Brisbane Case Study Part 4: Why Some Contracts Fail (aka The Building and Pest Inspections)

 

So your offer on a property has been accepted. You’re full of excitement, you’re giddy, and felt relieved now that the crucial part is over. You’re about to celebrate—but you realised there’s still some more work to be done. There’s the building and pest inspection.

And this phase of property purchase is just as crucial as the rest of the process. Many contracts fail or crash even after an offer has been accepted and there are several reasons for that. But majority of the reason is because of either finance or an unsatisfactory building and pest inspection.

The latter is what we experienced in our latest Brisbane buyer’s agent property purchase case study.

If you’ve just tuned in, here’s the first three parts of this series:

Brisbane Case Study Part 1: Meeting Peta
Brisbane Case Study Part 2— Suburbs Analysis
Brisbane Case Study Part 3 — Finding THE Property

 Building and Pest Inspection and Reports

Being presented with a bulk of papers containing comprehensive reports about the state of the property can be intimidating for any prospective buyer. We’ve been to a number of building and pest inspections and have read reports and we totally understand how these can be overwhelming.

 building-and-pest-inspection

 Just how comprehensive a report can be? Well it covers not only the state of property but also all the defects and their potential consequences. Now you understand why this phase can be one of the reasons why some contracts didn’t push through?

That is why it is important (whenever possible) to attend the building and pest inspection—and this is what we usually do—in order to see for ourselves the issues inspector finds and to raise questions on behalf of our clients.

building-and-pest-inspectionIn the case of Peta, while there were minor issues reported (which were not unusual given the age of the property), two serious issues were highlighted in the building and pest inspection report. First, a number of concrete stumps under the house had cracks. Second, there was a little damp under the house. This can really be a concern as the inspector pointed out that when the damp fall of the land, the house’s drainage mechanism may not be sufficient to move the water away from the footings.

Now this is the part that may scare off purchasers. Just how serious those issues are and what are the potential consequences of those issues? More importantly, what are the  financial implications to rectify them?

Ask the Experts

In this case, what you don’t know can  hurt you. It is easy to be scared off by uncertain things, things that you don’t understand. For some, it is better to chicken out this early than suffer the consequences later on.

But this is the part where experience and knowledge can be powerful. In this case, we sought the help of some experts to help Peta decide. But first things first: we requested the building and pest date be extended by one week to give us time to do further investigations. We then had a plumber inspect the property. This cost Peta $132 including GST. We found out how severe the issue was and were given two quotations on how to rectify the situation.

We also had concrete stumping experts who provided verbal opinion on the severity of the stump issue and we were given a written quote on fixing those stumps. This was provided for free.

Bear in mind though that you must get a formal report if you were to pay a consultant or an expert to look at your building and pest inspection report issues.

To Purchase or Not, that is the question

After obtaining all relevant reports about the issues and discussing the pros and cons, we were then confronted with three options:

  1. Proceed with the sale based on the current Contract of Sale
  2. Negotiate a discount on the purchase price, given the issues found
  3. Pull out of the contract

Peta decided to proceed with the contract—provided purchase price will be reduced.

Another round of negotiation

We previously agreed upon a purchase price of $430k but with the issues that crop up during the building and pest inspection and the implications of those issues, we requested a reduction of $25k. As expected, intense negotiations with the property’s real estate agent occurred until a new purchase price has been agreed upon: $417,500.

Now you understand why the contract period can be a crucial phase.

 We’re happy to share that Peta’s property has now settled and she’s the proud owner of her new investment property. If you missed our podcast episode where we interviewed Peta about her experience, click on this to listen.

 

Brisbane Case Study Part 2— Suburbs Analysis

 

We are now on the second part of our Brisbane purchase case study  featuring Peta. If you missed our initial post, head on to the link below to get an idea of Peta’s background and a glimpse of her buying criteria:

Brisbane Case Study Part 1: Meeting Peta

We’ve mentioned in the first part of this series that Peta was keen on buying in Brisbane market, therefore our location analysis was zeroed in on Brisbane suburbs. After identifying, documenting, and finally agreeing upon Peta’s buying criteria—one of which is location must be within 10km radius of Brisbane CBD—we analysed all suburbs that suit Peta’s criteria.

Peta is from Sydney so she needed to know and understand the Brisbane market and the meanings behind the numbers so that she could make informed decisions. This is an important aspect for an investor who is not local to the  market he/she plans to invest in so that he/she can assess the recommendations a buyer’s agent would present.

The Pockets and their Numbers

The first location report we presented to Peta was consist of six subsets of areas or ‘pockets’. We enumerated the ‘numbers’ associated with each of the pockets. These include: projected growth, historical growth for 3 months, 12 months, 3-5-10 years, vacancy rates, rental yield, numbers sold, time on market, among other things.

We also provided maps of Brisbane and plotted on the map the location of major facilities like establishments, universities, train stations, and hospitals.

Zest-Location-Sample-Peta

This process of presenting the numbers help narrow down the target location.  Often investors go back to their buying criteria and make some changes upon presentation of a location analysis. In the case of Peta, she decided to focus on houses within the North and the South, with further focus on the Northside.

In-depth Location Analysis

ZEST-Location-Maps-PetaWe then presented Peta with another location report, this time with the narrowed down areas. We provided other pertinent data about the suburb including location, demographics, style of housing, and heatmaps.

We also provided an even more detailed suburb analysis, which was the product of literally driving around the suburb to map out where everything is, what style of housing exists where, the upside of the suburb, the downside, and all those data that we gathered first-hand.

 

ZEST-Suburb-Mapping-Peta

After the suburb mapping exercise, we decided to focus on Northside and started looking for properties in the area—Gordon Park, Kedron, and Chermside.  Because we were  looking for houses factoring in our budget, we decided to expand our focus a little to adjacent suburbs that still present projected growth. These suburbs are Wavell Heights, Geebung, and Stafford.

And now we’re off to finding actual properties in those suburbs. We will share all about it on our next post so be in the loop!

Brisbane Case Study Part 1: Meeting Peta

 

So we’ve emerged from our recent renovation project that has kept us busier than busy the past weeks. But aside from that reno, we’ve also been busy attending to some clients over at Property Zest. And we’re happy to share another purchase wherein the client allowed us to document the process of using a buyers agent so that we can share her experience to our readers.

Meet Peta

Peta currently holds  an executive position in a major corporation—to say that she is flat chat busy would be an understatement. While she clearly knows the kind of investment property she wants —one that has good growth, yield of 5%, and has a potential to add value for manufactured growth—she knew it would take time (if not forever!) to find that investment property she’s eyeing on. Aside from being busy, Peta also needs to factor in the distance. She is from Sydney and would like to buy into the Brisbane market. She knew the work involved in buying an investment property in a location that one isn’t familiar with. And for these reasons, Peta decided to tap the services of a buyer’s agent.


 Brisbane Buyers Agent Case Study   Part 1   Introducing Peta Now Peta isn’t a neophyte in property investment. She has bought an apartment in Sydney a few years back. This apartment had good renovation potential and Peta capitalised on this potential. She not only increased the rental capacity but she also managed to leverage on the growth the apartment has brought her. She was able to buy her next property investment off that growth.

Wasn’t that a clever move?

This  reminded me of one of the strategies mentioned in Jane Slack-Smith’s book, “Your Property Success”.

We are also glad to know that Peta, as most smart investors are, is very inquisitive and analyses the data and other information presented to her.

In this first series, we gathered Peta’s buying criteria, which we initially listed below.

  • Budget: $400 – $420k
  • Within 10km of the CBD, units or houses
  • Capacity to add value through renovation – not necessarily straight away though
  • Yield > 5%
  • Location growth factors – e.g. close to transport, hospitals, shopping centres, freeway access etc

In the second part of the series we will discuss the process we took to find a location for her. Be sure to stay tuned!

 

 

Mackay Purchase Case Study: A Summary Video

 

We recently concluded our Mackay Purchase case study series for one of our Property Zest clients, Serg. For those of you who missed out on the posts, we created this summary video to give you a quick look at the process and progress we undertook while searching for the next property investment for Serg.

A full transcript of this video is available at Property Zest.