Hi all, i am quite new to property investing and would like to enquire whether there are certain strategies or techniques for submitting offers for an IP that interests you.
For example, if a +ve geared property has an asking price of 100k and the rental was at 10k per annum. What would be the price that i would offer in order for the vendor to seriously consider it.
Also there is really nothing stopping the vendor from misleading you by saying that he has received offers far higher than the one you are offering, and since the property has a solid yield you may be tempted to go higher than what was really necessary.
All responses will be greatly appreciated. Thank you.
Establish what comparables prices are being achieved for similar properties – both purchsse price and rentals. With that information and based on your finances and what you can afford to pay, it doesn’t matter what the agent says.
If you decide that (before costs) you will pay $90k for example, don’t concern yourself about the bluff game that an agent may or may not play.
Give yourself some room to move in the negotiations. Different states will have different rules about submitting offers. ie $1000 deposit at the time of offer or just verbal offer.
Rest assured, if they do say there is someone else interested in paying more and its beyond you. Ask what else they might have in your specific price range. If they don’t, give them a card and tell them to call you when they have something because you are ready to purchase for the right property.
James
Some agents will say they have offers on a property to try and get u to submit a higher offer.Just go with what u feel is right.They will try every trick in the book to get more money
Russ.
Firstly, Pretty much anything the agent tells you will be a lie so ignore it.
Secondly, What you have to do is gain the upper hand and put them under pressure. If you put an offer on the place make sure you put a drop dead time frame on the offer i.e. say that unless they come back to you within 6 hours you will not deal. Otherwise they will hold your bid and see if a better one comes along…you need to stop them from using you as a backstop.
Talk tuff with the agent and he will go and work on the seller to get them across the line and leave you in peace.
All they want to do is get the place sold, if they see that you are firm on your price and prepared to hold tuff they will go and sweet talk the seller into dropping their price.
Whilst agents technically represent their sellers. At the end of the day in terms of commission – a few extra thousand dollars on the price will not be significant in terns of extra commission. An agent will help you the buyer (as much as the seller) if they can see you are serious and want to buy.
The agent will prefer the certainty of a sale at a slightly reduced price than the prospect of losing the sale and marginally increased commission to them. They will work their ‘magic’ with the seller for you!!
James
I always put offer very low. But depending on area you have to consider the price. Negotiation is a key point in real estate. I have seen offer being accepted at $50k when price was $75k or more. You have ask about the owner as much information you can ask from real estate agent before putting an offer. All depends on area, vendor and real estate agent (very important factor).
Cheers
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PropertyGuRu
[sultan]Put in an offer in writing and staple it with a cheque (say $1000 for deposit), but make sure your written offer are subject to refund of the deposit if the offer not accepted.
Kind regards
Chan Dollars
[Retire Young, Retire Rich] [strum]Thank you all for your helpful responses. However i am wondering, what if the IP is in a remote location, such as some town interstate or in certain cases other countries such as NZ? At what point in time throughout the negotiation process does it become necessary for you to actually go there and inspect the property for yourself?
Also, with regards to certain questions one has to ask about the area, apart from prices of nearby comparable properties, rental growth, population, are there any other important information to gather?
Thank you very much.
Hi John,
> other countries such as NZ? At what point in time throughout the negotiation
> process does it become necessary for you to actually go there and inspect the
> property for yourself?I used to schlepp around and look at zillions of properties, but in the end the perfectly tidy little old lady owner occupied one I loved turned out to be structurally crap after I had a builder’s report done (and it didn’t look it at ALL!!!)
Conversely the ones I’ve bought have looked that crap on the surface, (i redecorated) but turned out to be structurally sound super-solid after building inspection.
So i make offers based on pictures and numbers, subject to satisfactory LIM report, builder’s report, and a bunch of other things such as tenant due diligence within 10 working days.
When the offer is accepted my lawyer does title search, the building inspector checks council, code compliance of fireplaces, garages, extensions, and does the BR, and if it’s all good then I go unconditional and proceed on to settlement a few weeks later. often in that time between settling you can gain access to do your thing to it so by the time it settles it’s ready for a tenant.
> Also, with regards to certain questions one has to ask about the area,
You can ring the local police and say i’m a property investor interested in this house in this street. Any problems in that area? Where do the gang members live in this town? What’s the worst area? How bad is it?
you can also ask a rental manager not associated with the agency selling you the property if they would manage it for you and how much it would rent for. they go and look at it for you. often for free to try and get your business. Once, the rental agent said ‘we wouldn’t touch that house, we’ve had nothing but trouble there.’ So obviously I didn’t get that one!
basically if you don’t live there you rely on other people to give you the info about what’s the neighbourhood like?
i would also suggest using a local lawyer to do the conveyancing. The more on the spot locals you have on your team to chat to you, the better.
>apart
> from prices of nearby comparable properties,I do a fancy ratio calculation so I know what to offer in a town I don’t know. i get a print out of recent sales in the area back about 6 months in the price-range. on the sheet it has the address of the property, the government valuation and the sale price. there should be a pattern to the relationship between the Gv and the sale price. So you work out an average ratio for the area at the time, and make your offer based on that, the yield, and the list price. But it will enable you to spot the good deals more easily. For example if in one town you find the trend is that properties in the price range 50-80K sell at approx. 120 percent of GV and then you find one selling under GV, it’s probably a bargain (or trashed! hehe!)
>rental growth,
Yep – there’s a lot of movement in NZ small towns at the moment, I know a town with 3500 people with two Rental agencies on the main street, one with a ‘sever shortage of rental properties’ and the other with a waiting list of 70 people.
Vacancy rate in one of the office was 8 properties out of 300 they manage ‘and they’re all shockers’.
this coincidentally (not!) happens to be where i have some properties and also where I bird-dog for others.
>agentpopulation, are
> there any other important information to gather?Don’t be scared of declining population, up to 1 percent a year. Worldwide the population is increasing, and as air travel gets cheaper and more common, people can’t help but spread out. Auckland gets crowded, and more people decide they might get a little weekender in the country 2 hours away, and then decide they like it and retire there. Hmm, funnily enough, it’s already happening. the cafes and lavender farms are going in like mad.
cheers-
miniJohn,
A 10% yield on a 100k property is not too bad [thumbsupanim] but you also say the property is “remote”. By that, do you mean it is 10km’s to the nearest shop? Or do you mean the town itself is remote from a capital city? Basically, ya wanna think about how big the town is, if there is any industry there, any plans of infrastructure happening, etc. This can be found on the council plan, which you can find on the net. You won’t be getting 200 bucks a week if the bank is closing down and your tenant works for the bank. But some mining towns- considered perhaps to be “remote” have almost guaranteed tenancy- IF the mine is still active; and some more outback towns have a steady flow of itinerant workers- teachers and nurses etc, who wouldn’t buy up in the town, and whose employers pay subsidised rents. “Remote” in the days of the RE boom is different to “remote” in the olden days
)RE you making an offer… If you really WANT the place, and you think it’s a good deal, you might have to pay for it, because if not, there will be someone else behind you ready to take it. I think it’s all about establishing a relatoinship with your RE agent. My experience of RE agents is that generally, they’re ok people, and as they’re working for the vendor, of course they want to achieve maximum price. “Lowballing” might work when you have a range of properties, and you don’t really care one way or another if you get the IP or not, but if you REALLY want the place, then let the agent know you’re serious. That’s a part of the negotiation- the relationship part- and can’t be underestimated, in my opinion.
kay henry
Ultimately one should buy with one’s brain, not with one’s heart.
Decide the maximum the property is worth to you and stick to that limit.
There are plenty of other fish in the sea.
However, if the property is for one’s own use I would be prepared to pay a little more than what I would otherwise (provided the property was unique in some way).
Techniques ?
Start off low, never give your best price immediately as the vendor’s ‘greediness’ factor may come into play and you may miss out altogether.
So start off low. Say $ 80,000 and thence, if offer is rejected, increase to say $ 85,000.
If rejected then the next offer should be say
$ 87,000 (notice the increase is getting smaller ?).Thence $ 88,000.
Thence $ 88,500.
Thus the vendor gets the message that you have reached your limit (as your increases have become less and less) and the ball will then be in the vendor’s court to decide to either accept the offer or run the risk of losing you as a buyer.
Does anyone disagree with the above ?
Pisces
Good strategy Pisces..[thumbsupanim] Thumbs up from me for negotiating
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
kay,
Dolf de Roos says, fall in love with the deal, not the property.
Also, a low-ball is not a low-ball if it’s accepted. but how do you know unless you ask?
Mini
The theory of “lowballing” can make sense if there aren’t a number of people bidding for the property. But looking at john’s example of the property he is interested in, I am wondering if someone offers $85k and another person offers 95K, the property will be sold- accepted at 95k- and if john wants the property, he’ll miss out. I just think there are usually a few people placing offers in the market and one wants to be in with a chance. We are not bidding by ourselves- there’s others out there who would want a 100k property at 10% too.
And it doesn’t matter to me what Rolf de Roos says- I do love the properties I own- and that’s ok, isn’t it? We’re all different people. I seldom subscribe to the script of others- it’s not like it’s a bad thing to love my properties!
kay henry
There is nothing wrong with submitting an offer way below the asking price. I usually try and find out from the agent what he thinks the vendor will take. If he says it probably isn’t negotiable, and it it is not overpriced, then I will seriously consider offering the asking price. Some properties have been priced to sell (ie. at the vendors bottom price) and it is pointless trying to negotiate if they HAVE to get a certain amount for the proerty. On the other hand, if I think it is overpriced, I have no problem low balling below even market price. It leaves you with room to negotiate up to what you are comfortable with.
I am negotiating on two at the moment. One I asked the agent(I know the agent pretty well and he will not mislead me) what the vendor would accept and offered that. I knew what the place was worth and was sure that the vendor and the agent would be happy with the price. It fits right into my portfolio perfectly with a 16% yield.
The other property I am still negotiating on and is a completely different story. The vendor wants much more than I am prepared to pay. The property is not in a good condition and is untenanted (it needs up to $10K of work to get it into a tenantable position). I have offered much lower than I know she wants as I know how much it will cost to fix. As there is no other people that are that interested in the property I am happy to hold out. I have budged only $1000 in three weeks and that was only after she budged first. If I don’t get the property it will only be if someone pays more than I am prepared too. As I have worked out the figures, I know what I can go to to make it +veCF. If I miss out, so be it – but I won’t increase my offer.
I guess what I am trying to say is offering on a property is not an exact science. There are so many factors to consider. If you think that the property is worth the asking price, don’t baulk at offering asking price because you can be darn sure someone else will. On the other hand, if it is clearly not worth it, submit what you are comfortable with leaving room for some negotiation.
If you have done sufficient homework on the area, you know what it’s worth. If you miss out – don’t concern yourself too much. It just means someone has paid too much for the property.
‘Eat rich food, barbeque a yuppie’ [greedy]
I agree 100% with rugbyfan (except about rugby of course [biggrin] )
>> I am wondering if someone offers $85k and another person offers 95K, the property will be sold- accepted at 95k- and if john wants the property, he’ll miss out.<<
So what is so wrong about missing out, Kay ?
One cannot win them all and missing out is the price one has to pay if one wants to buy some properties at a good price.After all, not buying a particular property isn’t the end of the world.
There are so many fish in the seas that it isn’t funny. Only a ‘lack consciousness’ would cause one to be so anxious that one just falls into line with someone else’s idea of value.
Now, if we were talking about selling rather than buying I would think differently i.e. I would sell and not necessarily hold out for the best price.
Pisces
I have to like a property I think, wondering if this is a woman thing? not being sexist or anything.
I guess I would like to think that if I was renting it what would I be looking for? and it wouldnt be a dog kennel, so I tend to think this way when looking to buy, maybe not a good stratgey but its mine and I am ok with this.
As for missing out, I agree with Kay, you can miss out for playing the game a little hard, I guess I would add though, that if this is the case, you either werent meant to have it, or the other person was!
Alternatively, get a real grip and be realistic, or you might keep missing out. But then again you might be the lucky one and get a bargain! Only you can be the real judge, if you dont put in an offer you may never know….
Elves
Elves,
The last IP I bought, I had seen a few other similar ones for sale previously and tracked down anyone who might know if another was coming up. When this one did, I bought it and see it as very much a potential retirement home- of course I am going to love a place I might retire to, but for now, it’s an IP.
I am thinking the next few IP’s I buy will have the same focus in mind- possible retirement places- then I’ll have a choice as I gain greater years :o)
I know people who breed border collies- and they love those too. They always ensure they find out a lot about potential owners to make sure the doggies have a good home.
I think it’s quite healthy to enjoy the fruits of one’s labour. I know some guys who feel pretty much the same about their own IP’s- depends really on each person I guess.
kay henry
I don’t know your investment strategy Elves but I am guessing it doesn’t include too much under $200,000 (if you are in Syd or Mel). If you are only looking at things you like, you won’t get much positive cf property. But maybe that is your strategy. We have two higher priced properties bought for CG and both are very nice new apartments (or were when we bought them). We were looking for things that we liked too.
Now I believe that I am providing housing for a different market therefore what I like and what I am providing are two totally different things.
‘Eat rich food, barbeque a yuppie’ [greedy]
Thanks Kay & Rugby
I bought for the capital gains……not for the tax man though![biggrin]
I bought for being new
I bought for self management
I bought for being mananged
I bought for the lower price Under 150k
I bought to help me get a property portfolio that was bringing in the income
I bought for the looks and feel and the new buildings that wouldnt cost me anything for a few years *hopefully*
I bought to fund my retirement
and eventually I will do what Kay does and buy for the place to live type….cheers and thanks
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