BA Engaged - Should I start looking myself?

[jmillar]

By April this year I had a clear investing strategy in place, I had just managed to get a respectable deposit together, I had established a great team consisting of a reliable mortgage broker, accountant and solicitor. I was ready to go, and at the time I was convinced that engaging an experienced BA was the right choice.

By the time I had my ducks lined up and had approved finance in order, I engaged a BA when the market gained momentum and now my BA is struggling to find anything representing good yields and below market value. In fact, I have not even had a call from them. This is stressful as I was keen to get into the market but trusted this job to them, while myself concentrating on studying, full time work and starting a business.

My strategy is to buy positively geared property, below market value where possible, in order to continue acquiring at least 5 properties in the next 3 years. My BA doesn't seem too hopeful on finding something, so I'm considering whether I start looking myself and just buy something before prices inflate further. I will lose a retainer of approx. $2,000 if I do this, but I'm just wondering whether this will be better for me than potentially waiting months for them to find something and paying a $10k fee for something which is marginally better than what I can find. (Keep in mind I'm not particularly blaming the BA for not finding something - I realise the market is moving quickly and this makes their job hard.)

I suppose the question is.. What does the market look like it is doing? I've heard conflicting views but the people convinced the market is currently a big bubble waiting to burst only own 1 or 2 properties so they're not exactly experts.

From what I've seen, it appears as though investors are swarming into the market due to low interest rates and this is boosting prices up and making it hard to find good deals in metro Sydney. It doesn't look as though this is going to stop any time soon. I would assume this will push rents up accordingly as buying will become more expensive. Also I think that a change of government on September 14 will see market confidence improve further and people look to spend the money they've been conservative with since the GFC.

Am I best to jump on the train now and pay market price and neutrally gear (or slightly negative) rather than wait an unknown amount of time hoping my BA finds something below market value? (By that time, below market value might be more than what I can pay now.)

Would love to hear your thoughts on what the market is likely to do, and what I should do.

Cheers

 

[Edmond Dantes]

Would love to hear your thoughts on what the market is likely to do, and what I should do.

Cheers

Just be patient. Talk to your BA. Finding positively geared property ain't easy. If the market's too hot, perhaps it's a sign that you should not hurry? The opportunity of a lifetime comes every day . I'm learning that as well.

 

[CHAOS]

jmillar

We too are in that predicament. Ready to use a BA for the next purchase but decided to get all the ducks in a row first re: finance structure then go shopping. Actually thought we had plenty of time to do this. Turns out a lot can change in 4-6mths. BA is now booked out and prices have sky rocketed. One of them chicken and egg scenarios that didn't go our way.

The question is do we proceed with engaging the BA in a seemingly hot market? Will we use lose our retainer because it is impossible to find a good property.

If you find the answer let me know

 

[Corey Batt]

I'm actually surprised that you've engaged a BA for your first purchase as a young lad. Not saying it's the right or wrong decision, just don't see that often.

A lot can be said for learning the fundamentals and ropes early on however, and not eroding your limited capital base when starting out..

I wouldn't accept an 'absent' BA who isn't available for calls.

 

[MsAli]

I honestly think that it is going to be very difficult for most BA's to find "below market" properties in the current market in Sydney. See Jacque's recent thread under Where to Buy where properties have gone way over what was initially expected.

I more and more believe that buying below market is somewhat a fallacy. If you buy a well located property at the right price in the current market, you will not lose.

I wasted a lot of time when buying my 2nd property with a lot of analysis paralysis. I wanted the perfect property that was "below market" by as much as my initial outlay! Took me 11 months till my mum and sis took me to an open home and said I had to buy it then and there. They saw value but I was after this ideal below market property. Looking back, I did fine with it as even the agent (whose also our PM) was about to fall off the chair when I said I paid market value for that property when in fact it was at least 6.5% discount on the real value...again I wanted an "ideally" priced property. This is opportunity cost!

Also the question is HOW much BELOW market are we talking? Is it 5%, 10%, 15%? Or is it looking at the properties that are not selling at all and sitting on the market for long (unlikely currently!! Sure 12 months ago it was realistic).

Currently, you have to be ready as soon as you see something with value...take your deposit to the agent.....

Every service has a time and a place. It may be difficult right now for any buyers' agent as you suggest as well.

So my tip would be....jump in. I was buying my first property in 2009 November. I rejected $320k townhouses that are now worth $420k in just over three years. So make use of this moving market rather than sitting on the sidelines and then realising 3 months later the market has potentially moved 30k for instance. I'm not an expert but it does seem to be heading that way.

 

[nhg]

I more and more believe that buying below market is somewhat a fallacy. If you buy a well located property at the right price in the current market, you will not lose..

Agreed, "below" market value to me means having the knowledge and skill to see something others can't.

Eg. Subdivision potential. Knowing legislation to add extra room or make granny flat legal, adding another floor to a 3 story apartment block, strata titling them, etc.

Finding below market value on a standard 3 bedroom house that needs only a cosmetic makeover is unlikely as a lot of people can do that. So I doubt you will find it.

After a while you will begin to specialise in an area or style of investing. Most inportant is knowing your goal and what type of property will help you achieve it.

As for using a BA. They are simply another source of scouting property. YOU need to be doing a lot of leg work and DD. Don't wait for the one BA to find you an amazing property. Act now!

 

[esh]

It's good you've got all your finances atc ready. Maybe first figure out which area you want to target. Start going to open homes, let agents know you are a serious buyer. Wont happen overnight but that could be a start ? Once you have a target area , you would know if the asking price is high or reasonable. Atleast you will save $10,000. The market is pretty crazy atm, I was looking around for a long time for a "bargain" but not easy to find that great bargain your looking for.

ps. I love that your 21, ready to buy an investment and on your way to setting up a business. That is quite cool

 

[Edmond Dantes]

...
I more and more believe that buying below market is somewhat a fallacy. If you buy a well located property at the right price in the current market, you will not lose.

100% agree. If you start rejecting properties because they're 5k higher than you are willing to pay, think again. 5k in 10 years time for a well located property with potential may mean nothing.

 

[DavidMc]

jmillar - I was in EXACTLY the same situation as you are now back in Melbourne, late 2006.

I felt the market was ready to move, and wanted to buy quickly, so I engaged a BA, figuring that would speed up the process.

They couldn't find anything that was 'investment grade' after about 6 months, so I became impatient and searched myself. I found a good 'investment grade' property myself, used them to bid on it and with the benefit of hindsight bought at the peak AND paid above market value (early 2007). One of my worst investing choices ever made so far. It's tracked sideways for 6 years (grew 100k, but down 100k on cash flow). Here's hoping I'll get some growth in the next 3-5.

Do a search on my past posts, my username and Toorak.

In a hot market a BA will have more clients that suitable properties...

Questions for you to consider:

1. Where are you on their list?
2. Why buy in a hot market? There are plenty of markets around that have good potential that's aren't hot yet.

In the end I wish I had have done the hard yards myself and to be honest I'd recommend you do the same. Either that or use a BA in a different area.

On a positive note CF neutral or positive is the way to go! Great decision.

 

[Logica]

I'm actually surprised that you've engaged a BA for your first purchase as a young lad. Not saying it's the right or wrong decision, just don't see that often.

A lot can be said for learning the fundamentals and ropes early on however, and not eroding your limited capital base when starting out..

I wouldn't accept an 'absent' BA who isn't available for calls.

I would argue that a good BA can greatly accelerate jmillar's learning curve and help him/her to avoid potentially costly mistakes, which have the real potential to seriously erode the capital base and future earnings / CG potential.

 

[Logica]

The question is do we proceed with engaging the BA in a seemingly hot market? Will we use lose our retainer because it is impossible to find a good property.

If you find the answer let me know

Some say that a good BA would prove his/her worth more in a "hot market" than in a flat one...

Also, since there are many markets out there at different stages of the property cycle, a BA should be able to recommend / locate properties in different areas. Unless a particular street or suburb is a must??

 

[Jacque]

I honestly think that it is going to be very difficult for most BA's to find "below market" properties in the current market in Sydney. See Jacque's recent thread under Where to Buy where properties have gone way over what was initially expected.

I more and more believe that buying below market is somewhat a fallacy. If you buy a well located property at the right price in the current market, you will not lose.

I wasted a lot of time when buying my 2nd property with a lot of analysis paralysis. I wanted the perfect property that was "below market" by as much as my initial outlay! Took me 11 months till my mum and sis took me to an open home and said I had to buy it then and there. They saw value but I was after this ideal below market property. Looking back, I did fine with it as even the agent (whose also our PM) was about to fall off the chair when I said I paid market value for that property when in fact it was at least 6.5% discount on the real value...again I wanted an "ideally" priced property. This is opportunity cost!

Also the question is HOW much BELOW market are we talking? Is it 5%, 10%, 15%? Or is it looking at the properties that are not selling at all and sitting on the market for long (unlikely currently!! Sure 12 months ago it was realistic).

Currently, you have to be ready as soon as you see something with value...take your deposit to the agent.....

Every service has a time and a place. It may be difficult right now for any buyers' agent as you suggest as well.

So my tip would be....jump in. I was buying my first property in 2009 November. I rejected $320k townhouses that are now worth $420k in just over three years. So make use of this moving market rather than sitting on the sidelines and then realising 3 months later the market has potentially moved 30k for instance. I'm not an expert but it does seem to be heading that way.

MsAli, I appreciate your frankness here and what a great post by an active investor who obviously KNOWS the current market, and has learnt from her past experience. All too often, I come across buyers who want to buy "below market value" and really have no concept of what this actually translates to in the current environment. The environment matters a great deal!

In a rising environment it can difficult for ANYONE to secure a listing at fair or what is "perceived" as fair value. However, unless you are in the market, actively looking, negotiating, buying and are aware of what is happening locally, it is all too easy to sit back (again I refer to the good old "armchair experts" out there- some of who reside on this very forum ) and tut-tut those buyers who pay full price or close to it.

Forget games with the agent, offers 5% 10% whatever % below, delaying tactics, clever tricks etc- at the end of the day the smart and seasoned buyers (and I will include us as buyers agents here) recognise good value for $$$ when they see it and are able to act quickly and decisively. This is what makes the difference between those procrastinators (some of whom are already stating they have "missed the boat") who do nothing and those buyers who are already signing the contract on a Saturday afternoon in the agent's office. Don't lament the "Under Contract" properties that you see online when they first appear on your email alerts- if you missed out it's because you're simply not active enough in the market. Fullstop.

Yes, I'll concur it is certainly harder for us to find properties for our buyers right now. But that's not to say that we don't We stand by our 98% success rate for locating properties for every client and pride ourselves on this statistic. We work hard for our buyers, and whether or not that means we find something in the first week or the last week of our 4 mth contract, we get results.

In the last month alone, we have secured an off-market purchase for one very happy buyer (tough in this market as most vendors want to take to the open market) secured another two properties before their first OFI, bought from an out-of-area agent who didn't know the market and was very happy to sell for a few $K under the listing price (which was what we considered "under market" and excellent value for money) and located 3 silent sales via our excellent local agent contacts. Even if these properties do end up going to the open market, we have that crucial foot in the door first and the opportunity to do the deal before other purchasers have finished wiping their feet on the doormat on the way out of the open. It makes a difference

Jason, if I were you I'd be having a frank talk with your BA. If you believe he/she isn't able to obtain what you want (and try not to get obsessed with the whole "under market" value as it can be a fallacy re: MsAli's comments above) then terminate the contract and look yourself. If you have the time and energy, you will also learn a lot about what the market is doing as well.

Depending on what your BA Agreement stipulates, if you do locate a property whilst you're still under contract with the BA, you will probably have to pay their fee anyway, so read carefully through. Best of luck whichever way you go - you're going well for someone so young and you have my admiration

 

[jmillar]

I'm actually surprised that you've engaged a BA for your first purchase as a young lad. Not saying it's the right or wrong decision, just don't see that often.

A lot can be said for learning the fundamentals and ropes early on however, and not eroding your limited capital base when starting out..

I wouldn't accept an 'absent' BA who isn't available for calls.

I felt it was the right decision at the time given the results I believed the BA was able to achieve for me while saving me time and effort which was better spent building up my career etc which is now going extremely well.

I still think it was the right decision at the time but I may need to reassess my plan of attack now, given the noises the market is making.

Every service has a time and a place. It may be difficult right now for any buyers' agent as you suggest as well.

So my tip would be....jump in. I was buying my first property in 2009 November. I rejected $320k townhouses that are now worth $420k in just over three years. So make use of this moving market rather than sitting on the sidelines and then realising 3 months later the market has potentially moved 30k for instance. I'm not an expert but it does seem to be heading that way.

MsAli,

Thanks for relating to your own personal experiences. I am thinking of just making the jump and buying something at fair market value which I believe will have good growth, rather than waiting 6 months for it to increase in value by 6-7% and trying to buy it for 5% BMV and having to fork out $8k on top for BA fees.

It really is a question of what the market is doing. Of course noone knows exactly what will happen but my feeling is that it will continue to do as it is doing. I just wanted to see what other peoples thoughts were here, as if this is the case then I am probably best to take a leap.

It's good you've got all your finances atc ready. Maybe first figure out which area you want to target. Start going to open homes, let agents know you are a serious buyer. Wont happen overnight but that could be a start ? Once you have a target area , you would know if the asking price is high or reasonable. Atleast you will save $10,000. The market is pretty crazy atm, I was looking around for a long time for a "bargain" but not easy to find that great bargain your looking for.

ps. I love that your 21, ready to buy an investment and on your way to setting up a business. That is quite cool

Thanks for the encouragement. The point of engaging a BA was to allow me to utilise my time more efficiently on other things which will help create more income to give me larger deposits and to provide a higher income to service the property side of things. Again, I may need to reassess this strategy now.

jmillar - I was in EXACTLY the same situation as you are now back in Melbourne, late 2006.

I felt the market was ready to move, and wanted to buy quickly, so I engaged a BA, figuring that would speed up the process.

They couldn't find anything that was 'investment grade' after about 6 months, so I became impatient and searched myself. I found a good 'investment grade' property myself, used them to bid on it and with the benefit of hindsight bought at the peak AND paid above market value (early 2007). One of my worst investing choices ever made so far. It's tracked sideways for 6 years (grew 100k, but down 100k on cash flow). Here's hoping I'll get some growth in the next 3-5.

In the end I wish I had have done the hard yards myself and to be honest I'd recommend you do the same. Either that or use a BA in a different area.

On a positive note CF neutral or positive is the way to go! Great decision.

Thanks for the tip. I don't know enough about if the Sydney market is on equal pickings with Melbourne market in late 2006 so not sure if I should do the same as you have done.


Jacque,
Thanks for your tips as well.

Thanks everyone for your help. It looks as though I need to reassess things over the next week to see what my best option is.

I really don't have enough experience to know whether this is a bubble or if prices will continue to rise the way they currently are, so not sure what my best move is right now.

 

[Robbo2621]

From what your saying, you don't want to miss out, seems to be typical of what happens when someone is trying to buy into a hot market.
Just looking at this from another angle (your BA not being able to find you something at the moment) sounds like they are looking out for you. As in not just buying you anything at an inflated price just because everyone else is.
When the "miss out" factor comes into play, I think emotion comes with it. Which can blur your vision on what's a good deal or not.
Have abit more of a chat to your BA about why they havnt found something suitable, and possibly what other areas you could target that arnt so hot but still offer what your looking for. Best of luck with it

 

[Logica]

From what your saying, you don't want to miss out, seems to be typical of what happens when someone is trying to buy into a hot market.
Just looking at this from another angle (your BA not being able to find you something at the moment) sounds like they are looking out for you. As in not just buying you anything at an inflated price just because everyone else is.
When the "miss out" factor comes into play, I think emotion comes with it. Which can blur your vision on what's a good deal or not.
Have abit more of a chat to your BA about why they havnt found something suitable, and possibly what other areas you could target that arnt so hot but still offer what your looking for. Best of luck with it

Great points Robbo2621. Speak to your BA - by definitiona they are on your side.