Lunch Money Property Investing - Step 6 - Control The Deal


The sixth step to successful investing is Controlling The Deal.  This means setting the terms of your purchase to suit you, including things like $1 deposits and quality inclusions.  All these details that will make the deal easy on your pocket and a great investment.

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Transcription

Hi, I'm Phil Anderson from LifeCorp, the home of street smart property investors. I've been a property investor in the Australian property market for more than 20 years, and I've seen so many common mistakes, mistakes that just seem to get repeated time and time again. At the core of the formula that I've come up with over those years to really accelerate the growth under my portfolio has been a lot of safety elements, safety elements that I'd like to share a few of those with you today. I've got about 30 points that I usually use to minimize the mistakes when I'm buying a property in any area around Australia. But I'm going to give you five top tips today that will not just keep your investments safer, they'll actually improve the effectiveness of your portfolio as well.

Now, if you're familiar with my techniques when it comes to targeting where to buy around Australia, you've been aware of the fact that I watch property cycles. As I go around Australia, I watch what's happening with the various- and there are hundreds of these property cycles around Australia- but I'm always trying to target here, what I call 7 o'clock in the market. When it comes to buying at this time, though, there are certain things that I do. Like I said, there's a list of 30 things that I do that really improve the safety elements behind buying property at any time in the property market around Australia. But particularly for me, like I said, 7 o'clock is where I want to target. So, for me, the number one safety tip that I would do, is always do this- I always buy at valuation. Buying at valuation allows me to make sure that a developer or a seller or whoever it is, does not set the price on that property. I will let a valuer, a bank panel valuer, set the price on this property. Most developers and builders, and if you're dealing with a brand new property, they will hate this, because valuations are quite often below the market value slightly. You know, compared to what the market would pay, valuations tend to be a little tiny bit conservative. A great technique to use when you're buying, but not such a great technique to use when you're selling. But, step number one for me, as far as one of my safety tips, will be use valuation to determine this purchase price, so that not only you're buying at the right time, you're buying a little bit below what the market would probably pay for that property.

Number two- when it comes to settling on that contract or exchanging a contract, I would actually use a minimum deposit, as minimum as possible. For me, I rarely use above $1. Now, that's not- there's no magic wand here. We're not saying you're buying the property with a dollar. What I'm saying is, you can secure a contract with a dollar, a legally binding contract. And by locking into a contract, particularly if it's a property that's got to be built- Let's say it's a townhouse that's maybe going to be built that's, I don't know, let's say it might be 10 months until it's built. One of the good things about taking a contract on a property that may not be completed yet, is you can get can get closing where it's 8 o'clock in the market and start picking up on a little bit of growth. But you control that whole process using just $1 deposit or some minimal amount. You'd use equity from another property potentially to secure the finance for that property, meaning you may never put in any more than $1. It just depends on your equity position elsewhere. But it is a tip that I use, it is a strategy that I use, using just $1 deposits very, very regularly.

The other thing I would suggest that you do is you have a fixed-price contract. Because what happens is, when you start dealing with developers, and you put yourself in a position where they want to sell a property, perhaps here, for $400k, but the valuation comes in at $375k, if you don't have a fixed-price contract, you do run the risk, and I've seen this, unfortunately, too many times, with people that don't remove a lot of the clauses out of the contract that allow them to rake back certain amounts of money. "Oh, we didn't put in the driveway... We hit a little bit of rock and we need to pay extra cost towards foundations," or whatever. I don't allow that to happen. I make sure that the contract price is absolutely fixed. So, whatever I've agreed to enter into, if it is $375k in this instance, that's all I'll pay when I get to the end. So I use a valuation to set the price, quite often just $1 to be able to secure the contract, I'll let that go out a little bit to where it's going to be settling, hopefully closer to a growth stage in the market. I'll control it to make sure the price isn't going to move by having an absolute fixed-price contract.

And one of the big things I want to suggest to a lot of people, which seems to be a real problem, is I always avoid the hype. Avoid the hype because for a lot of people that aren't familiar with this as an option, and don't know how to target these 7 o'clock markets, one of the things that I see happen so often is, people tend to buy properties up here, too high in the market. This is a typical thing with C-grade investors- buying properties up here, way too high in the cycle. Now, the reason that the hype is a factor here, guys, is, for a lot of these C-grade investors, what they're looking for is proof. And we've seen this in Gladstone in recent years, and other mining resource towns and so forth, where they've said to the Australian investor market, "Look at the growth! Come to Gladstone, look at what's happened in the last three or four years! It's the best investment market in Australia! Look at all of this proof!" Forget the hype. This is where the marketing companies cut in. You don't want to be buying high in a cycle. You want to be buying at the start of a cycle. You want to get all that growth in your pocket. Don't get sold on the hype. Avoid the hype would be safety tip number four.

And now, one of the other things I would say is inclusions. A very thorough inclusion list is definitely important. The reason why I would have a very thorough inclusion list is, when you get to settle here, when that property is finished, when you take possession of it- sure, you've used a dollar deposit to control the deal, you've maybe used equity from another property to secure the finance, you've fixed-price the contract, you've only paid a valuation price, you've avoided all of the hype of buying at the wrong stage in the market... You've done all the right things, but when you get to the end here, guys, you want to make sure that this inclusion list is very detailed. And I do that by talking to property managers before I enter the contract. I'll talk to a property manager and say, "Tell me about the tenant." I want great quality tenants, but I want to make sure when they move in, I don't have to spend money on anything else. What do they want? What is all their requirements look like? Dishwashers, air conditioning systems, screen doors, alarm systems, whatever it may be, I want to write it into the inclusion list, because when I get to the end and I take possession of that property, I don't want to have to spend one more cent towards putting any inclusions in. The window dressings are up, the antenna's on the roof facing in the right direction, everything's done. My deal doesn't have to be extended. I don't have to pay any more money, I don't have to go back and get more finance, I don't have to cough in any extra cash. Inclusion lists are very important.

Now, like I said, I've got 30 things on my checklist when it comes to controlling the deal, I call it, it's step number six in my process. And I've been putting together this process for a long time. It's a seven step process from start to finish. And this is all part of step number six, controlling the deal. I've actually put together a visual representation of the full seven steps, an inforgraphic that's attached below. Please, it's a free gift from me to you. If you click on the link below, you'll be able to grab that infographic. It'll give you great insight into all seven steps, and it'll be a great help for you if you're thinking about buying a property. So many great lessons I've learned, all laid out in that seven steps. So please, grab that copy.

But inside of this step, step number six, controlling the deal, these are some of the very important things that I would strongly suggest you make sure you put in place when it comes to buying a property somewhere in Australia. And if you are about to buy a property around Australia, remember my golden rule- if you can't buy that property with your lunch money, please guys, don't buy it.

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