When does profit turn greedy?

Hi,

I’m looking around for my next IP (in Melbourne) that is of house and land. I’ve recently come across a few blocks of land that were last purchased only a few years ago. Today the owners are asking for double their money. It was hard for me to refrain from using “demanding double their money” in as little as two years.

While looking in a northern suburb I came across a nice single block of land with double sided street access. Which I admit is rare and screams subdivision. It would be difficult for even a newbie developer to mess this up. I’m trying to get into the IP mindset, but when does profit turn into greed? For example, this property (Onthehouse.com.au: Your Home for Property Research) was sold in DEC-2014 for $580k, and was listed for auction last month. I attended the auction out of interest and the reserve was higher than $900k (no one got even close to the reserve). Thus, the property was passed in. The property is still on the market via private sale with an asking price of $915k (recently dropped from $980k). That’s a return of almost 30%pa without the owner lifting a finger such as clearing the land or actually doing the subdivision to make it appealing to a developer after two years.

Obviously we don’t know the owners circumstances, but is this an example of greed, or a wantabe developer unable subdivide and build, or something else?

 

Hey, don't you know how this forum works!

That owner who did nothing but hold a property is an "entrepreneur".

Furthermore, a house increasing from $580K to $900K in two years is just a sign of a healthy functioning housing market.

If you had any sense you'd buy that $900K property because it will totes go up and in two years be $1.3 million!

There is no housing bubble. The property market is perfectly rational and negative gearing and the CGT discount are wonderful ways to get ahead.

Take you concerns about greed to a communist forum!

 

Without knowing which suburb etc, it depends if it got rezoned (many suburbs in the northern are only recently been gazetted to be rezoned) that automatically increases the premium to the lot of land. There was one such poster who mentioned a place in bundoora which jumped nearly 100% after it was rezoned and permits approved.

 

Something else. Someone said to me once, "The market does what the market does and it doesn't do it to you".

The market can double in 2 or 3 years, or it can take 10 or 12 years. Just because someone is doubling their money in a short space of time does not make them 'greedy'. If they happened to buy at the right time, good luck to them. They might just have easily picked the wrong time to turn a quick profit. But they took a risk of being in the market and it paid off.

At the end of the day, something is only worth what someone will pay for it, not necessarily what the seller is asking for.

 

Melbourne has been booming since 2013, how much money you make is totally dependent on area and product. Many areas in Melbourne's East has seen the highest growth , many buyers wanting a particular school zoning, Bentleigh to name one area. Doubling your money in a booming market does and can happen.

Development sites have been scarce for at least 2-3 years, I have seen 40-50% growth in certain pockets.

If you are looking at land and house packages they work best in a rising market, get this wrong and you may be stuck with oversupply, because developers can not sell the land and all cookie cutter product therefore this market may take years to recover, it far more vulnerable.

If a property is not selling then its either overpriced, secondary location etc. and of course booms do not last forever.


MTR

 

Supply and demand. Basic economics..

 

When does profit turn greedy?

When we can't get the bargain price we want lol.

 

Exactly, winners and losers, its pretty much that simple and totally dependent on when you purchased in the cycle.

The losers will never report that they lost money, they will rationalise it, human nature.


MTR

 

That property in the onthehouse site and not knowing nothing about the area would be a knock-down development site,even the power pole is in the right place,and i have some mates that think and harbor deep suspicions investing in property long term is an investment scam and some have rented all their life..
The same is happening right now in inner southside Brisbane when you do the maths on several properties held from late 2014 up till now, when does it become "Greed" imho it never does some people are just proud of sticking to the same strategy for a long time..

 

Great discussion guys. Thanks to those who provided a little insight rather than a one-line-throw-away. I guess the point, at the moment, is that no one is biting for that product at that price point. Yet the owner is holding firm without so much as occasionally mowing the lawn.

 

@Jasmine - do you know the circumstances of the previous sale? Was it an off markrt sale? Related parties? Divorce settlement? Favourable transaction? Timing? Forced sale?

You can't call profiteering unless you have the background and the market will decide.

 

Hi Jasmine,

What are the comparable sales in the area? May be a little hard for this type of property but there would be some. It is hard to say just how ambitious the owner is being without knowing what else has sold. The asking price is their offer, you can always make your offer.

Mick

 

Almost scrolled past this reply. You know, you're totes right. Be right back, going to cash in my tulip bitcoin fund for that deposit.

 

Agreed.

what if it was the other way around? if the owner had paid $500k but market had tanked and there was little demand so was asking $350k? would you be trying to get it at the best price possible or would you pay the owner more than asking so that you weren't guilty of the same apparent greed you feel they're guilty of?

none of us control the market, selling or attempting to, at market value is an entirely fair proposition imo, looking at it purely in isolation.

 

Thanks for being polite. I have zero interest in this property as it's just purely land.

This property was identified an outlier in my dataset. The surrounding houses (including the land) are in the $600k-$700k range.

Great question! See above for comparable sales and fair-market-value. Is $900k+ fair-market-value?

 

@Jasmine without knowning any details it is hard to say what value is supposingly is? maybe a hint of the suburb?

if this was in balwyn or doncaster (not suprised)

 

@emza I'm just wondering if your a property investor yourself and what is your investment strategy if you don't mind me asking.

Cheers

 

Oh, here it comes... ad hominem on its way...

 

....nothing is coming its just a question asked politely. Of course you don't have to answer, its all good