By Victor Kumar
There are some property deal-breakers that you can pick within five minutes of looking at a listing online.
They are the serious issues or faults that make the property mostly not worth you wasting any more time on it – although I do have a caveat to that which I’ll get to a bit later.
One of the immediate deal-breakers is if a property is near an electricity substation, because the jury is still out on the impact of living close to power exchanges.
But I also look at it in terms of resale, because at some point in time I may want to sell the property and I have to consider the hurdle that I have in front of me to get it sold.
I also usually automatically rule out houses that have high tension wires out the front as it can impact finance. This is because lenders generally reduce the amount they will allow you to borrow due to the potential issues associated with these types of properties.
Often online listings of these properties may try to hide these issues so that’s where Google Earth and Google Street View come into their own.
During my early research, I also assess whether the property is located in a single industry town such as a mining region, which can often result in massive price rises as well as huge price falls.
Port Hedland in WA, for example, has seen price falls from $800,000 down to $300,000 in a few years – you can’t give them away at the moment.
So I generally shy away from one-trick-pony locations in regional areas because of the potential for these significant economic and property price fluctuations.
Another deal-breaker is a property that has significant structural damage, but you need to determine whether the problem is a structural defect or it’s something that can be remedied.
For example, if a property has a slab that’s cracked in half and it’s tilting at both ends, that’s something that I would walk away from. However, if it’s on stumps and it’s tilting at both ends, that can be fixed relatively easily and I would probably consider it.
I also avoid properties that have tenants who are in an ongoing dispute with the owner and it appears that the tenants have grounds to win the disagreement in the end. As the new landlord of that property, you really don’t want to take on that baggage and any potential bad blood from the start of your ownership.
Other deal-breakers are issues that you can’t control, such as soil erosion, being located in a flood zone, major costly strata issues that you will inherit, legal action against the owners corporation, or there is a big factory about to be constructed next door.
As I mentioned at the outset, however, all potential deal-breakers can offer significant bargaining power, but you have to calculate whether the cost to fix any issues will still allow you to turn a profit.
I may keep some of these problem properties on my watch-list to see if I can buy them in the future for a silly price after they have sat unloved on the market for months.
I also conduct additional research, such as owners corporation searches, which may uncover information that dilutes the impact of any potential problems, but which the owner or sales agent might not know about.
When I’m considering any imperfect properties, I always abide by the logic of: If you’re getting something for half-price you still need to be able to sell it for three-quarter price to ensure you have a financial safety net.
At the end of the day, real estate is all about finding opportunities that are wrapped up in problems.
The key is that you need to be able to solve those problems to make the most of the opportunities.
My final point is that I never consider properties that have more than two “maybes”. What I mean by that is, “maybe if I can get the rent for $280” and “maybe I can influence the strata to not introduce the special levy on it”.
Too many “maybes” is always a deal-breaker because what I’m really doing is speculating and forcing the numbers to make the deal work.
By Victor Kumar