Buying Under Market Value Every Time

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One of the biggest concerns for new investors is making sure they are paying the right price for their property. I love showing investors how to ensure they can buy under the market every single time.

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Transcription

Phil Anderson:

Hi, I'm Phil Anderson from Life Corp, the home of Street Smart Property Investors. Are you thinking about buying an investment property? Well one of the biggest concerns most investors have is how we know we're paying the right price. I want to talk to you today about how you can pay below market value every single time.

Now this is actually a question that came in via email over the last couple of days. A lady emailed me after speaking to her bank manager, where the bank manager told her, "You've gotta check out Phil's system." He represents and takes care of loans for a number of people following my model, and he said to her, "Phil's model allows you to buy under market value every single time," and he's seen it first hand as a bank manager processing the loans.

So let's have a look at how we do it, together. You know, when I watch property cycles around Australia, I've told people in the past how they follow cycles and watch for these turning points. The turning point's where there's drivers coming underneath the market and changing the market from a six o'clock market to a seven o'clock market, the turning point towards a new growth cycle in any particular market. Obviously it's going to go through different stages, eight o'clock, nine o'clock and so forth until it gets to the peak of a market at twelve o'clock, and then it'll flatten back out again.

So it's important that we buy very well. Timing's going to help us with regards to many aspects of just making sure your property purchase is well thought out, you get great results, you protect yourself in so many ways. A lot of the way I decipher how to manage property cycles around Australia adds safety in itself. But how do we know we're paying the right price?

Even if we do target seven o'clock in the market, and we buy at the perfect time where there's all this growth coming out of the cycle, how do we know we're paying the right price? Well it can be as simple as this. Whenever I'm buying a property, I never let the seller dictate the price. I never do it. If I'm dealing with a developer, or a home owner or a real estate agent, anyone that has a selling role in that property, I never let them dictate the price. How do we come up with a price? What I do is request a bank panel valuation on that property. So if I'm going into the Perth market, or the Darwin market, or the Melbourne market, or the Brisbane market, whatever market, instead of trying to figure out what's the right price to pay for that property, I request a bank panel value. Not just a valuation from the local real estate agent, a bank panel valuer to set the purchase price on that property.

Now, if you're dealing with a developer, this is annoying straight away. A developer will say, four hundred thousand for the particular property you're buying. The bank panel valuer might say, "Well we'll give it a three hundred seventy five thousand dollar valuation." In most cases what I've found it's great to use them when you buy, not so great to use a valuer when you're selling, because typically I've found between ten and thirty thousand dollars difference from what the market's probably prepared to pay for that property, the valuers tend to be fairly conservative.

So for me by using a valuation every time, and identifying the buying period, I can double up and get a few different benefits. I'll show you why. By getting a bank panel valuer to set the price, I feel like I've already purchased a little bit lower than what the local market value of that property is. Now if this is a property that's going to need constructing, maybe it's a town house that's not going to be finished for ten months, or a house and land package may take six or seven months; we can also prolong the settlement period a little further so we don't actually settle on the property until hopefully we're even closer to eight o'clock in the market.

Where we've already got some equity growth in the local market as well. That helps out, buying yourself another six or eight months in the market. I've plenty of times, negotiated to buy a property here, use one dollar deposit to control the deal, which is another topic for another blog, another day, but one dollar deposit to control the deal, settled on the property further into the growth cycle of that local market. Done my sums on basically having certain rental incomes and the rents have actually moved by twenty or thirty dollars a week by the time I get to settlement, and have a really great holding cost. Of course it's always going to be lunch money holding costs, but everything about that process not only allows you to buy below market value, but also get the best of a turning cycle.

Now if you're wrong and this market doesn't grow in that time, you've lost nothing. The only things I would say inside of doing this as well is fix price the contracts to make sure the developer doesn't try and sneak back some of that twenty five thousand dollars he feels like he's lost between the four hundred and the three hundred and seventy five by saying, "You know, we've hit some rock," or " We didn't allow for some landscaping," or whatever else. It must be fixed price. I'd even have a cap on the holding cost for this period to make sure that if there's any interest on the loan I pass that to the developer. We might cover that in another blog as well.

Definitely use valuations. Valuations are your best chance to pay under market value every time. Remember, when it comes to holding this property, work out all the expenses up front. The rates, the insurances, every cost. Everything to do with holding this property, and every single time it must be a lunch money budget. Less than twenty dollars a week, out of your pocket to hold a property. You know what I say, if you can't buy a property with your lunch money, why would you do it?"

Comments

  1. Michael Jantou says:

    Great BLOG Phil.

    The PROFIT is always in the BUYING. Buy Low, Sell High.

    • Cheers Michael, all I would add is you can also choose not to sell.....and instead use the equity to buy even more properties in 7 o'clock markets...the choice is yours.

  2. Hi Phil, a bank valuation is almost always lower than market value, so why would a developer sell a property it to you at below market cost if they know that as well?
    Regards, Simon

    • Hi Simon, developers will do this in 7 o'clock markets because they are trying to get the ball rolling ready for the retail sales to cut in around 9 o'clock. In this early stage they need to gain some sales to show strength to their banks, build their team, and gain some momentum. Once 9 o'clock comes they will expect full retail price.

  3. Yes you can get a valuation but if it is an 'as complete' purchase you will need to go through the process again once it's time to formally apply for your finance. In the case of a 'house and land package' you can get a full valuation upfront to support your finance.

  4. Sounds easy they way you speak of it Phil although why would any seller/developer agree to all the terms you want? You make a lot of demands to the seller I can't see how the seller would deem it a good thing for them to accept. Next to no deposit, long settlements, a full valuation as well plus a fixed price contract. Is it for only house & land sellers? I wouldn't think a private seller would agree to these demands.. I know I wouldn't if I was selling my home..

    • Nigel Sonter says:

      Hi Mich, developers will do this in 7 o’clock markets because they are trying to get the ball rolling ready for the retail sales to cut in around 9 o’clock. In this early stage they need to gain some sales to show strength to their banks, build their team, and gain some momentum. Once 9 o’clock comes they will expect full retail price.
      Nigel Sonter
      Lifecorp,GM

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