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Sweating the Small Stuff in Real Estate Investing

Australia Real Estate Lesson

“Currently there’s a tremendous shortage of properties for sale, incredible demand, and the prospect of fabulous economic conditions for the next 25 years if you subscribe to the long wave boom theory.” Sounds like Northern Alberta doesn’t it? It’s actually an article from Australian Property Investor Magazine referring to the boom in Perth. Perth has seen such an incredible boom that house prices have increased upwards of 30% in the first half of 2006, and a total of 147% since 2000! In real estate investing, that is like beautiful music is to the ears.

Much of the boom is mineral and resource driven (still sounding familiar?). However, experts say that cashflow positive properties no longer exist within Perth. They say the capital gains and cashflow opportunities are going to be in outlying communities where infrastruture is improving.

We have Australia on the brain after two weeks down under, but we thought the parallels between the Canadian and Australian markets and ideas for investment we read about would be fascinating to share. So, this month we’ve highlighted Australian thoughts on achieving financial freedom as a property investor.

Do sweat the small stuff when real estate investing – it’s in the details

A man walks into a condo sales office and buys four units within a condo building. It sounds like a joke without a punchline, but there was a punch for this Irish investor buying in Sydney. One of the units doubled in value by closing time, two units had a small increase, and the fourth actually decreased in value. As I sell my condo in North York (Toronto), and sniff and sob over the lowly 6% appreciation it’s had over 5 years, I can relate to the Irishman and the punch in the story.

What happened? Didn’t Toronto have a big boom in the last five years? Not everyone has profited from that boom, as I can now say with first hand experience (after 45 days on the market, I finally have an accepted offer but it’s $9,000 less than asking and a paultry sum more than I paid for it five years ago).

The Irish investor explained that the unit that doubled in value was ground floor, with a lovely courtyard, a great view and sunshine in the evening. The two that had marginal increases were on higher floors of the building and street-facing, while the unit that didn’t increase was above the entrance to the building. His lesson was that it was not just the location or quality of the building, it was the details of each unit that mattered a lot in the resale.

My condo story is similar. It’s in a rock solid 6-year old building right across from a subway stop. It’s minutes from the 401 highway and located conveniently by all the essential amenities including grocery stores, restaurants, gyms, community centres, and schools. So what went wrong? Well, here are the major issues:

* The area has ballooned with over 2,000 new units in the past 5 years;
* Most of those units are similar in size to mine;
* My unit is 1 of only 2 units in the building without a balcony; and
* My unit is above the main lobby entrance.

Virtually all of the prospective buyers noted they wanted a balcony and would prefer to wait for a unit with one. We lived in this condo for several years and did not miss the balcony – especially because BBQ’s were not allowed on balconies. It’s a quiet, warm and welcoming unit. However, until you live there, you wouldn’t realize this. Similar units in the building have sold for up to $15,000 more – but they have a balcony and are not above the entrance.

How can you learn from my mistake?

1. Trust your instincts – if there is something that makes you hesitate when buying the unit (and you can’t fix it), don’t buy it!

2. Watch for details like:

* Lack of sunlight;
* Close to elevators and entrances;
* Limited or no views;
* Lack of street parking; and/or
* Many new developments in the area that are similar to the one you are looking at.

If you find that a unit has some or all of these details, you may miss out on some great potential capital growth if you buy it!

Published: November 16, 2006

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If you have questions about points raised in this post, or if you’d like to learn more, then send us a message and we’ll get back to you as soon as we can.

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