Wednesday, July 06, 2011

Homeless......but cashed up!

Last week’s column was an update on the 2011 market
and we talked about the winners and the losers.
Since then, I’ve been asked to elaborate and explain in more detail who is winning in property and why. To explain this it’s necessary to understand who the losers are and why. Remember there are always plenty of exceptions, but here is the undeniable emerging trend.

First the losers...
We’ve seen some terrible pain from first home buyers who took advantage of the First Home Owners Boost (FHOB) last year. They got caught up in the hype and purchased houses - often before they were financially ready. This unfortunate category was largely swept up into frenzy buying. They eagerly signed up for the huge handouts of $14 to $21k - only to discover 18 months later that their properties are in some cases worth tens of thousands less then what they paid.

The life lessons have been expensive for many FHOB buyers and I only hope that it doesn’t leave these people scarred for life when it comes to property ownership. To add to the woes, rental prices have been soft and it just isn’t a great time for many in this group.

Other losers are those who purchased their properties before selling. There is lots of unhappiness as the price of their new home drops whilst locked into their boom price purchase. Conditions changed, and of course, they remain stuck with their old home which has also dropped in price. In this market property will only sell when it’s adjusted to today’s market.

OUCH! Oh yes and let’s not talk about those who have settled on their new property - they now have 2 houses and a raging mortgage (plus rates/taxes/insurances) on both.
Ok - now for the winners...

This is one of those times to make money in property. The winning buyer categories are 1) First home buyers 2) Upgraders - those upgrading to a more expensive home 3) cashed up buyers who have sold their property first and 4) investors.
First home buyers - you are cashing in on those who bought property in the recent first home buyers hype and can no longer afford the mortgage. Or maybe their circumstances have changed - relationship breakdown maybe - and a sale is required.....often many $1,000s below the purchase price. The $21k government hand out has become irrelevant. The grant got swallowed up in the purchase price through an overstimulated market sector and has since been washed out thanks to changed conditions... that plus more. Demand was insane. Smart first home buyers today however are laughing all the way to the bank.

Upgraders - simple maths. If the market softens from the boom highs by 20%, then a $500k home is now $400k, a $1million home is now $800k. You are $100,000 in front plus all the savings in legal fees and stamp duty. Of course it’s never that simple - but you get the idea.

Cashed up! - in a declining market selling first will lead to a better sale price, while delaying your purchase will improve your buying power. Your cashed up bargaining power increases opportunities, creating even more upside. Go for a long settlement if you wish, it might help get a cash contract and also give you time to look around. If you do happen to end up homeless - you will be cashed up with no mortgage,
so just rent for a while if you have to.

Investors - if you’ve got cash, you’ll buy even better. Investors don’t have to worry about getting emotional - you don’t have to like the property, so you can be opportunistic. Rental demand is a sure bet in tougher times. You can offer the property at a slightly cheaper rent than other landlords who bought at the peak - and entice a better quality of tenant.. buying in this market is so much easier than a boom. You are in a great position.

This is a sensational time to make your real estate move. If you want to know more about taking advantage of this market, send me an email. We can help develop a personal strategy to seize the current opportunity.

I’m at anthony.toop@toop.com.au
Let’s get you ready and get you homeless!

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