheaded by the company directors. Company titles generally apply to units and apartments built before 1960, particularly apartments buildings built from the 1920s to the 1930s. This structure is deemed more affordable than strata-titled properties but is also bound by more restrictions.

5. Government leasehold: This land title, which is common in rural areas, allows the buyer to purchase the right to buy ownership of a temporary hold on land or property from the government and gives you the right to occupy it for an extended period.

Investment team

Once preliminary research and financial preparations are done, investors can start preparing for their first purchase by speaking to property experts and professionals who can further their knowledge and advice them based on up-to-date market intelligence and multiple years of experience.

Among the most important part of an investment team is the buyer’s agent, who can help in identifying the right property to buy; the financial planner, accountant and licensed mortgage broker, who can help in sorting out finances, and; the conveyancer, who can assist in legal processes.

Aside from helping the investor ensure that their first property purchase goes as planned, these experts and professionals can also assist in the maintenance and growth of the portfolio throughout the wealth-creation journey.

Property investment 101: Sale methods and land titles
Property investment
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