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Bryce Holdaway Blog post by Bryce Holdaway

The Number One Person a Buy and Hold Investor Needs to Impress and Why?

Today, I want to talk about who the most important person is for someone who’s investing with a buy and hold strategy.  Because I wonder if anyone’s actually really thought that through.

The question is: is it the property manager? Is it your accountant? Is it the taxman? Or is it you, the investor? I would argue it’s none of those. In fact, I would suggest it’s the Valuer.

Ultimately, if you’re a buy and hold property investor, you’re not going to sell the property because if you were going to sell, I think the owner-occupier is the most important person. But if you are actually having a buy and hold strategy, I think the Property Valuer is the most important person. Think about what their job is — they’ve got to look around and see what properties have sold recently within the vicinity, which they compare and contrast to the property that you’re looking to buy. So, essentially what is their job?

Their job is to give a price estimate that’s realistically achievable. If they had to sell a property within 90 days to a willing buyer and a willing seller at an arm’s length transaction with a reasonable marketing budget … that’s their job to find that out! So, how do they actually do that? Well, they look at your property and then they go and see what those recent sales are, and then they compare what you’ve got to those properties. It’s not an exact science — it’s part art; it’s part science.

So, in my view, you should be buying properties through the lens, or through the eye, of a Valuer.

 

So what is it that they look for?

First of all: land size

Clearly the bigger the land size, the better. But also, most of the things that they check out is in comparison to the suburb norm. So, let’s say you’re buying a 400 square metre block, and where you’re living right now this may not sound like a lot; but what if the average or the norm for the suburb is actually 300 square meter blocks? 400 is actually greater than the average, therefore, they’ll put extra value on that. On the flip side, say you buy 400 square metre block, and the normal is 700 square metres … well, clearly that will have an impact on the Valuer.

The other thing that they’re looking for is the lot attribute, the topography.

Is it flat, or is it hilly or rocky? The shape of the property — is it a standard square, or rectangle block, or is it an odd shape, which the market won’t place higher value on? And, of course, the aspect. Have you got a south-facing backyard versus a property they’re comparing that has a North facing backyard, which is the desired aspect, or orientation, in the Southern Hemisphere? These are the things that really matter to a Valuer, and what they’re actually looking for when they value your property.

The other thing to think about is street frontage. 

That first appeal of the property actually matters. Why do you think real estate agency, if they’ve got a property to sell and it’s a double fronter, headline, “It’s double fronted property in X location!” The bigger the street frontage, the better. Again, if you’ve got something that’s too narrow compared to the suburb norm, it’s actually going to have a negative impact on the valuation. So, you do need to consider the street frontage.

 

Now, the next thing they look at is the property sizethe internal footprint of that property.

Of course; the bigger, the better. Because that gives us more living space and, therefore, people will place more value on it. So, if the Valuer’s looking at a property, they’re seeing if it’s got the opportunity to make more bedrooms, for example, within the same footprint. But, equally, if they’re looking at an apartment, they want to make sure that the internal size is greater than 50 square meters — because a lot of banks don’t like properties lower than 50 square meters. In some cases you can do 40, but quite often you want to make that minimum cutoff at 50 square meters. Again, that property size is something that the Valuer is definitely looking at when they value the property.

The next thing they look at is presentation and layout. 

When it comes to the floor plan, or the layout of the property, has it got the ideal zone? Sleeping at the front, services in the middle, entertaining at the rear, or living, and then entertaining at the rear — that’s the perfect floor plan. Valuers are comparing the property you’re looking at, and overlaying it against the perfect floorplan, because that’s important. If you’ve got a higgledy-piggledy floor layout, this will impact in the market and, therefore, will impact the valuation.

The next thing they’re looking at is the number of bedrooms. 

Again, the more that you’ve got, the better. But, equally, the thing Valuers are looking for is more bedrooms than three — so four or more. They’re also looking at, “Okay there’s only one bathroom; that’s not enough. They actually need two bathrooms when you start to get more and more bedrooms.” So, again, the logistics of the floor plan is something that they’re looking at.

The next thing they look at is the size and the condition of the kitchen — kitchens sell! They want to make sure that the fittings are appropriate; but they’re also going to make sure they haven’t over-capitalised for the area.

If they’re expecting laminate benchtops, and you’ve put beautiful marble stone tops in your kitchen; that’s not necessarily going to increase the value of the property if it’s over capitalised compared to the suburb normal.

 

They’re also looking for off street parking. 

Now, not all areas have off street parking; but if you have parking when it’s not expected — think of investing in a one-bedroom apartment in a high-density location — if you’ve got a parking spot, that’s actually going to increase the value because it’s unique and it’s scarce for the type of property. On the flipside, if you’re in a suburban suburb where off street parking is normal and you don’t have it — that’s actually going to impact the value to the negative and cause them to put the value down.

And, of course, they’re going to look for proximity to lifestyle drivers. 

Where’s the school? Where’s the cafes? Where’s the public transport? Am I close to these things, or am I so far away that’s actually going to have an impact on the value if it went to market?

The final thing is to look at is the redevelopment potential and the renovation potential of a property. 

Can this property actually add value by turning one into two, or one into three? Is there an opportunity to renovate the property so that we can add some more bedrooms and some more bathrooms that comes into the consideration for a value?

 

I haven’t given you the exhaustive list of everything they go through; but ultimately, what I’ve suggested is the things you have control over, which you can actually influence through the eyes of the Valuer. But my conclusion is very, very simple: when you’re looking to buy a property as a buy and hold investor, you need to be looking through the lens of the Valuer — and look for properties that have owner-occupier appeal, not investor appeal. Because when Valuers go about doing their job, checking out the properties and comparing them to other properties in the surrounding area, if they’re comparing them to owner-occupier properties — the ones purchased by owners who buy with emotion and buy with their heart — chances are the prices will be higher. Therefore; when they come to value your property, your valuation will be higher.

Ultimately, as property investor, that’s what you need — for the valuation to be higher so that you can release the equity, and go again and by the next amount to buy your next property.

So there you have it: I think the most important person for any buy-and-hold investor is a Property Valuer!

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