Property Red Flags

Differentiating between properties that will perform and those that won’t remains a tricky business.

When it comes to identifying poor performing properties some of the most easily recognised, and yet commonly ignored, red flags include:

Property title: Identify the title structure before deciding to purchase. Company share and stratum titles provide reduced loan security as a result of restrictions to ownership entitlements and control of the property. This can make it difficult to obtain finance, which in turn can impact saleability and capital growth.

Size restrictions: From time to time lenders establish policies that restrict lending on properties smaller than 50sqm. This is because some types of smaller residential assets, such as student accommodation, are associated with greater lending risk. Check with lenders to see if they have any restrictions on floor size.

Owners Corporation rules: Review the rules, facilities and costs associated with the Owners Corporation prior to signing a contract. While gymnasiums and swimming pools are great benefits for residents, Owners Corporation fees for these facilities can be expensive and eat into returns for investors.

Guarantees: Don’t be swayed by rental guarantees, stamp duty savings and marketing campaigns that are commonly used to disguise a property’s poor growth potential. These offerings are generally time limited and non-transferable, which means they add no intrinsic worth to the capital value of the property.

Seeking the right advice and conducting the necessary research will ensure buyers avoid exposure to risky property types and poor investment decisions.