Home Research

In the period while I was working and polishing our financial history to a lovely attractive shine, I was also doing research.

I wanted to clarify several points for us personally:

- Exactly what was happening in the housing market?

- Did we want to buy land and build, or did we want to buy a pre-existing home?

- Where would we truly be happy to live?

- How much money was reasonable for us to manage repayments?

- How much money would we truly have to use for the home loan deposit?

- How much money would we need to pay all associated costs (Conveyancing Solicitor; Taxes and Fees; Moving Costs)? 

- What size mortgage did we want and how much would the bank give us?

- What kind of mortgage would the bank give us?

- What features/ inclusions did we want our home to have?

I also wanted to know:

- How do you actually buy a home, what is the process?

- What extra costs do you have to pay?

- What entitlements do first home buyers receive from the Government?

- What paperwork or official legislation is required and who, or how do I organise them?

- How do people sell homes?

- What happens at an auction?

- How do you negotiate with a real estate agent?

- How do you pick building inspectors and solicitors?

I started to answer these questions by googling, well to even find out what some of the right questions to ask were in the first place!

Answering the personal choice questions first:

I had kept my eye on the houses and land being sold for some time online.  I also went to local real estate agents offices and picked up copies of their free printouts of their listings for both homes for sale and rentals.  I wanted to know what different homes were renting for in different areas.

A couple of great websites I used were:

www.realestate.com.au 

- helps you find listings in whatever area

and www.onthehouse.com.au

- Excellent because it gives you property details and sales history as well as unimproved land value, the land use classification and identification, as well as an estimate of the possible sales price.  The site also lists comparable listings and gives you information about recent sales in the area.  I found having this kind of knowledge about a property before you speak to the real estate agent, to be very handy when it came to negotiation! 

Also the 'Public Trustee' website is good to find houses and they often sell for relatively cheaper prices.

I also went to a few open homes and chatted with real estate agents and checked out exactly what you were getting for the prices they were asking.  I even attended 2 auctions to see how they worked and also to get a true idea of what was happening in the marketplace.  I deliberately chose a relatively crappy house and land option (not in the flood zone) to see what was happening at the bottom (bottom for us anyway) and then one with much larger land.  Auctions show what real people in a group are willing to bid and pay for houses and I saw that even though the real estate agents were talking up the market, that other people were giving houses much lower price tags they were willing to pay.  

I wanted to familiarise myself with the whole process so that I was not nervous, or stupid later on.  The biggest surprise for myself was that other people were putting very similar value to homes that I had allocated in my own mind!  I was also surprised to see how the real estate agent were hanging on tightly to their high price tags and were not willing to negotiate, the prices were falling faster than the agents wanted to admit...  I saw both houses be 'passed in', or not even be put on the market to sell at auction because no one was giving a high enough starting bid according to the real estate.  That told me a lot about how hard I was going to have to fight, to get them to be reasonable!  I also made sure to follow up and see what houses I was watching online had sold for, especially auction prices because they gave instant feedback.

This also taught me something new.  If a house is not sold at auction, then it immediately becomes available for normal buyers to buy it the slower way.  You should still consider attending auctions because even though you cannot bid, you may be able to negotiate with the owner on the same day, if it does not sell in the auction.  Sometimes only 1 person bids at the auction and then they are given 'first option' to negotiate with the owner.

The Government changed the rules for first home buyers and instead of offering $7000 to both land and pre-existing home sales, they made it $15000 for people buying new land only, I think they also must have intent to build within 1 year of purchase?  That 'first home buyer grant' is supposed to help boost your deposit and help you secure a mortgage.

A lot of people were upset by this but I saw it as an opportunity for us because it meant that the value of pre-existing homes would potentially fall even further because they were effectively knocked out of the market for the majority of first home buyers.  Even though people say the grant helps you to increase your deposit, in my mind it does not really help make a first home more affordable because it also causes the prices to increase exponentially.

I noticed following this Government decision, that land prices shot up and I could see that a lot of 'just land' was selling for the same price that we could buy a pre-existing 'house and land'.  An example, Years ago in the late 1990's you could buy a reasonable lot of land (approx. 500m2) in Forest Lake for $50K and then build a big modern house on it for approx. $100K, making the whole package $150K which would be totally worth it.......  Today for example I just googled the cheapest lot of land (668m2) is $280K, or $369K (581m2).  Add your build price of $100K+ on top of that and it would have to be an amazing property for you to get your money returned in future value!!! 

We decided not to buy land and build, this was also because we had kids and it would mean you have to pay rent and a mortgage at the same time for many months until your new house was built.  We decided that option was beyond our budget.  Not only that, we were not prepared to put up with the stress of the situation.  I have spoken to several people who built their home and they went through a lot of stress trying to make sure the home was built properly to plan, every single person I personally spoke to had trouble with builders reading the plans properly.  They also had to make sure they got the mortgage installments from the bank in time to pay tradesmen etc.  Sometimes when you build, you are paid the mortgage in installments instead of a lump sum, these installments can be dependent on the property reaching specific milestones in the building project.  If for some reason you don't reach a milestone (problems crop up) you might not get paid and have trouble continuing and finishing!

We also figured that if you look at homes that have been standing for several years, if there are problems with the way they were built the faults will have started to show already and would help us to steer clear of the duds.

I decided that since a mortgage could now cost less than paying rent and we had been managing our current financial situation just fine, that would be my marker for how much we could afford.  I did more research to get an idea of quotes for 'home and contents' insurance and also potential 'rates' in Brisbane and Ipswich, plus water/ sewerage costs.  I divided this by the months of the year and added that to my weekly amount to pay.  From this I decided that we could happily relocate from a rental to our own home and still be able to pay those extra costs if we got a mortgage around $200K.  I also could see from the housing market that it would be possible to find a home worth less than $200K and that was what I primarily focussed on.

We were not looking for the most fancy house, we just wanted to enter the housing market and stop renting.  We did want to be comfortable though because we would likely be living there for many years.  We were ok with doing some renovation but did not have a huge budget for that, the plan would be to live in the house and then slowly save and then make changes as we went.

After years of renting, I had a pretty good idea of what features and inclusions it was good (or great!) for a home to have (built-in cupboards, security screens, fans, air-conditioning, reasonable bathroom and functional kitchen, large bedrooms and living space, covered outdoor area, covered car parking, energy efficient hot water system or gas, extra toilet, garden sheds or other additional dry/ protective storage areas, internal laundry, large enough yard for kids, some lawn but not too much to mow, privacy from neighbours, fully fenced for pets, good street position, not too much traffic or noise, not in a flood area).  We wanted a place that we could move into and live straight away, somewhere that would also be good for potential renters in the future, that ticked as many of the boxes as possible.  As well as house features we wanted such as, a position that was close to public transport and other facilities like shops, schools, businesses and highways etc.  An area that had a relatively good likelihood of demand and reasonable rental return.

We were not planning to try to buy houses at auction, you must have the cash immediately to pay %10 deposit in 1 or 2 days after signing.  You are buying the house 'as is' at auction and you can't do a building inspection or anything like that afterwards, it is too late!  You have to arrange and pay for a building inspection in advance of the auction day and you might not even win on the day.  Auctions are a more risky and expensive option for the buyer.

You have to think hard about all these things yourself, you must decide what is right for you and your family, before you even start looking!