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4 signs that a property isn’t worth buying

How to identify a property lemon - by Laura Barry
  • 25 Feb 2019
4 signs that a property isn’t worth buying
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Property is likely to be one of the largest financial investments you will ever make, so it’s very important that you invest your money wisely. Regardless whether you’re buying a property as an investment or as a family home, you need to know that your money is buying a relatively problem-free residence that will withstand the test of time and the changing needs of your family or lifestyle.

Property expert Mark Armstrong is the CEO and co-founder of RateMyAgent, and the mastermind behind the web series Property Banter, which he launched in 2018. Mark says there are two ways to interpret the phrase ‘property lemon’. “One is a property that loses market value after purchase, and the other is a property that has structural faults.” Mark outlines how to identify a property that loses market value.  

1. Consider the land to asset ratio

“Every piece of real estate is made up of two components: the land and the building on top of the land. Land grows in value and this is called an appreciation asset, while buildings are a depreciating asset, as they lose value over time,” says Mark.

“If you have a property that’s worth $500,000 and you burn it to the ground, and then sell just the land (and that land is worth only $100,000), it means your land to asset ratio is only 20 per cent,” says Mark. “This is a huge indicator that only 20 per cent of your asset is growing. Conversely, if you repeat the burning exercise with a property that is worth $500,000 and you sell that land at $400,000 that means it’s good value. Always take the time to professionally evaluate the land and the property before buying.”

How to identify a good property to buy
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2. Focus on the things you can’t change about a property

“A lot of buyers are quick to focus on quality fittings, kitchen and size of bedrooms, etc. but all those things you can change with renovations and refurbishments,” says Mark. “However, there are many things you can’t change, such as the location – which can be the main indicator that a property is a lemon, or a dud. Always consider what surrounds a property. Is there a waste plant, a main road, or a freeway? If there is, avoid, avoid, avoid!”

3. Avoid new property

Brand-new properties are a sure sign of a lemon, says Mark, but why?

“It’s because the vast majority of property sell prices comprise of labour costs, meaning a large chunk of what you’re paying for is intangible (except the cheap fittings).”

“A few decades ago there wasn’t a labour shortage. We had capable labour from around the world. Now there is a skilled labour shortage with enormous pressure on the cost of labour. Buying new can mean construction materials are of a lesser quality than may be found in older property.”

4. Property that’s easy to buy screams oversupply

“If someone gives you a shopping list of 100 properties to take your pick, it’s quite a sure sign there’s an oversupply and you can be pretty sure it’ll be a lemon,” says Mark. “Good property is hard to come by, so look for property that is scarce. For example, property in areas where there is no more land to subdivide or restrictions on building new dwellings."

  

This article originally appeared on Better Homes and Gardens.

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Laura Barry
Laura Barry
Laura Barry is a writer, bookworm and interior design enthusiast with a love for reporting on all things homes and lifestyle. When not tapping away at her keyboard, Laura can be found making endless cups of tea or perusing the shelves of Sydney’s many bookstores.

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Getting your coastal kitchen floor plan right
Watch 2:03

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{headline}

{headline}

This is what the Australian dream home looks like in 2018

This is what the Australian dream home looks like in 2018

Are duplexes the new Granny flat?

Are duplexes the new Granny flat?

Aussie house values are plummeting

Aussie house values are plummeting

Australia's most expensive suburb is not in Sydney or Melbourne

Australia's most expensive suburb is not in Sydney or Melbourne

{headline}

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This is how much you need to earn to buy a house in Australia right now

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Now is the time to buy a home in Sydney!

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How to spot a suburb that’s about to take off

How to spot a suburb that’s about to take off

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The golden rules of marketing your property for sale

The golden rules of marketing your property for sale

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How to create your dream-home wishlist

5 savvy finance tips for homebuyers and property owners

5 savvy finance tips for homebuyers and property owners

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Survey reveals nice lawns improve property values by up to $100K

Survey reveals nice lawns improve property values by up to $100K

These are Australia’s up-and-coming suburbs

These are Australia’s up-and-coming suburbs

5 key things that will help sell your home

5 key things that will help sell your home

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