Using Low Balling Strategy - Success Stories

Was reading a post by @Taku Ekanayake regarding some of his recent purchases.

I thought it was very good/interesting strategy and think it could work very well, especially for those starting out who have very little equity.

Wondering has anyone been doing successfully, repeating this process/strategy.



Is this how it works?

Buy ideally lower end markets (200-350K)
Buy minimum 20% under market value
Yields must be minimum of 6%
3-6 months later revalue and access equity
Rinse and repeat

The only downside to this I think is making sure you don't buy in a falling market because valuation may not come in and then you are stuck?
Also, this strategy may work well in the Adelaide/Brisbane market, lower end??

 

I think you need to be in a strong financial position so that you can make cash/unconditional offers, which may be tough for first timers or those with minimal equities. Otherwise likely to only work in very soft markets which make getting a higher reveal difficult in the short-term.

I think there can be opportunities for those who can make cash offers below market, but hard to buy below without being in that position.

 

Most of my buys have been from lowball offers.

It mostly comes down to listening to the signals. A few of the inspections I've done for interstate purchases I've noted in the report things overheard - things like, failed previous contract, vendor already bought elsewhere, needing fast settlement, etc.

Its mostly only lower end. But even a 480k place in Hallett Cove recently, the agent disclosed to me (presumably because I'm in the real estate industry, probably wouldn't to Joe Blogs) what the price and conditions of other offers were and why they hadn't been accepted. This enables my buyer to offer low but with appealing conditions to get the deal done.

Having a good broker who is confident of allowing quick settlement, no finance condition offers is very handy.

 

Good point.

 

I agree

What is surprising is how many real estate agents actually let the "cat out of the bag"
If you are privy to the seller's scenario/situation as you mentioned can work your favour.

Finance is critical for sure.

This is a common denominator I think with almost any strategy, if you have finance ready and you can offer cash its massive bonus and can shoot your competition out of the water.

Am I correct in saying that 20% below market value or more is what you would aim for?

MTR

 

Good post @MTR - i'd also be interested to hear how others are doing a similar strategy.

In regards to the criteria - yep, pretty much on point:
- Always looking at least 15% BMV
- Around $250K mark
- Must yield minimum 6.5% (after reno)
- Cosmetic reno to add equity instantly (reno of around $20K)
- Reval immediately upon completion of reno (generally 2-8 weeks from settlement)

The goal is to be able to get a valuation of $50-$60K higher, so I can use this equity for subsequent purchase. When doing my research, I look at run down properties around $250K mark, which upon completion of reno it would sell for around $330K-$350K.
I know valuers are generally conservative (I estimate they will value 10% less) so that's why after completion of reno, similar properties must be selling for at least $330K.
I must note, at time of purchase, the properties are generally yielding less than 6%, but because of the reno I've been able to bump up the rent - last two IPs upon completion I bumped up $50/week and $40/week which meant it yielded the 6.9% and 6.5%.

At a high level - on a $250K purchase at 12% deposit:
Deposit: $30K
Stamps & Legal: $10K
Reno: $10-$20K
Total = $50-$60K

I have mix of 12% and 20% deposits for my purchases but the above figures shows some simple calculations on 12%.

Yes, couldn't agree more @D.T.

 

Not really, they just want to move it, if vendor is silly enough to be complaining in their ear with the same thing every time they speak, then agent is likely to blurt it out.

Some have a habit of it though, looked at a place with an agent we have used before, first thing he did was tell us all the info and that they just want the place gone because of xyz, we did not even ask.

 

In my experience, the most important key is to know where the market cycle are.

In specific example we know 2013-2014 people busy with Syd/Melb. But Brisbane is undervalue, so its like early bird get the fresh worm. We put low offer, even sometimes we questioning the rationality of it. But its purely business at the end.
Brisbane is no longer attractive for me personally, but we will see the growth catapult in the next 2-4 years

On top of @Taku Ekanayake and @D.T., the beauty of low ball is to get yield as well as growth early. My back up plan is the property will look after it self if we enter too early (coz its hard to guess when is the bottom)

But low ball is number games, psychologic, and networking with the rea agent. REA need money too, so if you able to convince them to work with you to seal the deal. Even they sell less, its better than not selling at all. You will see they really your friends, try that on up and hot market and they think who the hell are you/time waster

What about today? In Adelaide you can still low ball in few areas, I really like where the bad news keep coming, Holden in the north etc closing. We lowball in onkaparinga really crazy, end 2014-2015 we bought 3BR house in 700sqm for $220k, and land value is $200k (council notice). Rent $300-320/week..

In the next 2-3 years we will see Perth as the mining will slowly recover.. So overall that's my business plan, in 2-3 years time pull brissy equity and invest in perth

 

Yes, I do like a dodgy real estate agent - if they're on your side.
Depends what the market is doing, not likely in a hot market.

 

Only thing is, you forgot to tell NAB, who are saying that the mining boom unwind is only approx half way through, with many more jobs that will go.

Perth must already be near bottom, mining may have pumped things up, but it can't be all Perth has.

Given the above, a lowball may actually just be market price ATM.

 

don't you believe it

 

I know nothing about this market but the first sign must be an improvement in the rental market, decreasing vacancy rates, rising rents then improving yields.
Then buying becomes a better proposition than renting and the market returns to health?

 

yea maybe you right, will you put the money to that market now? Share to us the deal please..
At the end time will tell

 

What I'm saying?

 

I do not know if NAB is right, I hope they have over stated this , these are things I do not know.

50,000 more mining jobs set for the axe as boom ends: NAB

Re putting my money in Perth, well, no, I have nothing allocated for that far away at this time, I prefer to be able to drive to places I am interested in, so that means about a days drive either up or down the coast, or half day inland. Only exception may be SA which is about 20hrs realistically, also there is the matter of the chief of finances giving the ok too.

If Perth is turning the corner, and money becomes available and it is easy to get places that are very positive and some other planets line up, maybe. I am not against anyone doing as they wish though, we all cannot do everything, right ? (or maybe I have the wrong attitude ;-))

 

You miss out on Brisbane?
Unless you drive really fast.

 

They are not always dodgy, we did well on one in a hot market, basically, vendor drove everyone bats.

Another time in hot market we just rocked up at the right time, place was under contract at a good price, the buyer had delay in selling, vendor decided to bump them for us, luck really & the right words, agent did nothing to erode the vendors position.

Basically, some of them I would just say are plain stupid, often trip themselves up with the lies, they can't track all the different stories they tell

Bris is easy drive - no speeding or rushing, we did many trips there, often driving, doing inspection, and driving back..... Sometimes we stay for multiple days too, have family there and enjoy the bayside area, we want to go up again soon to check out another couple of areas, even if we miss the boat, we are interested in knowing certain places reasonably well.

 

I reckon it's a bit dodgy for an agent who is supposed to be working for the vendor to be giving tips to potential purchasers.

 

If they knowingly, or willfully undermine the vendor, I have better words than dodgy for them !

I have had my share over the years, when they start working on me, I just talk of how long the agreement has to run.....

 

Right place at the right time for me. Vendors have always purchased that dream property interstate. Over stretched themselves financially, with the banks breathing down their backs for ink on that contract today. The IP is empty, not earning any income and my low ball offer is enough to save the day. A real knight in shining armour. Of course I am the only one making offers because I like places that need a good renovation which shy away your typical Mum and Dad investors.