Buying at the right price and the science behind valuations

Buying your investment property at the right price can make a huge difference to the performance of the asset but more importantly reduce the risk associated with buying property substantially. That is why Nyko Property insists on an independent valuation to set the prices on all approved projects and has done so since inception 10 years ago.

The price being set by a real estate agent or a developer is not the right way to go about it. Developers price properties based on a desired profit margin not based on market evidence and real estate agents generally price properties at a level needed to win the developers business!

The main issue with this is the additional risk it creates. We often hear stories from investors on how they lost money on a property investment in the past. In almost all those cases, the reason for this was that they paid over market value for the property and were forced to sell within the first one to two years.

Most of these people had 5, 10 or 20+ year plans to hold the property but their circumstances changed forcing them to sell. This can, of course, happen to anyone. By overpaying, not only will they not be able to recover the price they paid for the property but there are additional costs too. Think of the cost to enter a property, like stamp duty, and the cost to exit, like agent’s fees. This could add up to an additional $50,000 or more.

Is the valuation process perfect? Of course not. The process valuers take is scientific but only to a key point. The scientific part of the process includes viewing the property and comparing it to recent sales of existing property (not new builds) within the last 3-6 months.

However, the next step is where the opinion comes in. The valuer needs to decide how the property compares to the other similar properties. The property can be one of three things, either inferior, comparable or superior. The difference in price based on that range of comparison can be tens of thousands of dollars.

So there is no perfect way to price a property. However, there is absolutely no doubt a valuation is the safest way to price a property as it is independent of vested interests. As we advise all investors, only buy property when you can comfortably afford it and do your research!

If you have any questions or would like any further information please do not hesitate to contact Nyko Property directly.

To view this fortnight’s VLOG on youtube click here.

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