There are many real estate cliches you are likely to have already stumbled on. But as they say, there is a grain of truth in many of them.
Here are five real estate cliches that actually stack up under the microscope.
1) Location, location, location
If you’re investing in property or looking for a home with capital growth potential, the old saying has never been more true – location is everything.
While Sydney and Melbourne boomed over the past four years, other capital cities’ growth flat-lined or declined.
Even within those capital cities, the choice of location matters – in 2016 Domain Group senior economist Andrew Wilson expects Sydney’s growth to vary from region to region and from suburb to suburb.
Location is the most critical part of choosing an investment and one of the most important factors on the list of buying a home, so it makes sense that it’s said three times.
2) Worst house, best street
You can change a dwelling, but you can’t change where it is in a suburb. For those who are aiming to buy into the market, particularly on a budget, this advice does actually have merit.
However, you have to ensure that you’re not buying it for a premium and you can use the home’s languishing condition to butt out the competition and negotiate on the price with the vendor. Enter the transaction with your eyes wide open and a thorough building and pest inspection, so you know you’re not biting off more than you can chew.
During boom time conditions, even unrenovated shacks in these highly coveted streets sell for a premium – attractive to developers, as a knock-down rebuild or to future renovators.
In 2013, a rundown fibro beach shack in Tennyson Point sold for $500,000 over reserve, while in 2014 an “unlivable” Redfern shack sold for $1 million and topping both these sales in 2015, a Darling Point knockdown sold for $2.75 million above its reserve price with bidders hoping to renovate the well-positioned home.
3) Million-dollar views
You’ve heard it a thousand times, but that doesn’t mean it’s not true. Some of the views in Australia really do command outrageous price tags – though they’re hard to quantify.
If your property has a view of the Harbour Bridge or another iconic feature, chances are it will boost your ability to sell.
Point-blank views of the harbour bridge and Walsh Bay were the main attraction for a 30 square metre studio sold in 2015 for $700,000 – one of the priciest local homes when looking at price per square metre.
Meanwhile, some of the best views in Sydney are found at Kirribilli Avenue, Kirribilli – where McGrath agent David Howe said they have some buyers who purchase multi-million dollar homes solely for the views, “so they can visit once a year to watch the fireworks”.
Clearly, some buyers are willing to part with a lot of money for the best outlook.
4) The value is in the land not the dwelling
Usually, the presumption is that all buildings have an estimated useful life of 50 years, according to an Ernst & Young research document. That means the building would, technically, be expected to be replaced after 50 years.
As homes age, they lose value as their quality drops.
While investors can do things to make a home more attractive and more likely to sell for a high price, such as maintaining the property in good condition, renovating, repairing and extending the home as necessary, it does mean that the real price growth comes from the land.
As technology improves, the cost of building may even become cheaper.
The real long-term investment is usually in the land – an asset that cannot be created and of which there is limited supply.
5) Time in the market, not timing the market
In Nigel Stapledon’s UNSW research paper A History of Housing Prices in Australia 1880-2010 he found the property market had increased 3 per cent a year since the 1970s and 6 per cent a year since the 1990s. Largely, the growth was concentrated to sudden bursts or “booms” in the housing market – so those who owned over the long-term benefited from these spurts.
Every investor should rightly be wary of buying too high at the top of a boom.
Real estate markets are notoriously hard to predict and those buying in for the short-term can often get burnt. For instance, many investors purchased in mining towns such as Moranbah during its boom period – jumping on the sudden ramping up in prices and high rents.
A property on Gilchrist Terrace in Moranbah was bought for $290,000 in 2005, sold by BHP who bought the home for $20,331 in 1999. It was then sold for $329,000 in 2007, before the mining boom took off. In 2011, it was bought for $645,000. In August 2015, the same home sold for $152,500.
The investors who try to make a quick buck inevitably get burnt.