Property exaggerations infuriate home buyers

Property exaggerations infuriate home buyers

Buying an investment property can be incredibly rewarding. But finding the right real estate requires a bit of legwork, and some first-time investors are getting frustrated with misleading property descriptions.

Misleading property descriptions bug buyers

While Australians generally feel relaxed about investing in property, many are expressing doubts about real estate agents’ property descriptions — in fact, this is their greatest “pet peeve” when hunting out the ideal rental dwelling, according to the RAMS First Time Investor Survey 2014.

“After all, buying a property is not just a financial commitment — it is also a big investment of your time, and misleading listings can be discouraging and frustrating,” Martine Jager, RAMS Chief Executive said.

Jager explained that first-time investors are becoming increasingly savvy and are taking advantage of tools — such as home loan calculators — when making their purchase decisions. With a wealth of information available online, it’s likely that would-be buyers will be quick to spot differences between a property’s description and its actual state.

What are the offending phrases?

There were a few key culprits when it comes to misleading property descriptions. 

The phrase “hot property” is firing up first-time investors, but not for the right reasons. Equally, “renovator’s dream” is a huge bugbear for would-be buyers. The third most-hated property description is “water glimpses”.

When buying property for an SMSF or as a general investment, it’s feasible that everyday Australians don’t want to spend countless hours fixing up decrepit rental properties. For this reason, properties that are ready to be tenanted and don’t require extensive long-term maintenance are often a hit with investors. Established, small suburban houses are the most favoured investment dwellings. Next comes established small suburban apartments, followed by established small apartments in the CBD.

Other than blatantly outlawing these offending phrases, Jager suggested that transparency is the winning strategy.

“More realistic property descriptions could be a way to attract more first time investors into the market,” Jager said.

Ways investors can find the right investments

Finding the right investment property requires dedication, but a focussed effort can pay off in the long run.

First-time investors should attend plenty of open inspections to get a feel for what’s available across various suburbs, as well as reviewing capital growth, vacancy rates and rental yield figures. While a property description can entice buyers to check out a dwelling, it’s the predicted growth rates and other statistics that will determine whether or not it’s a smart investment.

Speak to a real estate agent who specialises in investment properties. When discussing your ideal investment don’t shy away from detailing exactly what you are looking for and how much you are willing to invest. The more information you provide your agent with, the better they will be able to service you needs.

Careful budgeting is mandatory, as well as paying close attention to what tenants in a particular area are looking for.

Once you’ve completed a thorough analysis and looked at your home loan options, you’ll be able to establish whether that hot property with water glimpses is really worth it.

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Learn more about home loans

What is an investment loan?

An investment loan is a home loan that is taken out to purchase a property purely for investment purposes. This means that the purchaser will not be living in the property but will instead rent it out or simply retain it for purposes of capital growth.

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

What is equity? How can I use equity in my home loan?

Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.

You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.

Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.

What is stamp duty?

Stamp duty is the tax that must be paid when purchasing a property in Australia.

It is calculated by the state government based on the selling price of the property. These charges may differ for first homebuyers. You can calculate the stamp duty for your property using our stamp duty calculator.

How much is the first home buyer's grant?

The first home buyer grant amount will vary depending on what state you’re in and the value of the property that you are purchasing. In general, they start around $10,000 but it is advisable to check your eligibility for the grant as well as how much you are entitled to with your state or territory’s revenue office.

Why was Real Time Ratings developed?

Real Time RatingsTM was developed to save people time and money. A home loan is one of the biggest financial decisions you will ever make – and one of the most complicated. Real Time RatingsTM is designed to help you find the right loan. Until now, there has been no place borrowers can benchmark the latest rates and offers when they hit the market. Rates change all the time now and new offers hit the market almost daily, we saw the need for a way to compare these new deals against the rest of the market and make a more informed decision.

What does pre-approval' mean?

Pre-approval for a home loan is an agreement between you and your lender that, subject to certain conditions, you will be able to borrow a set amount when you find the property you want to buy. This approach is useful if you are in the early stages of surveying the property market and need to know how much money you can spend to help guide your search.

It is also useful when you are heading into an auction and want to be able to bid with confidence. Once you have found the property you want to buy you will need to receive formal approval from your bank.

What is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

What is a loan-to-value ratio (LVR)?

A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage.   Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more.   LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment. 

LOAN AMOUNT / PROPERTY VALUE = LVR%

While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.

What is Real Time Ratings?

Real Time RatingsTM ranks home loans according to cost and flexibility. This allows you to compare products using a simple score out of five.

Our world-first system analyses almost 4,000 mortgages based on your individual requirements. Best of all, the results are generated in real time, so if a lender has just hiked its interest rates or introduced extra fees, our system has factored this in.

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.