08 Oct Under the Hammer: Cate Bakos’ Tips to Taking the Win at an Auction
In this week’s episode, we’ve got a special guest, Cate Bakos who’s a buyers agent based out of Melbourne. She started investing at 21 and has been building a portfolio ever since.
In this episode:
- Cate takes us through her journey starting as a real estate agent and then helping people buy.
- Tips on how to buy at an auction.
- Talks us through financing process and the importance of doing your numbers.
- A brilliant tip when buying your first home.
About Cate Bakos
I’ve got a background like a patchwork. I did a science degree and when I first graduated and always loved property. I went into property sales/real estate and learnt about how buyers and vendors think. This felt a bit one-dimensional as I could only sell what I listed. I then got more into investing because I had a keen interest in picking the numbers. After I had my daughter, I decided to do something that would keep me close to the industry but also be a mum, so I went into mortgage broking so that I could work flexibly. Little did I know that it would be so beneficial for my knowledge bank. Looking at properties the banks did or didn’t like, cash flow etc.
Do you have an investing strategy you use personally or what’s the process you use when selecting investment properties?
My strategy is to buy and hold.
A strategy is determined by how you want to go into retirement and what that strategy is. My plan is to enable all properties to pay themselves down slowly. I have a blend of cash flow and high capital growth. For those who start later or those who go aggressively into capital growth strategy, they may have a different strategy.
The most important thing for me is to profile someone when they start their investment journey and to understand the cash flow at hand.
There are lots of different models out there but I’m always open about what I do.
With the changes between banks and how they’re looking at investment debt – has your view changed on how people should look at managing their debt?
It hasn’t really changed how I feel about debt, but it has changed how I feel about how people approach things. Three years ago you could pay the same interest rate on an interest-only investment loan and borrow 95% and in some cases more, so the category and segment of the market who has experienced significant changes are first-time property investors. Rentvesting has got a lot of airplay and there are a lot of success stories out there but it’s not as easy of an option these days because of policy changes.
My appreciation is towards those whose journeys have had to mould around these changes, and this is a prominent part of my conversations with people now.
These days I still have a conversation about how much people can borrow but in almost every case people can borrow more than what the lenders give them but they have to think about how they can get their hands on money because it is harder.
A lot of recent first home buyers probably wouldn’t appreciate interest rates going up, how do you model that looking long term?
I am very open with them that when I first started 7.25% was the average so being prepared for 9% was something I had to factor into my strategy. Having said that it is at a record low and I don’t see us getting us back to 9% in a hurry. Lending is all calculated now with a buffer in place and it’s around 7.5% that people are serviced on, so with a servicing number like that it means the banks are buffering for interest rates to hit that level and they’re factoring in P&I.
If someone has held a 5-year interest only on a 25-year loan term they’re calculating those repayments. I’m not an economist and I don’t have a crystal ball though!
What are some tips you have on the buy-in and ways to approach it? A lot of people get emotional and attached so how do you help people remove that?
Depending on whether I’m looking for a home or investment property I have a different hat for each one. I have to help people identify their criteria if it’s a home, the most difficult thing is being realistic and not getting hung up on the nice to haves and sticking to the must-haves.
They need to make sure the budgets they’re working with are achievable and if they get that wrong they can be searching for over a year.
For an investor, it’s important to not let your emotional home buyer hat come down when you’re out there looking for something that just needs to perform. Identify what sort of performance you’re after and understanding the outgoings with each property. Too often I see people looking at properties they’d be prepared to live in but it doesn’t matter what you want. You don’t have to love it you just have to be proud of it.
What are some rules for bidding at auction?
- Make sure your finance is sorted – that doesn’t mean having an indicative preapproval over the phone or being confident you saved enough covers it. You need to make sure you fit into the lender’s policy. There’s no cooling off when that hammer falls.
- It doesn’t just go for financing the property its also paying that deposit. If you’ve got any doubt around that it needs to be sorted prior.
- Knowing your market – if you’re out there bidding on a particular type of property in a given area, you’re trying to buy into a market where you’re just following the lead with the agent’s quote ranges. You may find you’re disappointed because you need to do more than rely on the quote range.
- It’s up to buyers to understand the type of dwelling in the given area is selling at. If you’re miles off the mark you’ll waste all of the due diligence. Understand what sort of expenses could come up.
- Making sure you get a legal professional review – there are often things a solicitor or conveyancer will identify on the contract for you. We won’t bid without one of those completed, I say, no review, no bid.
- Building inspections – a lot of people are unsure about these. It’s a difficult question because personally when it looks like a rock solid property, I want to know a bit about it so I’m prepared for any future issues and any deal breaker issues.
- In the metro areas its less common to use building inspections for negotiation, like in Melbourne its hard to push back with a building inspection under your arm. But it is a reality check and can enable you to have some leverage in the regional markets.
- Finding out more about the campaign – this is relevant with auctions because you need to prepare for the competition you could face. It’s not about preparing just the figure, you need to be successful about finding out what appeals to the vendor. You can shift the focus from money to terms if you understand a bit about it. Know what sort of other properties are on the market at the moment that are similar.
- There’s a lot of gold in asking an agent about the campaign. They’re generally friendly who will talk to you if you ask them. Having this information could be critical in getting a better deal.
- Setting your limit – it’s a good idea to keep you honest to yourself and stop you paying too much, but it’s about having a firm stretch limit and being a tactical bidder. So once a figure is in your head, you can read body language and bid really firmly as opposed to scrambling around thinking about price. It does make you a more effective bidder if you’ve already done that background work.
To finish off what’s your number one tip for buying your first property?
I think that people get carried away with their first property and they worry it won’t serve them well when they have children – do their three kids get a bedroom each? Thinking beyond it being your forever home and treating it as your first property and a stepping stone is really vital. I remember years ago getting excited about living in Hobart, and I projected that I’d be there, but I learnt its hard to predict where your life will be further than 3 years down the track so if you’re buying for 10 years time it can be hard. Buy for now, don’t buy something you need to flip in 12 month’s time but buy something you’ll enjoy now.
How can our listeners find you?
On my website – Catebakos.com.au
- Building inspection – this is something that people skimp on, but it’s really worth it because it can cost you thousands in the long run.
- Finding out about the campaign – those insights can give you a leg up. Know your enemy.
- Setting that firm stretch limit at the auction, set that hard upper limit otherwise you’ll end up overspending, this removes the emotion.
- When buying your first home, just look for the next three years. You don’t need to be looking beyond that.