Aiming to buy under market value could be a mistake

Discussion in 'Investment Strategy' started by datageek, 21st Dec, 2020.

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  1. datageek

    datageek Well-Known Member

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    I’ve noticed that if you chase after bargains, you run away from capital growth. The best suburbs for growth are the worst for haggling out a good deal.
     
    Last edited by a moderator: 22nd Dec, 2020
  2. Trainee

    Trainee Well-Known Member

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    Agreed that looking for bargains is often false economy. You see a lot of newbies keep asking about properties on weird blocks or steep slopes, because they read somewhere to look for such properties.

    But saying that buying in a down market is bad seems wrong. What was better buying in Sydney / Melbourne, 2017 or 2018?

    Never flipped or lowballed, btw. Just bought around the asking price, when the market was cyclically bad, lots of choice and the asking were low (compared to a few years later).
     
  3. spoon

    spoon Well-Known Member

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    Negotiation skills and understanding the seller's circumstances would help to get a better price. But buying cheapies because they are cheap would lead to heartbreak, particularly long-term cheapies.

    For residential properties, deceased estates, divorce cases and debts are three situations you might get a quick sell.
     
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  4. MyPropertyPro

    MyPropertyPro REBAA Buyer's Agents Sutherland Shire & Surrounds Business Member

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    Agreed. It is always possible to get a good deal and not overpay, but trying to 'buy cheap' is likely only possible when there is less competition for a particular property, which can mean less performance overall. You have to ask yourself, if the price is supported by good competition on the buy, does this mean I'm buying a better quality asset for longer term performance? Provided FOMO isn't in full force then the answer is yes.

    So often people will pat themselves on the back when they feel like they got a good bargain, only to look back and realise that the more expensive but better quality property down the street really wasn't that expensive looking back and that extra bit of money spent would have generated much better CG to date.

    I'm not saying overpay, but determining market value on a quality asset and paying that is more important than buying cheap.

    - Andrew
     
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  5. David_SYD

    David_SYD Well-Known Member

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    Took me a while to realise this. I always wanted to buy under the asking price, to feel like I had a deal. I have NEVER been able to buy under the asking price. I now understand that good properties demand and will achieve a good price. I’m actively looking to buy currently and will happily pay good money for a quality asset.
     
  6. pfbs

    pfbs Well-Known Member

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    Yeah I've never been one to low ball. If one has done their research they should know the price, and if the listed price is below market, then offering them more in order to secure the deal before anyone else could mean you're still getting a bargain. What noobies don't understand is bargain != low balling.
     
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  7. Blueskies

    Blueskies Well-Known Member

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    You are right, there will always be gains to be had buying the house in a desirable suburb, with good schools, close to shops and transport etc. There's nothing particularly clever about this approach, everyone's trying to buy that and as a result the yields are low, the CG is good (hopefully) and you need to be prepared to lose money year on year for the payday sometime in the future.
     
  8. JetstreamVic

    JetstreamVic Well-Known Member

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    I disagree with this post.

    Just because something is a 'bargain', does not mean that it is cheap, undesirable or unsellable.

    If I purchase a $10mil property on the harbour for $9.8mil - then I would say I have a bargain.

    Pick the best suburb for growth, and if you get it cheaper than what it is worth - then surely it is a bargain?
     
  9. pfbs

    pfbs Well-Known Member

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    I think you're discussing a kind of tangential point.

    I agree price has no bearing on something being "cheap". A $10m property that will be worth $20m in 5 years is cheaper than a $50k property that will still be $50k in 20 years. But I don't think that's really what's being discussed. This is more about the smugness some people have about low balling and what the true "cost" of doing that is.
     
    Last edited: 23rd Dec, 2020
  10. JetstreamVic

    JetstreamVic Well-Known Member

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    Respectfully, I also disagree with this.

    There is nothing mentioned about low balling.

    It aims to differentiate that a bargain and a suburb with good capital growth are mutually exclusive.

    My point was to suggest that even the best house, in the best street, in the best suburb can still be purchased as a bargain - if it you pay less than what someone else would.
     
  11. Trainee

    Trainee Well-Known Member

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    Op seems to be taking a very, very limited example of a common strategy (but not mentioning the limitation in the title) and debunking that. Which leaves enough ‘but what abouts’ dangling to drive discussion.

    Scarecrows to attract traffic?
     
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  12. craigc

    craigc Well-Known Member

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    Worth noting the OP was edited by moderator so perhaps the extra info was removed for breaking forum rules etc as @datageek is not a business member?
    Given other posts from this poster have not been ‘scarecrowing’ - if that’s even a word?? :)
     
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  13. David_SYD

    David_SYD Well-Known Member

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    Also a bargain and a deal are so very different. The definition of deal is also so wide.

    My idea of a deal - Buying a great property, in a bluechip suburb, at market value but on your terms, say longer settlement or subject to me selling a property would be a good deal for me.

    My idea of a bargain - Buying a great property, in a bluechip suburb, 10%> under reasonable and demonstrable market value.

    Buying a property in a crap area, in a non-evolving area or area with downtrending demographics, with low CG prospects, that’s been on the market for 120 days, on a non-developable Site for 10% under market value was a bargain or deal for which party?
     
  14. Car tart

    Car tart Well-Known Member

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    One mans bargain is another mans rip off.
    The winner is the person who has the most knowledge and uses it to buy what many others cannot see.
    I tend to buy in my own area NW of Sydney as I know the area so well as I can see in minutes what people have not been able to see whilst a property has been languishing on the market for 6 months on the market.
    I cannot emphasise enough how important knowing the DCP for your council area, the zoning, the development rules, subdivision rules etc are when buying for profit.
    Buying a house with a future twist is the secret. Knowing that the house is zoned for townhouses/units but that it is uneconomic to build them at present means that as the economy grows the land value will far surpass the value of similar houses with no underlying zoning.
    Knowing that it only forms part of a site and that someone needs the neighbours property as well puts you in the box seat when the unit building boom is back on.
    Other than your PPOR the best value is in a property with a “twist” that others cannot see. These are the properties that have seen the 500%+ returns in 10-12 years. The below picture is 20 Hynds Road Box Hill, a Power line and flood affected property that was on the market for over 9 months before I bought it. So it does not fit blue chip, developable or any guide line. But local knowledge made me over 600% in 9 years. 37C0F102-6F43-4100-B03E-C192268E47A5.png
     
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  15. Harris

    Harris Well-Known Member

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    Guilty in responding to what seems like a clickbait .. but I have bought various 'quality' prop, both in blue chip and peripheral metro suburbs whilst offering materially (5%-15%) below asking price and I procured some real gems. But to do that, I have offered 2 week settlements/ never any 'subject-to-s' or 'conditional upon'. I have had agents (that I deal with regularly) whilst under quick 'give me the whole story' 2 min phone call drop a lot of hints around the seller's circumstances and expectations which I gauge to put in an offer with a 20% deposit cheque with 24-36 hour acceptance time frame. Works wonders even for very good prop.

    I have missed on a lot of deals but the ones I have picked have been very good buys. I don't think it largely matters for buy-and-hold types as even if one scores something which might be 10% below current market ends up not that of a big-deal over a 10 year timeframe where the markets would have moved 60% -100%+.

    Things were very tough in the market early last year and a few months of this year and I secured some real gem of development blocks by offering a significantly-lower vs ask on a 2 week cash settlement in Melbourne metro on 6% rental yield.

    However this is likely not going to work in a fast-moving and active markets for good prop that we are witnessing now. I bought regionals this year and had to pay the full ask.
     
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  16. Luca

    Luca Well-Known Member

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    What did you find to be the best strategy for divorce cases? Talking about off-market deals. I guess a big cash deposit could be a good starting point.
     
  17. MTR

    MTR Well-Known Member

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    I have overpaid to shoot competition, in a rising market its not an issue.
     
  18. Harris

    Harris Well-Known Member

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    Technically speaking, you didn’t over-pay, when buying amongst the competition. You paid the market price to secure something you would have otherwise lost to the competition. In an auction, the winning bidder seems to be the one always “over paying” but that’s the value the buyer ascribes to the prop to snatch it from the competition. Similar to the private sales in a competitive environment.
     
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  19. The Y-man

    The Y-man Moderator Staff Member

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    Different issue for commercials in REITS, where you might get some great buys picking up units under bank valuation due to market sentiment.

    The Y-man
     
  20. MTR

    MTR Well-Known Member

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    What’s interesting is buying in a rising/hot market Using a BA.
    Would you believe my competition was my BA, he was buying this property for another investor, he did not know I was the other buyer.
    I secured the property.

    Makes you wonder when markets are hot and BA are trying to source the same product for many clients, Going to be tricky.