15 May Is this guy mad?
Margaret Lomas says that a man who some are saying is crazy because he bought a home for he and his fiancé without her having seen it may not be mad after all provided he exercised some caution. Margaret explains.
Kevin: There was a recent news story about a man who bought a home for he and his fiancé without her having ever seen it – a very brave man, I would reckon. And while some may think that he was absolutely crazy, or as I said very brave, maybe a bit of both, there are others who see no problems whatsoever purchasing a home that they have never seen themselves, let alone inspected it.
But surely, there have to be some things to consider before you jump in at the deep end with purchasing a property. There are two examples here. One is for yourself, you and your partner or your wife, or as an investment. I’m going to ask the opinion of Margaret Lomas from Destiny Financial Solutions and star of Property Success on Sky TV.
Margaret: Hello, how are you?
Kevin: Wonderful to be talking to you again. I guess there are two things here, aren’t there? Whether you’d buy one as your principal place of residence sight unseen, or whether you’d buy one as an investment. Can you differentiate between the two of them?
Margaret: Let’s start with your principal place of residence, and I’m probably agreeing that you’d be a little crazy to buy a principal place of residence without seeing it first, or without at least one of you seeing it first. I think both need to see it, because we all have different ideas of what’s good and bad.
I recall when we were renovating the home that I live in at the moment, my husband had a whole lot of suggestions that I just thought were crazy, that we absolutely were never going to use. I also had some suggestions that he didn’t like, so we had to collaborate on those.
If you’re buying a house of your own, you’re talking about lifestyle over investment, and people have to remember that. There are things we will compromise on in terms of the property’s capacity to grow and return a good capital gain to get the lifestyle choices that we want or to get the everyday things that we want in the property. We’ll often pay more for a property for particular features that we like that don’t necessarily add value to that property.
For that reason, if you’re buying an owner-occupied property, I think that you should either be looking at it yourself, or these are the circumstances under which I like a buyer’s advocate. Many people know I don’t like buyer’s advocates very much, but for an owner-occupied property, a buyer’s advocate can often hear your brief very well and satisfy that brief.
Kevin: One of the things that I found, too, is that when two people are looking at a property – a husband and wife – they’re probably going to be looking at it differently. A wife will look at it somewhat emotionally, whereas a male may look at it almost a bit removed, so it doesn’t hurt to have that balance.
Margaret: Absolutely, and we all do have different needs. Whether you’re a sexist or not, men and women are different. Men and women think differently, they’re programmed differently, and they move about in their personal space differently. There are things that a guy probably wouldn’t even think about, such as the size of the cupboard, that’s very important to a woman, and I think that’s why both of them need to collaborate.
A good buyer’s advocate can have a meeting – whether it be face to face or via the Internet – with a couple or a person and take the brief about what they’re after. A good buyer’s advocate should understand the features that make a home right for a woman and the features that make a home right for a man and should be able to satisfy that brief pretty well.
Now, when it comes to investing, everything changes.
Kevin: Let’s talk about those changes. Is it because you need to treat it like a business as opposed to a personal decision?
Margaret: Let’s have a look at all the reasons why buying sight unseen can work, and why it is important that you’re able to do it. First of all, the property that is most right for you from an investment point of view, which is also situated in an up-and-coming hotspot, which will also rent well and satisfies both your short- and long-term investing needs, probably isn’t going to be anywhere near where you live.
You might live in Sidney, and the right buying opportunity for you at the moment could exist somewhere in Brisbane, and the ability to jump up and down on a plane to go and have a look at what will be more than one property in your search for property can become a really expensive exercise, and the costs of that aren’t going to be tax-deductible for you, because you can only claim an expense as a tax deduction on a property that you own that is creating an income for you.
So you could be spending an awful lot of money that will eat into the overall returns of that property, because you’ll essentially have to add them to the cost of buying, and you might not see enough gain – at least in the early years – to cover off those costs. That’s the first issue: if you need to go and see that property, it could become a costly exercise.
Let’s have a look at more important issues. Firstly, your ability to remain unemotional – and as you say, treat it like a business – is really impacted by what you see when you get there. This can either work for you or against you. For example, you might see a property, fall completely in love with it because it looks exactly like something you would live in, but that particular property may not have the growth drivers, the right rent returns, the right demographics, or satisfy any of your personal financial needs for the short and long term.
So you’ll buy that property because you liked it. You probably then don’t go and do enough of the research because you’ve fallen in love with it, and it becomes hard to negotiate well when you’re in love with something. You want it so much that you might actually go over the value that you’re really prepared to pay or that would really make that property a viable proposition.
The flipside to that coin is that if you go and look at a property and decide you really hate it because the look of it doesn’t suit you or you make a judgment call on it, you actually might reject the property that would otherwise make a fabulous investment.
Kevin: One of the mistakes that I think people make is that they do actually shy away from buying interstate because they tend to be wanting to buy in an area where they’re more comfortable – they know the area – but you miss opportunities if you don’t look outside your existing area, don’t you?
Margaret: Let me talk about this “Know your area” rubbish. People say they know their area because they live there, but do they? I’ve asked many people about the areas they live in, “What do you know about the area?” and all they can tell me is where the best restaurants are, or perhaps where the bus goes. Very few people know what the growth drivers are in that area, how quickly the population is growing, what the demographics are, what kind of rent return you can achieve and cash flows on properties in that area.
What they know about their area is inappropriate and, in fact, quite dangerous, because it creates that comfort that you speak of, which makes people think it’s the right area to buy in, when, in fact, the right area to buy in could be somewhere else entirely.
I’ll tell you now that I always buy in areas that I don’t know but by the time I buy it, I know it far better than anybody who lives there. If you know how to do the right kind of research, you’re never going to buy in an area that you don’t know; you’re going to buy in an area that you previously didn’t know but now you know well because you’ve done the research.
Kevin: That makes so much sense, Margaret. We’re going to have to take a very short break. I wonder if you’d stay with us. I want to pick up on your thoughts about whether or not you believe property in Australia is overvalued.
Kevin: Great. My guest is Margaret Lomas from Destiny Financial Solutions. We’ll take a break and we’ll come back and talk to Margaret again.