The Rentvesting Podcast is the ultimate property podcast that unpacks the facts and explains what’s really going on in property.
Jayden Vecchio and Louis Strange are going to be covering four practical steps for what you need to know to pick up a bargain in the property market.
In this episode we cover:
- Knowing and understanding what the local market value is.
- Being deal ready, sorting out your financing.
- Working connections and using agents and other people in local areas to get you the best deal.
- Negotiating: Offering lower than what they are expecting.
Bonus: The Four D’s to get you the best deal
Step One: Know What Market Value is
What is a valuation of property?
A valuation of a property is when the banks, as part of getting a loan, send out an independent valuer. They look at the price you’ve paid on the contract and assess where it fits in with the local market. The value of property is based on recent comparable sales in the area along with:
- Looking at similar properties, comparing houses to houses and units to units
- The number of bedrooms, type of materials the house has been made out of, low set / high sets.
- Other properties in comparison within a 1km of yours.
- Sales that have occurred in the last 3 months in the same area.
Tip: Check out realestate.com.au to get a better understanding of the price other houses/apartments are selling at.
Solution: It’s all based on what else has sold in the local area. Down the bottom of realestate.com.au it actually now says within an area – the last sales in the past few months and how much they went for.
We previously spoke about supply and demand and the underlying value of the property is reliant on that.
Step Two: Be Deal Ready – Have a Plan
Know what you can afford and get your finances in place. Before you’ve signed the contract, you need to have your insurance in place. As of 5pm that day, the property is your responsibility. In finance, nothing moves quickly so be ahead of it, know what your repayments should be and contact a broker to find out to find out how much you can afford and how much you can borrow.
- If you’re going to an auction, make sure you have this set up prior – your finances in place and knowing that you’ll be able to afford what you’re bidding for.
- Know the structure – if you’re buying an investment property: should it be in the trust? Should it be in your partner’s name? etc. If you muck this up, it’s very expensive to change.
Example: A husband and wife are buying an investment property and they do a 50 – 50 split. However, then the wife goes on maternity leave and is no longer earning an income so trying to claim a deduction on deductible interest won’t work.
Example: If you put a property inside a trust and there’s nothing offsetting the income that it’s earning, you’ve lost deductibility again.
To change this you’ll have to pay stamp duty, transfer fees, capital gains tax.
Remember: Before you’ve signed the contract, you need to have your insurance in place, as from 5pm of signing the contract that day, the property is your responsibility.
Solution: All of these things can cost thousands of dollars if you make a mistake initially, so make sure you are deal ready.
Step Three: Using Your Connections
In real estate, there’s nothing more important than having people in the know working with you. Work your connections.
To be able to buy undervalued properties, you’ve got to know the market. It’s about who you know, not what you know.
Do Your Research For The Deal
For example, with the floods in Brisbane, know the low-lying areas and find out if your potential purchase falls into this area… Real estate agents are only under obligation to tell you if you directly ask them. The same goes to big infrastructure projects. If there’s going to be a big highway put in, real estate agents don’t have to tell you.
Solution: Look at the plans for the future in the area, and check out flood risk. Ask your real estate agent, but also do your own research. This is so important!
Step Four: Making Low Offers
For all investments, you make your money on the buy. If you overpay at the front, you’re going to have to make a lot more money or hold it for a lot longer to make your money on the backend. If your property declines in value, you’ve got to make more on the upside to get back to that original amount too.
Example: If you pay $100 for a property on the Gold Coast, then all of the sudden GFC happens and it goes down to $50. You’ve now to got to make a 100% gain to get back to your original value. $100 turns to $50 which is a 50% decline but to get back it’s a 100% climb up that ‘hill’.
Solution: Have your emotions in check, know exactly what you want to pay for a property and be patient. There will always be another deal. Take a step back and don’t rush it.
Overbidding or Outbidding Yourself
We’ve been to auctions where it hasn’t hit the reserve yet (it’s not on the market) and no one else is bidding.
Example: The sellers want $700k and the highest bid got to $640k.
What the auctioneer does, which is sneaky, is they go away into the buyer’s ear. For a few poor individuals who had the winning bid but it hadn’t hit the number the seller wanted, the auctioneer makes the bid against themselves, they say it’s just $60k from where they want it to be, just make that bid and it’s done.
You don’t have to do this. It doesn’t go to the market and then you can enter into private negotiations and deal with the seller directly.
Solution: You can get deal fatigue from looking for so long, but make sure you take a step back, plan for it and don’t make a mistake or an irrational decision.
If the sellers are looking for $500k and you’ve offered $400k and they come back with $450k, that’s a good sign that the vendor is up for negotiation. If they come back in at $495k there’s probably not a lot of movement there.
Example: Louis was doing a negotiation. The agent said “This is the minimum they want: i.e. $600k is the very lowest”.
Then Louis said, here’s an offer of $510k, and they respond and said, “Can you go a little higher, that’s far too low?” Louis then said here’s an addition $1k.
Solution: Just offer them a small amount more and they’ll go and talk to the seller and usually they accept less.
The Four D’s – The Best People to Buy From
By knowing the agent and having the connections, this will help you figure out if your seller falls into one of the four D’s.
- Desperate to sell – Sometimes people may have already purchased another house and have more urgency to sell it. “Mortgagee in possession” also falls under this.
- Deceased estate – Old houses that the kids are trying to sell for a quick sale, they’re probably not there for an extra $5k or $10k.
- Divorce – Similar to a deceased estate, they’re bound to make a sale within a certain period. The longer they delay, the more lawyer fees they have to pay anyway.
- Distance – Your typical interstate investor who doesn’t care and may have bought the property 10 years ago and just wants to get rid of it as they’ve already made their money.
Takeaway points to remember:
- Know and understand intimately the market value.
- Be deal ready, know what you can afford, the structure, and process.
- Be a mover and shaker, have a connection with the agents, ask why they are selling and see if they fall under the four D’s.
- Be a low-ball baller! Take the emotion out of what you are doing, it’s an investment, look at the numbers subjectively and make better decisions.
The Rentvesting Podcast, available on iTunes, was created by Red & Co’s Jayden Vecchio and expert financial planner Louis Strange. Together, Jayden and Louis unpack the facts behind the property market, explain what’s really going on & where the market is heading. They believe in challenging the status quo and want to get out there to educate absolutely anyone looking to enter the property market.