Am just reading ‘How to CReate INcome for Life’ and note that Margaret Lomas advocates buying properties without visiting them or the area.
I think her argument is that viewing causes people become emotionally attached to the property, and that this clouds investment decisions.
I have yet to buy an investment property, but have been busy reading books, looking at population growth data, talking to estate agents, doing financial calculations, etc. Part of my due diligence is visiting various areas and looking at properties.
Areas so far visited are Dandenong, Noble Park, Preston and Sunshine.
At Noble Park I found that the north side of the railway line was derelict, while the south side was thriving. At Dandenong, it seemed that every second flat was ‘for lease’, so I should be looking seriously at vacancy rates. At Sunshine I noted a concentration of flats, with many for sale. I also noted that pedestrian access to the town centre was poor, being via an unsafe vandalised, burnt bottle-strewn park and derelict railway bridge. This might not be attractive to tenants, and if I could buy a similar priced property elsewhere (eg east of the town centre) then it might be easier to let out and/or get better tenants. On the way back, seeing all the cranes in the city, I would be wary about buying one off the plan right now!
Of course I should not let my inspecting detract from the financial side, that is that even though I toured cheaper areas with better cashflow than the south-east (I’m paying $120pw rent for a 1br unit worth $150k, whereas the properties I looked at would get $120pw for $110-120k), I’d need to pay a large deposit to get cashflow positive. That’s why future trips will be to country areas.
But I think that trips are desirable to see things from a tenants point of view and therefore assess property lettability compared to others (especially in areas with static populations).
Hey Peter,
I alwyas inspect all my purchases. If I did not due this then I would not be completing my due diligence. I thinks Steve has a great system called Buyer Beware which helps sort the wheeat from the chaff. Check out the resource section. I use the templates for purchasing property as it gives me a guide to buying.
I thinkg you are 100% corect that visting is esential to give you the tenants view.Enjoy
AD [:0)]“Carpe diem, quam minimum credula postero.”
Lat., “Seize the day, put no trust in tomorrow.”
-Horace, OdesHey there Peter!
The version I’ve heard advocated is to send out mass lowball offers site unseen with escape clauses and then to just inspect the ones that bite, as it were. The idea being that you only spend your time looking at the bargains. Just be prepared for a bunch of unhappy WTF!^%!&^!!!! phone calls from vendors [
].Quasimodo
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We are all but half formed images of our true potential.
___________________________________________________________________________While there is nothing wrong with this approach of lowballing I hold with the argument that Property is about people. I seek to build relationships with agents and always offer reasonable but aggrsssive offers. I have found this very successful as I get the first call with a few agents who let me know of the bargains and why they feel they are a good purchase. In a sense they actually prequalify the property based on what they know I want. I prefer this approach as it yields me deals that work without any angst.
Enjoy
AD [:0)]“Carpe diem, quam minimum credula postero.”
Lat., “Seize the day, put no trust in tomorrow.”
-Horace, OdesHere’s my 2 cents
I think (without disrespect) that Margret Lomas is refering very generally to a type of property investor in the market place. Being the average mum and dad with some equity to use and a friend said an investment property would be a good idea. They go looking for a place similar to their own … “so if we need to we can move into it”.
Since learning more about PI I have come to learn that professional investors buy without emotion because there is due diligence to be done and they know that it is business.
However, Quasimodo, I think that the low balling strategy you mention is an interesting strategy if it works for you, but I don’t want to have a WTF reputation. I plan to develop working relationships with agents and other contacts that will ultimately enable me to grow my wealth.
Leigh K
“If you will take on your self-doubt and laziness, you will find the door to your freedom.”
-Robert KiyosakiQasimodo
we have similar experience to AD. Make agressive (not ridiculously low) offers and look for the win/win.
we also have agents givning us ‘first call’ now.
the B [
]The B,
Everyone whom I get advice from (i.e. established investors) always state that my first offer should always be at 20% less than market value.
What is your general feeling toward that?
Obviously I am concerned with alienating the Real Estate Agents, i.e. they think I’m a low baller
… But with most of the properties I can find, they only become +ve Cash Flow at about 20% less.So my question really is: Is a 20% less than market value a low ball offer?
Thanks,
PaulPaul asked if ‘is 20% off market value a lowball offer’?
My answer would be yes, if we define ‘market value’ as what similar properties have sold for in the recent past. However if the seller is desperate, they might take it, grateful that they got 80% instead of 0%.
Consider that the seller might have set their asking price depending on what the estate agent told them they would get. They might have even chosen their agent based on who claimed the highest value. This could be well above market value.
The buyer’s due diligence should have uncovered similar sales of previous properties.
I’d rather compare the asking price to what I consider fair value, as gleaned from sales stats. If the property is a good cashflow proposition at what I think is a fair value, I would do everything I can to convince the agent or seller that what they’re asking is excessive. I’d show them the sales stats I’ve gathered, and demonstrate that they are selling for a reasonable price.
However where the asking price is near what my stats say is reasonable, I would be inclined not to quibble much if at all.
However there must still be a large cashflow positive margin in the property for me to be interested at all. If this is the case, paying a few $k and paying a fair average (ie not supercheap) is a small price to pay for getting a property that will do well for me.
But I’m not that agressive[
]; others may be more so, and be more patient in waiting for a cheap property to be advertised, or making heaps of supercheap offers, hoping he’ll eventually find a desperate seller[].Peter
TJ (paul)
I think that you know it is a low ball offer if for a similar house / location / tenancy in the existing market you are comparatively very low in price.
However, irrespective of how low it is; if you have researched accurately the Vendor’s requirements, then a combination of price and terms that seems ‘low’ in comparison to other properties may be the exact soloution that you need. eg they really just want ‘out’ and you are the person there to help them… er… out.
the B [
]Hey Mr Jones,
Had to add 2 cents here. I think that having ot buy 20% off at times is rather pointless. For example a deal I am currently looking at. Duplex (half) for sale – Vendor wants $85K willing to give 3 month settlement. Other side of Duplex sold 9 months ago for $95K. This side is actually better (eastern side, excellent garden)and the values have moved so it could be resold for $105K withour to much trouble. So do I offer 20% of $85K. No I am happy to buy the place for the price and then decide what to do with it.
The other thing here you must realise is that I have a fairly good feel for the market and can see what value the property has. I Also research the recent sales to see what has asold and how much. I do my due diligence. If a house sells for the right price then buy it. I have lost a few deals over the last year trying to be cleverer than I really am.
The other positive is that I get a call from my agent whenever a good deal rolls along. She knows I won’t lowball but will be aggressive. Got a call last Friday about a listing from the Public Trustee that had just come on the market (11am). I got a call about 11.15 to say come on out. I was out there by 1:30 and had a contracton the table agreed to by 3:00. It is this sort of relationship that makes both her and I money. That is a good thing. The list price for the Place was $100K and I offered $95K because I could see the potential. (1/4 acre block , two street frontage, easy subdivision, reno profit worth over $20K). For me to try and bragin harder would have lost me the deal as late that afternoon a backup contract was placed for full price unconditional.
Again not a huge discount but my guess is that I will do very well out of that property when it is worked.
Hope this helps.
Enjoy
AD [:0)]“Carpe diem, quam minimum credula postero.”
Lat., “Seize the day, put no trust in tomorrow.”
-Horace, OdesI have to agree with AD
I wouldn’t advocate lowballing as an automatic “do this and you’ll be right”. More a tool to be used selectively when other options aren’t appropriate. Myself, I’d much rather get in on great terms, an early find that hasn’t gotten major publicity yet, great rapport with the vendor first. If you are looking at a property where you don’t have many other options, this can be a way of getting some added “insurance”.
Quasimodo
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Funny how action has a way of answering all of our fearful questions…
___________________________________________________________________________Hey Guys,
One reason a lot of investors will only buy significantly below MV is so that they can re-finance their deposit out in a short period of time. For example, if my bank will only lend me 80% LVR then if I want to be able to finance out my deposit in a short period of time (in order to keep the ball rolling and purchase another 1) then I must either purchase the property at or below 80% MV, increase the property value through alterations, or wait for the capital growth.
Given the higher LVR’s banks will offer these days, 10% below MV is a much more reasonable (and I would think easier to obtain) figure, as many banks will lend 90-95% LVR.
The investor must also factor in purchasing costs to his calculations.
Cheers, Leigh
].
]
]; others may be more so, and be more patient in waiting for a cheap property to be advertised, or making heaps of supercheap offers, hoping he’ll eventually find a desperate seller[
].
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