Do you always make money when you sell your home? The answer is no.
While it is a common myth that property will always increase in value, that is simply not the case as more home owners and investors are discovering recently. According to CoreLogic, the portion of loss-making short-term sales (held less than two years) increased to 9.7% during the June quarter, up from just 2.7% a year ago.
The median loss from a sale per property was $39,982. But, rest assured, the vast majority of home owners did make a profit, with the median gain from resale being $290,000 and a total profit was $25.8 billion.
Investors bore the brunt of the loss, as only 88.3% saw profitability on resale, compared to 96.3% of owner occupiers.
Why the increase?
The big increase in loss making sales can be put down to:
1) Rapidly increasing interest rates from historic lows during pandemic. The RBA dropping rates to .1% in November 2020 and increased them by 4% since. The average mortgage has increased by $1,250/month – that’s $15,000 out of your annual salary.
2) House values are increasing since the recovery trend started in March this year, but in many places are yet to rebound fully. The record low rates drove up property prices as buyers looked to capitalise, but equally the prices dropped once rates started going up. If an owner needs to sell due to mortgage stress, then recovering the full value of the property may have been difficult.
3) If buyers are coming off very low fixed rates onto the higher variable rates, there hasn’t been the time to adjust to the increases. So rather than make any changes to their incomes or lifestyle, they have made the decision to sell.
Property is a long term investment
The first point to make is to remember that property, whether it be an owner-occupied home or investment property, is a long-term investment. Unless you’re particularly skilled or experienced at buying and selling property and know exactly what to look for, then selling within 2-years is not recommended. One caveat may be where you’re completing a ‘renovation rescue’ and ‘flipping’ the property for a sale. Then you will be expected to invest a lot of time, effort and money into a property before selling in a short time frame.
Do your research
Go to auctions and open for inspections in the area prior to buying. Review the sales of properties in the area. You can also obtain specific property reports on the address as well. Talk to many agents to understand the dynamics at auctions and what the likelihood is of the property being sold significantly over the advertised price or conversely, will the vendor be open to offers prior to auctions. Importantly, have a budget and stick to it when making an offer or bidding at an auction.
Use experts
You can also engage buyer’s agents to find the property for you. While they do come at a cost, they can often help find you a better property. If you are an investor, there are property investment specialists who really on data and search Australia-wide for properties likely to provide the highest growth and yields.
Also note that, while lenders will often go to 95% LVR on a home with LMI, and there are grants available for first home buyers with only 5% deposit, this means that you may be stuck still owing money on a property if you have to sell at a loss. It is always best to have a loan lower than 80% LVR.
Many lenders have reduced their buffers as low as 1% for a straight refinance, so before you sell, you may want check in with me. I can review your finances to see if I can find you a better loan so that you can keep your property.