Albert Einstein said, ‘It’s not that I am so smart, it’s just that I stay with the problem longer.’ Although I didn’t think I had a problem with my options, it really took me a long time to decide which property we should buy. Quite often I am the one who rushes to buy. Serina takes a more cautious approach towards property investment. She is the “brake” when I get too excited with investment opportunities, which works well as a team most of the time.
Among the three properties I picked (in the last post), I was tasked (By who? Three guesses… ) to do a ‘pro and con list’ for each of them. It helps to think through which property is worth buying. Although we are still able to borrow an additional $950K , we decided not to pursue the house at Canberra’s inner north suburb. It certainly has the potential capital gain in the future (walking distance to City centre and Australian National University). However the rental income will not be that fantastic, which means we will need to put in quite a lot to cover the mortgage repayment and other cost. It might be a good strategy for tax reduction. Our property next door has been functioning exactly the same way for us since we bought it in 2007. Can we afford another one in our portfolio? Yes, but we will seriously stretch ourselves if we do it. We are ‘comfortable’ with our debt at the moment (I know, it sounds weird. I guess what I mean is at the moment we are still comfortably paying extra into our home loan account to reduce the home loan of our prime residence. With time the ‘extra’ will build up, we will then redraw the amount we need as deposit for our next purchase). Most importantly, at that time Serina was pregnant, additional stress was probably the last thing she need. So, again I followed the “Happy wife, happy life” principle, and crossed this property off the list.
The second property, a house located at Canberra inner south suburb let to a business, also got taken off the list. Why? I was not convinced the return will stay the same if the current tenant (the business) decided to move out. How do I know? I rang our Property Manager to ask her to give us an appraisal on that property. In addition, I searched some similar rental properties in the same suburb, which gave me a rough idea on the rent it can probably achieve. The appraisal show a lower rent which matches my own research. As our aim in property investment is to create a steady income stream, I don’t think this property will help.
It’s really hard to keep myself out of the emotion with these potentially good deals. To be honest, I “fell in love” with the first property when the price was reduced. It doesn’t happen to me that often now, but sometime I just couldn’t help myself. Some property investor once said, ‘It’s dangerous to look at the photos of the properties. You might fall in love with them. Remember- You are not the one who is going to live there. Therefore whether you like it or not is not important’. Well, this time around I didn’t fall in love with the property just because I like some of the features shown in the photos. In fact, the photos were not that attractive. It’s the little voice kept coming to me saying some thing like, “imagine what you can do with these two adjacent block of land in the future”, “how many years you will have to wait until it comes up on the market again”, “this might be a once in a lifetime opportunity Sam don’t miss it”, … etc. Thanks to the ‘pro and con list’ and the due diligence exercises. They pull me straight back to the reality.
There was only one, the two bed room unit in Belconnen area, left on the list, so I started negotiating the price ($280K)with the agent. As usual, one of the first few questions I asked the agent was ‘why the vendor wants to sell it’. I learnt from experiences there are two kind of answers I would get from the agent. An honest answer or a not so honest one. But if I don’t ask the question, I lose the 50% chance to get the honest answer. The answer to my question this time was ‘the elderly couple is retiring and wants to off load their investment properties’. This helped me in deciding what my initial offer should be.
After some negotiation, our offer was accepted. We bought it for $270k. Done deal.