If you ask me, one of the many overused words in property is “bargain.”
For novice home buyers and investors, sure, price is important.
However, what they don’t recognise are the inherent risks of buying a secondary property.
With our property market moving forward around Australia, many buyers are looking to find that rare bargain.
The truth of the matter is that if you buy a property for a bargain, you will ultimately sell it for a bargain price too as it’s likely to be a secondary property.
Why is that?
It’s usually because the property that you can buy “cheaply” usually has a number of issues that put off the majority of potential buyers and drive down its price potential.
Here are three of them.
1. Location
While properties with the potential to manufacture equity via renovation are rightly considered investment grade, there is one aspect that you can never change – and that is its location.
Remember… your property’s location will do around 80% of the heavy lifting in its performance, so it’s important to buy in the right suburbs as well as in the best location within a suburb and then even in the right street in that suburb.
It’s a no-brainer that properties in the most desirable locations are worth more than those that are not.
Perhaps a property has water views that can never be built out, which means that its price will always be elevated because of strong demand from buyers.
However, a property that is adjacent to a train line or on a very busy road will always struggle to secure buyers because noise is a big turn-off for most people.
Of course, fewer buyers means a lower price.
Regardless of whether that property is held for two years or two decades, its price will be inferior because of its unattractive location.
2. Lack of scarcity
Another reason why a property might be selling for a bargain price is that there are so many others that are exactly the same.
What I mean is it could be a new house in a new subdivision where there is ample supply of similar properties, plus there is oodles of land left to build more dwelling doppelgangers to boot.
Similarly, it could be a one-bedroom unit in a suburb overrun with similar stock because developers got carried away for a few years.
Clearly, both of these dwellings are missing the scarcity element, which drives up prices.
While supply issues can ebb and flow over time, these types of property bargains are unlikely to ever turn into capital growth superstars anytime soon because there was simply too much of the same stock built in the first place.
3. Transport
While properties can be bought for bargain basement prices because they are too close to transport nodes, the opposite can also be true.
Being too far away from public transport options, in particular, reduces interest in a property because it will mean the new owners will forever have to drive to work or play.
It usually also means that the property is located on the outskirts of a major city, which generally depresses the sale price that can be achieved due to entrenched distance issues.
On the other side of the equation, however, are properties – usually new units – in areas with high density and too few car parks, either in the building or on-street.
Again, potential buyers are likely to be unimpressed with the possibility of having to sell their vehicle or spending precious time at the end of every day trying to find a car park that doesn’t attract fines.
As you can see, if a property is on the market for a bargain price, it is usually for valid reasons.
Savvy investors understand the factors that are a big no-no for buyers and tenants and give these properties a wide berth.
Others, unfortunately, will get seduced by a cheap price – and will likely pay dearly for it in the years ahead.
Remember… price is what you pay, value is what you get!
So don’t compromise your standards just get to get a foot on the property ladder, because it’s a myth that a rising tide lifts all ships.
Sure our property markets are surging at the moment, and yes some homebuyers and investors are lowering their standards and cutting corners, and buying secondary properties.
But some properties – investment-grade properties and A-grade homes – will always be in strong demand by a cohort of people that can afford to pay for them, and will outperform B-grade secondary properties.
