The importance of patience: How to buy your house under value in a booming market

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real estate boom

Let s rewind… We’re back to 2013, mid year, nearly 3 years back. The Frog family has now been settled in OZ for a few years, and reading many inspiring business books, is now ready for the BIG… no… the HUGE move: entering the real estate market !
I’m not getting into the details of how to get prepared to buy, that would be the subject of a separate article.

So… here we are, Sept 2013, all excited ! Hang on.. but no… That’s it, and that s a very important point, we were not excited, and even better, we were in no rush.

The market was showing signs of boiling: auction rates were sent through the roof, you would visit a property on Saturday (if not sold already by then) and it would be under contract around 95% of the time on Monday. Crazy !

People would show signs of impatience and it was not uncommon to see aggressive behavior during inspections, seeing again and again the same faces. So how did we go? How did I know I was under value when we bought our first property?

1/ You need to research – Information is power

At a stage, I would visit a place and 5 minutes later, I would know if it was worth it and the approximate selling price. I had visited 40 places in the previous weeks, been listening to questions asked to the agent (this is how I discovered that fire audit order was in place in our targeted suburb), staying close to them to know the selling price, the interest on each property.

I also used some tools like using the prospecting rent and divide it by the rental yield. Live example:
My place would rent at $550 approx. by doing a small researchOn the same website, you can easily the rental yield, which is 4% in my case
Now, if you do rent x 52 week and divide this by the yield, then you would have an approximate market value

(550 x 52)/0.04 = 715 000.

I also would compare the price per sqm. I would divide the price by sqm and compare the sqm price with what sold around and get an idea of the property value

I knew also that the agent wasn’t from the area and had no knowledge (really!). Their first price was too high and they had to reduce… what a mistake that is !
The strata were high but having a look at the details in the report I knew they would be back to decent levels:
They were at $1200 at the time of the visit and dropped to $900 as we signed the contract. Basically the vendor took the wrong time to sell. But unless you do your research, you wouldn’t know that…

Lastly, it was rented and negatively geared. Again, by doing some research, I knew that the rent was way below market value. I got confirmation of that from the agent: The rent was decreased to please the tenant who had a bad experience with the previous agency… another big tick in the box.

The place was rented with 9 months left on the lease. Many (MANY) potential buyers got scared because of all the above. I wasn’t. Am I ready to wait 6 months (we asked for extension for settlement) to by $25k below market value in a booming market? yeah ! By the time of settlement the property was valued already $50k above what we paid for…

2/ Patience: Don’t let your emotions take control – Facts and only the facts

I’m not going to spend any time there as there are already lots of articles around that. Not only when you buy a property but the same has to do with all.
Be prepared to let go on a deal.

The important features in property remain the ones you cannot change: Light, position, how far from the road, noise. The rest, you need to visualize. You can change or add airco, you can move walls to an extend, etc…

The more patient, the more you know, the more you’re in control, the more likely to make a good deal.

3/ Stand steel during negotiation and move fast

Because you know the market, the value of the property you’re inquiring , have your finance ready, the last block is price negotiation. And I’m always amazed by guys being screwed by the agent trying to get $10k or $20k out of them in the last mins! These guys would then say “the most important is that I bought my house, $20k more is not that much compared to the final price of $900k”. And they’re the same to say you on Monday: “wow, they’re increased coffee price by 50 cents” !

Come on ! $20 000 worth of mortgage is at least few months (minimum!) of repayments. In the course of a 30 year mortgage, you would probably have paid around double that amount.

Not an issue with you? Well, that’s definitely one for me!

So. You give your offer to the agent with a $10K or $20K deposit and then… you shut up… You let the agent respond.
To whatever he will say, your answer will always be: “This is my best and final offer, we both know that ‘we’re on the market value, this offer is valid for 24h and I will bid on other properties after that”.

Done, that’s it. The agent can be your best mate, we’re talking about $40k potential as I have highlighted above on the course of the next 30 years.

And then enjoy a good glass of champagne!

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