Steves Homework – A Room with a Great View

Room with a Great View

Steve issued homework, maybe as a challenge, to motivate me away from my warm cosy room to get on with the job I know I want to do.   But the idea of facing wintery weather was crazy.    So an easier way of kicking off the process was a search of a 100 properties or more in the local papers.

I was reading a book recently which I recall said any property near a Golf Course would be a sure fire capital growth property and to go for it. .   Lo and behold I found an add for a property with a beautiful view, next to a Golf Course.  I never see adds for properties near Golf Courses. This was a co-incidence that needed investation.   I imagined family lunches on the terrace overlooking the golf course with beautiful rolling green pastures trimmed with tall swaying trees for as far as the eye could see.    Perfect for the family I could rent to.   Auction $500,000 plus and maybe my depreciation allowance could allow me to break even and all that lovely capital growth.   N o!!!  Wait a minute, its a flat market, so it couldn’t go for that price.

I drove to the neat 4 bedroom brick house on the very top of a hill in the eastern suburbs.  Yes its a nice house, but wait, I know there is a golf course somewhere around here, but where?    A view, well yes there is a view, but only if you stand on the front nature strip where you could see the roofs of other houses down the street.  But nowhere could I see the golf course.   I inspected the house, very neat and clean, but the kitchen, bathroom and laundry areas were so so very very small.  Hmm not quite what I expected.   ‘Well there’ I thought, ‘Sometimes when things are not quite as they are advertised, the price might not be reached, expecially in this flat market.

The auction began, and it was exciting.   Lots of onlookers attended and there were pockets of quite talking.   There was a low frequency buzz around.    I thought everyone else may be thinking the same thing as I was – a cheap buy.    The auctioneer started but could not get a bid.   Well I got excited.  I might even bid here.

After the usual 10 minutes of talk fest and prompting the audience, the Agent put in a vendor bid at $500K.    Then there was one bid.   $510K   then nothing for a while.    I was right, this might be a good buy.   So I started to get a little excited.    Then the Agent put in a second Vendor Bid  $520,000.    Then no bids.    I was right.  I knew it.   I should put in a bid now because this will go for lower than the asking price.    Then the Agent said the property ‘is on the market’.     No bids.     Suddenly, while the Agent was espousing the views, 2 bidders started a WAR.      Up in $10k hits.  I could not believe it.   Emotions started to run a little higher than when the auction had began.    It hit $550k, and settled down to raises of $2500.    One bidder tried to keep the pace nice and steady, but one attempted repeated knock out bids at $560K, $570K, and at $580K was successful.  Silence, all done, all done for the 2^nd time.   Well it was all over… ..I thought.      Shock horror, more excitement, a new bidder arrives on the scene.    The bidding went up in $5ks to $605K  with some knock out bids before both bidders tried to settle things down with  $1K bids.   Then a knockout bid of $620k brought the all done to its 3^rd and final knock down of hammer.

I could not believe it.  I would have had no hope of buying this property.   The house was smaller than I expected, and no special features to speak of and with only 3 bidders went for $120,000-00 more than advertised.    I was emotional and the purchaser was ecstatic with a broad smile across his face.    I was not right, I misread the possible outcome and was gobsmacked. 

The lessons well learned from this day forward;

– don’t always believe what the advert states (the great view was not as implied),

– make your own assessment of the property,

– do your homework, and inspect before the auction if you intend to bid,

– the market in this area is obviously not flat,  as the newspapers are telling us

– know the area, be aware that the market fluctuates differently in different areas,

– never buy at auction unless you can leave your emotions at home on the day (I am a failure at this),  and

– as Steve always says, rely on the numbers and you can’t get caught (if you can’t make the numbers work for you, then don’t buy it)