23 February, 2018 / Category: News
“Don’t be afraid to catch feels”, Katy Perry croons in the Calvin Harris mega-hit ‘Feels’. Whilst embracing summertime romance (AKA feels) might be fun … catching ‘feels’ when they relate to property investment is most definitely something to avoid.
In this month’s Infolio blog, Director Lauren Staley looks at the cost of purchasing property based on heady emotion, using comedian Dave Hughes’ recent purchase of a luxurious home on The Block as an example of real estate ‘feels’ gone wrong.
We’ve all been there – having walked through a beautiful property that ticks everything on our ‘wish list’, we mentally begin putting our new Coco Republic furniture in place and determine that we’ll pay whatever we must on auction day to make it our own. Even if you’re an investor, it’s still easy to fall prey to the emotions elicited from a freshly-painted, elegantly furnished property – easily losing perspective about an asset’s true value between the blush throw-pillows and Alessi fruit bowl.
Comedian Dave Hughes recently fell prey to some pretty serious property ‘feels’, having paid a premium for Josh and Elyse’s property at a live televised auction as part of popular reality show The Block. Hughes paid $447,000 over reserve under fierce competition, ultimately bidding to secure the property with a bid of $3.067 million. He insisted the 5-bedroom home was a ‘bargain’, but his lender disagreed and valued the property at substantially less than he paid. Whilst the Hughes family will at some point be moving into the property, for now it is being leased – although they’ve had trouble finding tenants for the luxury residence. The funny man is quoted as saying ““For f*ck’s sake … I just think it’s good value and in a few years’ time people are going to be going, ‘Well, f*ck, didn’t he do well with it!’ I am playing the long game, all right? That is what I say to my wife, anyway.” Fortunately, the successful comedian was able to make up the shortfall and settle his new home – but this isn’t always possible for less liquid buyers.
In the event you overpay for a property by deciding you must have it at any cost, you risk a low bank valuation – meaning you may not be able to settle and end up forfeiting your deposit. Few buyers could easily withstand the lost of a full 10 – 15% deposit and afford to get back into the market. This is one of the many reasons why buying ‘blind’ without a knowledge of the market is such a dangerous proposition.
And even if you can afford to pay over the odds and settle a property you’ve caught ‘feels’ for – you’ve purchased poorly. If you need to wait five years or more for the property market to ‘catch up’ to the price you paid – you’ve actually lost five years of potential property value wealth. Buying well is paying under or at market valuation and enjoying steady growth from your investment year-on-year.
According to this article from news.com.au, Hughes’ wife Holly requested that he kept their acquisition on the down low. “If you are going to bid can you please just do it through an advocate so we can keep it private.” Whilst Hughes did use an advocate to bid on his behalf, it is unclear whether the advocate recommended the home in Elsternwick as a good investment.
Maybe it was simply a case of everyone involved developing a case of (seriously expensive) real estate feels.