Getting settled

Each week during Spring property season, Money's team of experts will come up with strategies for getting the best result - both before and after the hammer falls.

Don't be pressured

Fuelled by record-low interest rates and lack of supply, residential real estate markets are running hot, particularly in Sydney. Auction clearance rates have hit 90 per cent in Sydney and 80 per cent in Melbourne with prices in Sydney up by more than 5 per cent and up by about 3.5 per cent in Melbourne over the past three months.

Investor activity is 30 per cent higher than a year ago, says Robert Mellor, the managing director of BIS Shrapnel. But there is no need for would-be home owners to rush into the market, says Shane Oliver, the chief economist at AMP Capital Investors.

House prices more than doubled in real terms between 1996 and 2003. And although prices have been fairly steady over most of the past 10 years, our house prices are high by world standards.

Oliver says the potential for house prices to go much higher is limited. He says prices could keep rising for the rest of this year and into next, but could be flat or fall in 2015 and 2016. Meanwhile, there would be steady growth in incomes and another opportunity to get into the market, he says. Another problem of being in the market when competition for properties is intense is that buyers make mistakes.

"They end up in a house that is really their second or third choice," Oliver says. He says there can be better opportunities when the market is quieter.

Louis Christopher, the managing director of specialist property researcher SQM Research, is more bullish on house prices than most commentators. He says the Reserve Bank is not likely to lift interest rates soon because of concern about the high Australian dollar.

The probability of continuing rapid rises in real estate prices is quite high, at least into next year, he says. But it is not a good strategy to try to time the market, he says. He does not believe that house prices follow too much of a pattern or cycle. It is just too hard to try and forecast property prices too far out, he says. John Collett

And don't stretch

Location is the golden rule of real estate, but so is buying within your means.

The days are gone when you could over-commit yourself to buying a property and it would all come good in the end because of soaring values.

Rather than aim for your dream home from the get-go, you'll almost certainly have to lower your sights initially.

Find out how much firepower you have before you look for a home - have your mortgage pre-approved so you know where you stand and how much it's going to cost to service it.

"My advice to first home buyers is: this is your first home, not your last. Buy within your means and use it as a stepping stone," says Kevin Lee of Smart Property Adviser.

Buying a new home on the outer fringe might get you a government grant but "a big mortgage and a one or two-hour commute is no way to start a marriage," Lee says.

If the home you're interested in costs $100,000 to $200,000 more than you can afford, which is more than likely, then "go two or three suburbs away from there. It will slowly catch up in value," says property buying agent, Peter Kelaher of PK Property Search and Negotiators.

Also choose a place that will accommodate your needs for at least five years because you don't want to be up for the wasted cost of stamp duty and conveyancing.

But an increasingly popular strategy, also the most sensible from an economic point of view, is entering the property market through the back door, so to speak.

Instead of a home to live in, buy an investment property to let out. That way you can build equity - especially if you can live somewhere with a cheaper rent in the meantime - making it easier to buy what you want later.

But buying an investment property requires a different approach.

"Take a pad, pen and calculator with you," Lee says.

The key consideration is choosing somewhere with above average population growth so there are more employment opportunities which will increase the pool of potential tenants.

Then look at its proximity to public transport, shops, parks and leisure facilities.

Avoid buying too far out or in low socio-economic areas. They'll be cheaper but it will be harder to get any rental growth.

"My best property investments have been two-bedroom units. They're never empty and what damage can be done?" Lee says.

David Potts



Get organised, do research before bidding

Hammer time

One of the most nerve-racking things you can do is bid at an auction, especially if you don't trust yourself to stay under your preset budget.

That's why doing the groundwork is essential. Before bidding you should

organise building and pest inspections.

It can also pay to speak to local real estate agents to get the good oil on the area and any potential problems.

"Remember to keep a cool head when bidding, or better yet, have a buyer's agent do it for you, because they will know when you're overpaying for the property and won't go over what you can afford," says Michelle Hutchison, of finder.com.au.

You should also go to a few other

auctions to get a feel for the pressure.

If the auctioneer says, "We're selling today", ask, "Has the reserve been

met?" says Patrick Bright, of EPS

Property Search.David Potts