Mark Forytarz on some ways to find a bargain property
An interesting article over at realestate.com.au ( Full article here: http://www.realestate.com.au/doc/Resources/Invest/property-investment-bargains.htm?rsf=newsletter_rea), below is an estract:
Markets are all about supply and demand, and a property’s value is a fixed figure reflecting a balance of both. Right? Well, mostly yes, but there are ways to push your advantage so that you end up paying less than you may have expected and land a great buy that will fill out your portfolio plus provide plenty of opportunities for dinner party gloating at your next social engagement. The key is to get smart, get ready and back your judgment.
We’ve found a few ways to help you look back on your next purchase with smug self-satisfaction.
1- Look for an eager vendor
A vendor under distress is the most obvious component of a cheap purchase. There is no moral high ground here – often it’s a case that the seller needs a quick disposal and is willing to cut back on the price in order to move the bricks and mortar on.
While it isn’t pleasant to see another party in a sticky situation, you may be doing them a favour by relieving them of the property and, in most circumstances, it’s a business transaction where if you don’t someone else will.
Ben Anderssen is the director of Brisbane-based buyer’s agency Property Chase and is on constant lookout for property bargains for his clients. He often finds his best source of information to be the seller’s own representative.
“If you quiz the agent you’ll get to the point where they’ll start telling you perhaps a bit extra… And you can’t forget that agents, despite everything else, are there to do a deal. You’ll be able to tell pretty quickly whether or not they’re in a hurry to sell,” says Anderssen.
Some eager vendor situations:
The vendor has bought elsewhere
Gun-shy buyers will contract on one home before selling their current abode and will include a ‘subject to sale’ clause in the dealings. As settlement draws near, they become eager to dispose of their old property and now is the time for you to leap. Drive hard on the bargain – particularly when you’re armed with a cash contract free of conditions.
“I spoke to an agent the other day and he said: ‘It’s a young couple that owns this property and they’ve bought another house and have bridging finance.’ And I just thought: ‘Oh, my god, this is perfect,’” recalls Anderssen.
Divorce settlement
No one enjoys seeing these situations come to a head, but the end of a relationship is often punctuated by cutting ties and the settling of assets. Even where the separation is amicable, there is often an eagerness to move on and this means disposing of assets at a quick sale price. The effect can be amplified in acrimonious endings where both parties are eager to sever ties as quickly as possible.
Mortgagee sale
Costs of living pressures, interest rate rises, spiralling petrol prices – these are all catch phrases that have put further stress on those trying to service a mortgage and keep their head above water. Unfortunately, an overextended buyer may receive an unwanted knock on the door from the financier looking to recoup their loan.
Watching for a ‘Mortgagee in Possession’ sale is one strategy, and another is to seek out an owner trying to consolidate their assets and settle their loan.
Deceased estate
In the situation where property is willed to the next of kin, there may be many recipients to consider. While this is sometimes a sticking point, it’s common for family members to agree that a quick disposal of the property will help put the estate to rest.
Another consideration when multiple beneficiaries are involved is that the value of their share becomes diluted, so any reduction in the offer can appear minor. For example, a $500,000 home divided between four siblings will reap $125,000 per share. If a cash unconditional offer of $460,000 is forwarded, a $40,000 saving to the buyer means each sibling now gets $115,000 – not too dramatic a fall in the scheme of negotiations.
2 - Get smart
Forearmed is forewarned. When a bargain arrives, the first buyer to spot it will be the victor, so if you don’t recognise the opportunity when it arrives, someone else will run off with it.
My first purchase occurred in inner Brisbane in 2003. After months of researching the market, I was sure a dated two-bedroom unit with lock-up car accommodation could be located for under $180,000. Despite the agent’s reservations about such an animal existing, I received a phone call from one local realtor informing me that something had come onto the market “just yesterday”.
He first called the out-of-town lady at the top of his possible purchaser list who was keen to find a Brisbane base for her student daughter, but she had baulked at the $145,000 asking price.
Within three hours we’d arranged to meet at the unit and, armed with an intimate knowledge of the market, I suggested he bring around a standard contract of sale at the asking figure. The contract was signed on the kitchen bench within the first half hour of the inspection.
The body corporate manager told me later that the Gladstone-based couple who sold it was delighted to get $145,000 for it. My response was: “That’s great because I was delighted to pay $145,000 for it.” After $30,000 worth of renovations, the unit was worth approximately $210,000 and now five years later is around the $340,000 mark.
Know your market. Set your criteria on what you want and get informed. If you know that your next investment is to be a four-bedroom, two-bathroom, double-garage renter in outer Melbourne, get real about what they sell and rent for. Dig, dig, dig so you become the local expert.
When the right property comes along, you might be surprised to find that both the vendor and your competing buyers have scant idea as to what a great deal a property offers.
3 - Be prepared
By taking care of a few of the basics, you can remove uncertainties and move quickly.
Arrange your finance before you start hunting your prey. Know how much you can afford to borrow and get it organised. Now is the time to shop around for finance, not when your unconditional day of reckoning is imminent.
Also, go through the exercise to work out what sort of rental you need to achieve on your property to help service the loan.
This is an important step that can stop a prospective buyer in their tracks if they haven’t taken the time to consider the return on the investment.
Form a relationship with professionals whose help you’ll need when snapping up a deal.
Most valuers will be happy to discuss their general expertise and what they look for in a property, and can stand at the ready to provide their services quick-smart when they know you’re likely to call.
Similarly, have the phone number of your trusted pest and building inspector handy so they can provide a ready-to-go service when you come up with a possible winner.
By making their acquaintance early, you can get some pre-purchase heads-up on possible pitfalls that might surround your sale of the century.
4 - Look for the angles
Bargains aren’t always obvious and you must dust off a little dirt to find the gold seam. Try thinking outside everyone else’s square to see if you can make a go of a property possibility.
For example, one agent in a near-university suburb has built a formidable self-funding rental portfolio by identifying homes where additional bedrooms can be created for leasing on a per room basis to the student market.
It’s also worth considering whether a property holds a value to you over and above the local market. Perhaps by purchasing your neighbour’s home you may suddenly find yourself with a potential development site ripe for rezoning to units. And all for not much more than the cost of a standard residential dwelling.
Bargains may also be had by considering other angles for savings. Purchasing a home from a family member or buying the property you currently rent may circumnavigate the need for agents, thus saving on commission. In the latter case, you may also come to an arrangement where you’re compensated for upgrades you’ve carried out on the property yourself.
5 - Stick with the basics
Bargains aren’t bargains if things go sour easily.
Avoid main roads and adjacent rail lines. These things don’t sell in a soft market.
The rule is: a window of opportunity comes around to sell a dud property about once every seven years, so avoid them like a biblical plague.