Three tips for buying an investment property at auction
There are two types of people on the property market: owner-occupiers and investors. While there’s certainly some overlap between the two, there are distinctly different ways that an investor should behave at auction compared to a future owner-occupier.
So to help you find that next diamond in the rough for your property portfolio, here are a few tips on getting the best auction results as an investor.
Wait for the lull
The vendor might be more willing to negotiate.
Many people make the mistake of thinking that an auction is only about beating the other buyers. This might be true when you are buying a house that you want to live in for decades to come, but it’s quite a different story when you are buying for profit. You want to get a bargain, so it’s really all about getting in when the vendor is more desperate to sell – that is, when clearance rates are low.
For example, if you look at CoreLogic RP Data, they have recorded a drop in weekly clearance rates at the start of every year since 2011 in Australia. This means more properties are failing to reach their reserve and passing in, meaning the vendor might be more willing to negotiate. This gives you the chance to get a bargain outside the competitive arena of the auction.
Consider your tenants
Don’t fall in love with an investment home – don’t pay more than you intend just to win, and don’t consider only your needs. You want to appeal to as wide an audience as possible. For example, the McCrindle Renter of the Future report shows that good parking, cable internet and a strong mobile signal took up three of the top five most wanted features. You’ll want to find a property that has those to get the best rental yield.
Maybe you’re not a technophile, but your tenants could be. Keep that in mind when going to an open home!
Growth is the target
You want to be looking at value growth.
When buying an investment property, you want to be looking at value growth. Cast your net wide and look for properties in strong neighbourhoods – you could even go interstate. An investor living in Sydney does not only have to buy Sydney properties – they could easily switch their gaze over to the better-performing CoreLogic median value growth of Melbourne and invest there instead.
Buying for investment is a game of objectivity and willpower. Always remember that you here to get a bargain, and that entails a completely different strategy to buying a family home.