Every Mistake We Made Buying Our First Property

Hindsight is a wonderful thing!

I'm a firm believer in taking responsibility for your decisions and identifying mistakes you may have made in the past as a way to better shape your future. Many buyers make numerous mistakes when purchasing their first property - Guess what? We were no different! Looking back (knowing what I know now) I can see some of the mistakes we made.

It wasn't ALL bad. In and amongst these were some good decisions too. Remember you can only make decisions with the knowledge you have at the time. Our first purchase was a block of land in Toronto a suburb in West Lake Macquarie, Newcastle region. We purchased this vacant block in 2012 and built 2 years later. This was initially our primary place of residence which we have since converted into an investment.

Negotiation

When we decided this block was for us I rang the sales agent. The block was listed for $129k. We had recently missed out on a vacant block down the road. I wasn't about to let this one slip. After some small talk I went with an offer of $120k. It was our max. I was fully expecting the agent to bite my head off for offering under the listing price. I'd never been involved in negotiating property before. The agent did nothing of the sort. Instead she thanked me for my offer and asked something I'll never forget - "If the vendor rejects your offer will you go up to $129k?". I paused then thought to myself why ask me that? I realised then she was just gauging our interest. Luckily I wasn't naive enough to say "Sure but don't tell them that"..

Tip: Remember that the sales agent is acting for the vendor (seller) and the vendor alone. You are not a client. You are a customer. Keep your cards close.

Tip: Never open with your max. Leave some buffer in the tank

Listing History

I never looked at the listing history. As we had missed out on a previous block we were pretty keen on securing this one. When the vendor accepted our offer that afternoon I was quite surprised. I sensed there was some motivation. If I had bothered to look, the listing had actually been on since the start of the year. Almost 10 months. Over that time it had dropped in price significantly. From memory about $20k. We actually purchased $15k under what the owners purchased for 12 months prior to us. We had no idea! Knowing all this maybe we could have gone in harder?

Tip: Look at listing history via sites like oldlistings.com.au, realestate.com or ask a broker with access to pricefinder or corelogic.

Tip: Look at comparable sales in the area. See if the listing price is realistic. Focus on what similar properties SOLD for. Not what they are listed for.

Land

We focused far too much on the house rather than the land itself. Our block had an amazing view. Perched high on the hill looking over a mountain range and even had water views in the distance. All we could think of was building our house to incorporate these views - which wasn't necessarily a bad thing. What we didn't spend enough time considering was the trade-offs. Our block not only had a significant slope it also had minimal street frontage and was in a bushfire zone. There were significant costs regarding retaining walls and building to a bushfire code. I'd estimate construction and certification costs associated with these came to approximately $50k alone. We had to compromise and bring our house plans down the block away from the treeline to comply with bushfire regulations. I also underestimated the effects of a narrow street frontage and living on a slope. There was no accessing the back yard other than by foot and gardening became a bit of a nightmare. I spent countless times walking a wheelbarrow full of materials around the back of the property. Mowing became a major fitness test. What we did do well is purchase a large block. 750m2 is uncommon these days. Minimum land sizes are reducing. Remember - land appreciates and buildings depreciate.

Tip: Imagine the block without the house first. Try to buy regular shaped land with decent street frontage and side access if possible. Flat land is often far more usable but often won't get the same views as some elevated sloping blocks.

Tip: Use council websites to check zoning and overlays of the property. Here you can find flood, bushfire, infrastructure and density plans. This can affect future growth and is important for insurance purposes.

Budget and Buffers

Looking back we essentially went to the max when it came to both our land purchase and build costs. We overspent on our build and essentially "overcapitalised". Our eyes lit up selecting fixtures and fittings for our build and underestimated the costs of essential items. Like I said the bushfire construction requirements had significantly increased the build costs already. Also when we moved in we struggled to find the extra cash. All of a sudden we had a brand new house and couldn't furnish it all. We decided to do loads of tasks post-handover which was a great decision. Family and friends were a great help completing our flooring, driveway and landscaping. I really enjoyed these and do suggest getting DIY on your property. When we started out I planned to stick to a $450k overall price. Our land price of $120k was a fair bit under what new land estates were going for on the fringes of town. So even with the added costs of bushfire and retaining we were able to spend a little more on the house and end up with a property closer to amenities and not stuck in a cookie-cutter estate for a similar price.

Tip: Have a budget below your max. Don't always use it all. Have buffers for unforeseen costs - There will be heaps!

Tip: Don't always use your max borrowing capacity. Just because the bank says you can borrow $600k doesn't always mean you should. Look at your cashflows and see what you can comfortably afford.

Tip: Get hands on and DIY. If my wife can dig a post hole pregnant than so can you! It's all a learning experience. Of course employ professionals as required but if its purely labor intensive it isn't hard to do. Hello Youtube!

Finance

At the time my wife worked at CBA. We approached them directly for finance. The old lady taking care of us got angry at me for making an offer prior to pre-approval. I don't think I even knew what a pre-approval was! We were put into whatever product CBA had for us at the time. When it came to financing the build 2 years later we approached CBA again. We had all our build contracts sorted only for the bank to tell us the valuation had a significant shortfall and we needed to come up with thousands to fund the build completion. We were floored. We had no extra savings and didn't know what to do. We came so close to cutting our loses and selling up but I was determined to push on and not lose out. So I decided to approach another lender. I'd since looked at comparable sales and was confident that the valuation should be higher. The new lender agreed and we were able to get the deal over the line based off their higher valuation. What we really should have done is approach a good mortgage broker. They have access to multiple lenders and know their policies. They would have been aware who would give a favorable valuation and who would have suited our circumstances better. We've since done this for future purchases and has been a 'game changer'.

Tip: Use a good mortgage broker. They aren't bound by limited products like a bank is when approaching them directly. They can "val shop" by getting the best possible valuations and find a suitable loan product. Their costs are essentially free - fees are built into the loan and a good one will find discounts well beyond this cost.

Emotions

We certainly had FOMO (fear of missing out). We had seen the previous block we were interested in sell and property was moving all over the region. We got emotionally attached to the block and the view and rushed some decisions. Of course you need to be decisive and move quickly in most situations but this shouldn't be at the expense of due diligence. If I'd known the vendor's motivations and the difficulties regarding building in a bushfire zone I would have negotiated harder. We chased shiny new with our build too. There were certainly things we could have gone without to save some money. We did however make some decent decisions when we didn't let emotions get in the way of suburb selection. At the time Toronto had a pretty bad rap. Most people targeting vacant land went straight to the fringe estates that were overpriced and oversupplied. Many questioned us when we began looking at infill blocks there but we recognised that supply was limited. The area was well established. Since purchasing we have enjoyed solid capital growth whilst the suburb has slowly morphed into somewhere a little more desirable. Sure there are still issues with the area, but by us seeing the place for what it was we were left with a property much closer to the CBD, infrastructure, amenities and waterfront.

Tip: Don't rush. There is always another property. Do your due-diligence and take your time.

Tip: Remain unemotional. Do your numbers and offer what is fair and reasonable. Try to avoid desperation and be prepared to walk away.

Tip: Look at the suburb for what it is. Location, infrastructure and amenities don't really change. Demographics over time do. If there are good underlying fundamentals to the area then it will become desirable. Build it and they will come.

Remember- You will never fully avoid these mistakes. The aim is just to minimise them. Life is all about making decisions/choices and sticking to them. But you must be able to look back and identify these in order to move forward and improve.

Property is an extremely forgiving asset. The best decision we made was to HOLD. There were numerous times we thought to sell but remained determine and stuck with our plan. I backed that property value increases long term. Even with all these "mistakes" the positives still outweighed the negatives and we have enjoyed substantial growth over time. Focus on "good" not "perfect".

- The Tattooed Investor

Our first property!