Melbourne Buyer Advocates, Buyer Agents - Melbourne Real Estate Buyer Advocates

property buyers' newsletter

Welcome to our August 2006 Melbourne Property Buyers' Newsletter. With interest rates rising another 0.25%, we thought it timely to give you some insight into the current state of the property market. Not what might happen what is actually happening now.

Topics Covered

Some Of What We Have Bought
The Market
Property Ratings & Buying Right
Client Comments

Some Of What We Have Bought

Here are some of the properties we have bought in the last few months:

Hampton - Family home in Margarita St. (see picture below)
Portsea - Beach house in Franklin Rd.
Camberwell - Townhouse in Cornell St. (see picture below)
Hampton - Beachfront property on Beach Rd.
Port Melbourne - Apartment in Bay St. (see picture below)
Seddon - Family home in Edward St.
Hawthorn - Family home in Mason St. (see picture below)
Williamstown - Family home in Chandler St.
Altona - Family home in Mount St. (see picture below)
Berwick - Family home in Larne Cl.
Williamstown - Townhouse in Nelson Pl. (see picture below)
Ringwood East - Investment property in Smithdene St.
Seddon - Investment property in Williamstown Rd. (see picture below)
Ringwood East - Investment property in Shasta Ave.
Hawthorn - Family home in Connell St. (see picture below)
Box Hill - Family home in Bishop St.
Lower Plenty - Block of land in Old Eltham Rd.
Hampton - Townhouse in Linacre Rd. (see picture below)
Mentone - An investment property in Milan St.
Fairfield - Unit in Coate Ave.
Balwyn - Family home in Raynes St. (see picture below)
Kew - Block of units in Young St.
Brighton - House to be bulldozed in Middle Cr.
Burwood - Family home in Parer St. (see picture below)
Mont Albert - Family home in Tyrell St.
Seaford - Investment property in Rosslyn St.
Glen Iris - Family home in Bonnyview St. (see picture below)
Hawthorn - Family home in Linda Cr. (see picture below)
Brighton East - Family home in Margaret St. (see picture below)
Ormond - Family home needing renovation in Maud St. (see picture below)

The Market

We almost laugh when we hear or read now is the time to buy as the market is flat or down. Where are these commentators watching? In our last newsletter in March, we said we felt (but couldn't prove it with Median price numbers) that the market had gone up 10% since Christmas and it had for good quality family homes in the inner areas. The market has gone up even further since that comment. We would say that for the right properties, the market has moved 15% this year (anecdotal and not across the board). In other words, if you were looking for a $1.1 million dollar home in the Bayside area in December 2005, you would need to pay around $1.3 million today if you were at auction with genuine bidders. If you bought a $650,000 house in a good location with a good floor plan in say, Burwood late last year and it was a one with multiple interest, then that same property would be closer to $730,000 to buy today.

From a buyers and sellers point of view and speaking about good quality family homes in the inner areas (eg within 20km of Melbourne at all price levels), we are now in a mini boom market if your definition of boom is rapidly increasing prices and a number of properties being sold well above reasonable expectations based on comparables sales of six months ago. The market from Brighton to Malvern to Hawthorn to Burwood to Richmond to Williamstown has experienced large increases in prices since Christmas on all levels for good quality family homes.

Now we temper our comments with the following:

If it's not a good property, it is not selling.
Outer areas and inner area townhouses and apartments are a different market to inner area houses. However we acknowledge that in certain areas, the apartment market is definitely tightening up and is stronger now than it was a while ago. For instance, the Beach Road and Port Melbourne (with water views) apartment market. Supply restrictions coupled with light but consistent demand (especially from overseas & expats) is keeping a floor under prices which is not there in some other apartment/townhouse markets.
High asking prices are not a recipe for success. The market has to warm to the property and then good selling agents or auctions are driving the buyers.
Assessment is the key to saving money. If a property is not the type of property that would normally attract multiple bidding at auction, then an early offer may not be the way to go. However fighting things out in an emotional auction generally means you pay more than you would have paid before auction or missing out on the property altogether. It's still possible to pay big money and nobody else share your view. You should have proven competition before you act. The market could easily change again as we feel the main drivers are extreme shortage of stock, the stock market, a slight return to the 2003 buyer desperate to get into the market mentality. The trend is up since 1999 but we are in a spike. Spikes can change in a flash (less than a month). Spring will be very interesting.
The figures for whatever reason from industry sources are not or only just starting to show these substantial increases.

Question:

Can we prove the strong market strength?

Answer:

1. Ask real buyers people who have actually bid, not the market lookers.

2. We have missed just as many as we have purchased in the last few months our strike rate is down as we recommend buy to a certain price - not buy at any cost.

3. Ask good quality selling agents who actually speak the truth.

4. Auction clearance rates

5. Time to sell Private sales: Every quarter we look at a basket of properties we are not involved in and examine: Time to sell and Price v Expectation. The market is hot for the right properties.

WARNING: The market is hot but that could easily change as the stock market has shifted gear. It could easily change as interest rates rise again or peoples confidence starts to dip. It could also easily change as it always does when some more stock comes onto the market.

WHAT DO YOU DO?

1. Well you can wait. But we know of people who have been waiting since 1999 for the Melbourne quality home market to drop. It hasn't at any time since then and is not likely to take a big dive and lose a lot of it's gains at any time in the near future (although we are not soothsayers or future tellers).

2. You can panic and buy anything at any price let us tell you that is a mindset being adopted by a few people out there.

3. You can keep your head and keep looking for acceptably priced quality long term buys and when you feel you have found one, be clear it meets your need and those of at least the next five years. Carry out proper due diligence (value, pest, building, legal), set a reasonable limit given the state of the market and stick to the plan (although minor deviations are allowed).

We of course recommend Option 3. We are urging patience to our clients. Renting is a pain as you have to move twice and the longer you are out of the market the more difficult it is to get back in. But if you buy rubbish or the wrong place or you pay a ridiculous price for a less than perfect property, you will suffer in the long run when you have to resell.

A lot of our work is simply adjusting expectations, not necessarily lowering them.

Lateral thoughts that can help get you into the market:

Different area
Different type of property but still quality only
Buying something now not everything you want in the future but has the potential to be that when your circumstances change. In other words, buy a quality floor plan, block and position now and add a second storey when you can afford it.
Street Smarts we are certainly not paying top dollar on everything we buy and in fact this year have bought places $150,000 to $750,000 plus below expectations. If you believe us when we say quite a few places are firing for the seller then we say to you the property market is sophisticated yes, but perfect no. If you are on the ground and constantly looking and disciplined, then good buys are still there every weekend.
Paying a premium for quality property is not desirable but it's a lot more acceptable than buying rubbish cheaply.

Property Ratings and Buying Right

How do we at James Buyer Advocates determine good from bad or using common language "Gems" from "Crap"?

We use a system called Property Ratings which we have developed over the years.

It is used by those who want to buy right and who understand that buying right is not about saving a few bucks off the price or getting a big deduction off some fancy valuation or agent ask. Buying right is all about securing a property that will provide you with low risk, long term, above market growth.

The Property Ratings system is based on the best of the best of the 2 of the 4 existing Residential Property Buying Systems we are aware of:

The European Immigrant system carried out by many people from all nationalities. This involves buying places relatively cheaply, holding and when things improve buying some more. The long term hold system.
The Developer system. This includes professional developers and amateur renovators/builders where a buyer purchases a property and adds value by physically changing it's characteristics usually the building but of course can include subdividing or rezoning the land.
The Seminar system. This system is a lot more of the 'here and now' and has focus on cash flow not growth. It involves rental guarantees, bank lending organized for you, below valuation and usually lots of marketing hype about the future.
The Mum and Dad system. This system involves buying a place you like because of proximity to schools, shops or transport, has a floor plan you can fix or live with and comes with a back yard of some note. Because of circumstances, the buyer holds onto it for lengthy periods of time.

The Property Ratings system incorporates the best parts of the European Immigrant and the Mum and Dad systems. We acknowledge that the Developer system can work, and work well for those that are experienced or have a good buffer with their budgets whilst they are gaining the experience, but for every one of those who simply sees the fast buck, we see plenty of highly intelligent people falling in a heap for reasons not clear to us and end up waiting on tables. In other words, it's a system for the high risk takers and it can be great fun and it can work; but if you get it wrong, you may pay a very heavy price of financial hardship, stress and marriage difficulties.

The Seminar system works but usually for those who run them, not those who attend them and we don't just mean the well publicised ones. We mean the people who are selling supposedly below valuation places through financial planners and alike. It's all about the fast buck (for the seller) and the risks are often not clearly defined. Why would somebody bring you a deal that is so good it will definitely make money and you don't have to do anything? Are there more "Mother Teresa's" out there than we suspected?

So what should any buying plan being looking for? Growth. Growth not cashflow. Sure the cashflow needs to be affordable and you need to have buffers and it needs to make sense. We are not saying to buy a large parcel of land and don't worry about the interest holding costs. What we are saying is look for growth as your main driver, your cornerstone.

So how does growth work? Quite simply growth comes from price increase.

Extreme example: A cash flow positive $500,000 property with no growth may make you $25,000 after tax for a whole ten year period. Alternatively, a negatively geared property of the same value that doubled may make you (after CGT allowance and the after tax money you forked out during the ten year period with a market rent) about $250,000. Without price increases you cannot work the system of acquiring more properties using equity. All good property systems need growth as their cornerstone.

So how or why do prices increase? Demand. For prices to go up, you need demand. On a personal note, I needed to find a cassette recorder to listen to a tape I recently got from the States. I went to a Salvation Army shop and bought one for far less than the price would have been 10 years ago. Why? It worked well, was not damaged and actually looked pretty good. I got it at that price because there was no significant demand for a cassette recorder anymore.

But there is demand for Docklands and for apartments in general and there is constant demand for housing at Caroline Springs or Berwick from first home buyers. There is demand but prices have not gone up for units as much as houses or for outer areas as much as inner areas (Valuer General data 19802006).

Why has growth been affected differently? Supply. There are few if any supply controls over apartments. As soon as the market shows some improvements, up will go another 10 towers. As soon as Narre Warren is built out, there will be Upper Narre Warren or Narre Warren East or Narre Warren Gardens or Lake Narre Warren built on a large parcels of land nearby.

Well what does work? Inner city family homes is one. Every apartment block or townhouse development is one less family home near the schools, coffee shops, trains and other amenities that BMW driving, share owning, fashion conscious couples/singles with and without children want to live in. And in case you haven't noticed, we may have falling birth rates but our population is still growing at the world average and Melbourne is regarded as a very livable city for people from other countries. We get emails and phone calls every day for people wanting us to buy a nice family home for them so they can move from South Africa or Hong Kong or England or wherever

So how do you buy a good family home if you are a single, a couple or a family (growing or stable). Using the Property Ratings process developed by James Buyer Advocates, you do this.

STEP ONE: YOUR NEEDS.
Establish your needs both now, in 5 years and in 15 years. You want to be happy and you want to transact with minimum regularity. Please refer to our website www.jpp.com.au under Long Term where we prove conclusively that Joe Average who buys well and holds will beat Sammy Slick the brilliant negotiator who buys and sells a few times during the same period. Transaction costs and the dislocation of family can be major wealth destroyers.

STEP TWO: SEARCH
Search all options. If all you choose from is what you know now or what's in the paper today, then you are restricting yourself to a very small pool. We accept the argument that the internet can be overwhelming for some and leads to no action because of too much choice but the Property Ratings system does present a way for you to look at all your options in a practical time saving manner.

STEP THREE: ASSESS
Is this property any good? Does it have long term growth characteristics and how does it compare to others? We have developed a system that allows for a 15 minute assessment of each property and a report is generated that highlights the positives and negatives of the property having examined all major aspects. The report has a few comments but it's key feature is it gives a number that combines all the characteristics of the property in a way that allows for quick decisions and instant comparison with many other properties, some of which maybe very different. Below is a sample of our Rating Sheet that we have been using and from which we have established a unique and comprehensive database for our clients.

STEP FOUR: MONEY
We say money is not the issue and we mean it. But money is an issue. And with this step we get it right.

Property Rating sample
Property Ratings Sample

Property Ratings is a great tool to:

1.       Compare hundreds of properties quickly and accurately
2.       Compare very different properties in a meaningful way
3.       Compare very different priced properties
4.       To look into the future in a more objective manner
5.       To lessen the influence of 'rose coloured glasses' in the decision making process
6.       To make buying a lot safer.

For more detailed information, a sample of a rating sheet or information from our database please contact our office.

Client Comments

Dear Mal,

We cannot thank you enough. I've never been in the business of writing testimonials but the results you produced couldn't pass without recognition.

Buying the future "family home" from Singapore

In a word impossible. Or so we thought. For the past two years, we have scoured the Internet, regularly called in favours from family and friends to view properties, and even bid on a few houses (unsuccessfully).

When we contacted you, we knew what we were looking for but just couldn't look for it ourselves.

We thought we were buying a photographer but what we bought was Melbourne's best negotiator

As two busy Singapore-based professionals, we didn't have the time to fly down to Melbourne to view short-listed properties, and wanted someone else to be our eyes on the ground when we saw a property that we were interested in via www.realestate.com. Someone who could look beyond the PDF floor plan, the agents glamour shots, and give us an independent viewpoint (unlike the majority of even close friends or family).

To be quite honest, when we sought your services, what we thought we were buying was someone to take photographs, and more photographs. As overseas buyers and former Melbourne residents, photographs and the verbal lowdown on interesting properties were really what we needed.

What we got was something quite different and unexpected. In you, we found:

Someone who knew the market inside out
Well before the newspapers reported the story, you told us that Melbourne was in the midst of a mini boom in the inner east and that prices were spiking. We knew the market well but you knew it better.
One of the best strategists and negotiators we've ever met
We really had no idea what a good buyer advocate does, and what we discovered was a simply superb strategist and negotiators in you. Your strategy and tactics to buy what would become our future family home was well-considered, smart and ensured that we did not pay more than we had to.
The best service we've experienced in a very long time
I'm a communicator by trade and you communicate better than most professionals I know. It's always difficult doing business with someone youve never met in person, but you quickly won our confidence and trust and kept it. You kept us up-to-date, well informed and made us feel like we were in Melbourne having a coffee with you.
A straight talker, who knew what we wanted and needed
By the time we found you, we were frustrated by a long search and eager to close on a property (any property). You forced us to take a big breath, step back, and focus on finding the right property for our family now and into the future.
An expert who provided skills from search to settlement
The bottom line is that as an advocate, you make it much easier to get a great place, at the right place. Youre doing things we didnt know needed to be done for instance, negotiating on fixtures, handling our pre-settlement inspection, and coming up with a strategy to ensure our current tenant stays on.

We have no hesitation in recommending you and James Buyer Advocates in fact, I would consider your support critical to any future property purchase.

Warmest regards,

Sarah & Anthony

Sarah Gorman
Director, Spaeth Communications
www.spaethcom.com

Anthony Willmott
President, CAS Systems Asia Pacific
www.cas.com

Hi Ian,

Just thought Id drop you a quick line. In case you don't remember, you helped us secure our little townhouse in Cremorne about a year ago for $389k. We couldnt be more chuffed with it all.

Anyway, the unit two doors down went up for auction today. It's essentially identical, except it's unrenovated and their carport is crammed into the backyard instead of out front. It just went for $530k, after some intensive bidding. Needless to say were pretty happy with that. Looks like were on a nice little earner.

Hope all is well with you.

Cheers

Ben Letham

Happy property hunting and thanks for reading.

Kind Regards

Mal and the team.

Contact Us

If we can help you with any buying advocacy matter, or one of your clients/friends is in need of independent, qualified based residential property advice, then please call us on 03 9596 8822 or email mal@mjba.com.au. Our website is www.mjba.com.au.

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