By Victor Kumar
There is no such thing as a perfect property.
Far too many novice investors spend all their time looking for that rare jewel – that probably doesn’t exist, or they simply don’t have the networks or expertise to find it.
The truth of the matter is that investment properties often have issues, but it’s your ability to recognise potential that’s the most vital ingredient.
In a series of blogs over the next few months, I’d like to talk about some factors that are hard to physically see but can make all the difference between a good and a bad investment decision.
In short, you don’t buy into a problem you can’t solve, or one that you can’t live with.
That’s because that issue will always create a drag on a property’s value.
This is especially the case for the future person you will sell to, because if they are likely to also find the issue a turnoff, well, the price will be depressed – and so will you!
First up are easements, which can be benign or big future problems in my opinion.
So, let’s consider the different types of easements because some are not worth worrying about, while others should motivate you to walk away immediately.
Easy come, easy go
Sewer easements are usually located on or near the back fence of a property, which is the perfect spot because you can’t usually build that close to a boundary anyway, so you can live with that easily.
Another one that is nothing to worry about are any easements that run along a fence-line because, also, you technically can’t build there either.
In fact, you’re not supposed to build anything on top of these types of easements, but many people do.
They may construct a garden shed, for example, but they have made peace with demolishing it if access to the services is ever required.
Another easement that is not too concerning is if a property has an overland flow classification, which just means that water might run down the yard or down the slope of the block.
However, if you ever wanted to build on that site you might need to do so on stumps or above the overland flowline.
Power line easements, on the other hand, are ones that I would definitely stay away from.
That’s because it could mean that there may be high tension power lines being installed close to the property at some point, or are already there (it pays to physically inspect the property, as often these may not be readily evident from the photos on the internet advertisement).
Another easement that should be a no-go zone is where a property is subject to future road widening, where a significant portion of the land is impacted.
Now, that may not happen for decades, or at all, but it will always pull down the sale price, plus the development potential will always be limited.
Easements that run diagonally across a property are clearly ones to give a very wide berth as well, unless you can find a way around it.
There is another issue, that isn’t an easement as such but is a big red flag, which is the green electrical box or transformer, because the jury is still out on its potential health impacts.
Right of carriageway is another easement that I would stay away from, because it guarantees access to your land via a defined carriage way, probably for your neighbour. This means you can’t use that land yourself for anything else.
Building envelope easements can also be a concern.
While these are more common in acreage and rural areas, these easements mean you may only be allowed to build on a tiny percentage of the land as that is the only part that has been deemed residential.
Some new subdivisions also have wildlife easements, such as for koalas, which means you will likely have development restrictions on your parcel of land.
One of the issues with easements is that buyers often don’t find out about them until it’s too late.
That is, it is usually your solicitor who completes the relevant council searches on a property – after the contract is unconditional.
Such a timeframe is clearly not in your favour, because you can’t withdraw from a contract just because you hadn’t done enough of your own research.
In Australia, it is buyer beware – notwithstanding serious issues that should be disclosed as material facts by the selling agent during the campaign… as long as the vendor has told them about them, of course.
Easements are not serious issues on the whole.
However, they can make a big difference to the potential profitability of a property because of the various building limitations often associated with them.
The smartest investors ensure they have all relevant information about a property well before they make an offer – or they work with an expert who can easily access it and review it on their behalf.