Buying below market value ??

I'm interested to know from those of you who talk about "buying below market value".

How do you know that you are actually buying below?
Are you getting valuations done on properties?
Are you basing this on research such as past sales?

One certainly can't go by the vendors asking price, so if any of you more knowledgeable can enlighten me I'd be very grateful.

Cheers.
 
Past sales. Not asking prices, the actual sold price.

I haven't seen many in this area go below 'market' value. In fact, only 3 in the last couple of years. The most recent was a house on the truck bypass so the discount was probably justified. Next most recent was an ex-trust house that was overpriced and for sale forever, but when the vendor lowered the asking price by $20k it ended up selling for almost $50k off the original asking (it sold for $112k so that is a MASSIVE discount). And of course ours, which stood out like a sore thumb as the asking price alone was way below market.

Everything else here has been reasonably consistent when it sold, what varies is the length of time it sits there at a high price before it sells at a lower one - generally the longer they've been listed, the larger the difference between the asking and sold price when they finally do sell. One for sale for almost 2 years (long enough for the for sale sign to bleach) dropped from $320k to $250k. Although I did see one that was listed at below market and sold for $100k over the listed price within a week. This is the only one I've actually seen *listed* for a lower price than it should have been. Our local REA is really quite bad at his choice of asking prices, his listings sold to listed price ratio has far more extreme variation than the other agent's listings.

Basically you're not going to see people listing houses at below market unless something is wrong, just go lowball the ones that have been there a while.
 
I'm interested to know from those of you who talk about "buying below market value".

How do you know that you are actually buying below?
Are you getting valuations done on properties?
Are you basing this on research such as past sales?

One certainly can't go by the vendors asking price, so if any of you more knowledgeable can enlighten me I'd be very grateful.

Cheers.

I have bought many below market value.

Living smack bang in the middle of first home owners/investors territory you soon learn that FHO do not like auctions. Newbie investors don't like auctions either, and most investors only ever purchase one IP. So..........I love auctions.

We have bought many of our properties at auction where there has been little competition. We ususally set a price, if it goes above that, we just move to the next one. Sooner or later, you will pick up a bargain.

Mind you, this will only work in a flat/slow market. Back in around 2003, when there were a lot of reno/auction shows on TV, the market was so hot that auction properties were selling for well above the private treaty ones, so, of course, didn't purchase anything then.

Late last year, there were many selling for well less than $200k, which if sold private treaty would have fetched over that mark. These are usually department of housing/mortgagee sales, so they have to be sold via auction.

This is a mortgagee sale that we bought a few years ago. At the time, a similar property, sold private treaty would have cost around $240k, possibly more as it has a small flat available.

http://www.somersoft.com/forums/showthread.php?t=21718&highlight=auction

We have also bought below market by low-balling. This works really well if a property has been on the market for a long time.

Another thing is if the property is listed by an out of area agent. Sometimes you can get a good deal because they don't know the area well.

I am sure that I posted about the property that we bought from an out of area agent, but I can't find it at the moment.

Anyway, we paid $180k for a property that was worth, from memory, around $260k at the time. It was a corner block, that could be split. The agent had it advertised in a tiny ad in the local paper with only two open homes per week prior to auction. I went to a mid week open and told him how much I was willing to pay, hubby went to the weekend one and told him how much he was willing to pay. Agent thought he had two very interested parties, so didn't do much else to get any interest.

Another party did show up at the auction. He only turned up as he had seen the ad that morning, and since he was another investor known to me, I thought the price would have gone higher. Turns out he didn't have his cheque book with him. No other bidders.:D
 
I compare list prices of houses in an area from realestate.com.au with the information from onthehouse.com.au to get an idea of the current market selling price for a property.

I would then look for undervalued property's.

Example:

3 bedroom house

On a single standard 500 sqm block zoned residential median price $ 250 000.

I would class a

4 bedroom house

On a subdivdable 1000 sqm block or sitting on 2 lots where you may need to move a boundary for the list price of $ 250 000 undervalued assuming both are in similar condition for having an added bedroom and possibility of having a second lot to build on.

Note: They are not a dime a dozen I need to look hard and when one does come on the market (normally from a deceased estate) I find it is gone within 24 hours for obvious reasons.

This is one method I use I am sure the forum members here have many other methods to offer.

Cheers, Fourex.
 
Hi All
I had an interesting discussion the other day about valuing .
But first I will give you some background on how I get my properties . I use a company that finds them , then provides the finance , then has them reno'ed and revalued ( there is a cost for this , but I find it cheaper by a long shot than doing it myself and there much better at it as well ) .
I was sitting in there office chatting to one of the buyers and was looking through some properties they had bought and one of them was around the corner from where I had just bought, ( waiting to settle to be honest ) and was looking at the before and after photos of this particluar property and it was a dump , it was that bad that I don't believe anyone could have lived in it for a long time , anyway the after shots were great , new kitchen , bathroom , wiring all fixed , walls done, A/C added etc etc. What struck me was how big the rooms were , huge kitchen very large lounge room , 3 beds garage etc and it was on a corner ( and we know what that means down the track ) so I mentioned that the reval would have been really good on that property against what I would get ( there was a 5k difference in buy price ) as I"m not on a corner and don't think I have the huge rooms ( not sure as I haven't been inside of my place ) but she said no and anticipated that the reval's would come back exactly the same , as they both will have 3 beds, lounge ,kitchen and 1 bathroom and are around the corner from each other so should come out at the same value for bank purposes .So what I thought should have been a value difference was only on my personal thoughts about it which I think we have to stay away from if we are going to buy under market and concentrate on what actually is value to the banks because there the ones who are going to lend the money and if its good value them they will be far happier to lend you money on it .
Where I think some of the real difference may come is in rental ( being higher )as the main rooms looked bigger and obviously in any division of the land at a later date, and these things are a value to the owner, and have to be considered when buying , but not mixed up with what the banks think its value is, and I would imagine its a fine line to walk, but one to remember when looking at property = what is it worth to the banks -what is it worth to me .
Well that is my take on it
stuart
 
Hi Darcy,

Congrats on your three IP's! :)

Hi Brmmm.

If you are considering purchasing your first property, it is sometimes better for some not to become too focused on buying under value but rather insuring that you don't buy OVER value. If you have been procrastinating for months on end or even years, it is sometimes better that you focus on a smart buy (proximity to schools, transport, views etc,) rather than not buying at all.

I have bought under value several times. Even in heated markets.

Without boring you with each story I will tell you what I think you must know or do to buy under val.

1. Research and follow the area(s) you wish to buy in for several months.
2. Know your streets in these areas well.
3. Watch closely and follow the progress of how fast or slow houses are selling.
4. Get your finances in order and obtain an Approved In Pricipal so that you are ready to pounce.
5. Let the local agents know you are around and ask LOTS of questions. Let them know you are considering buying.

After following these suggestions for a while you will gather a "feel" for the market in that area.

When you see a house come on the market in a particular street, you will know whether it is too overpriced. When you call the agent, he or she will know you and tell you what you need to know- sometimes more than you SHOULD know.

You will also learn what houses have been on the market for a long time and which ones go quickly. Sometimes a house is overpriced becasue the owner has bought elsewhere and needs a certain price in order to purchase his next property.

Fortunately, I came across one such property. The owner was committed elsewhere, a Contract had fallen through due to a bad Building and Pest. The agent called me and said the seller was desperate and offered it to me for almost 40k less than the previous contract. In the 196k range- that is quite a substantial amount.

This occurred in a hot market. :)

Know your market inside and out and let the agents know you are around, financed and ready to go.

One more thing: Be prepared to walk. Don't get caught in a buying frenzy.

Good Luck,

Regards JO
 
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I use a company that finds them , then provides the finance , then has them reno'ed and revalued ( there is a cost for this , but I find it cheaper by a long shot than doing it myself and there much better at it as well ) .

Properties located in Western Sydney perhaps? Use a company with the initials P S? :D

But yes, it's very easy to find something below cost, you've just got to know where to look. As Josko said, know your market.
 
and it was on a corner ( and we know what that means down the track ) so I mentioned that the reval would have been really good on that property against what I would get ( there was a 5k difference in buy price ) as I"m not on a corner and don't think I have the huge rooms

Not all corner blocks are equal. Being in the Council area that it is, you will find that a corner block needs to be over 600sqm to be split. A lot of them are just under that.:D
 
If you are considering purchasing your first property, it is sometimes better for some not to become too focused on buying under value but rather insurring that you don't buy OVER value.

I'll even add to that "you don't buy SIGNIFICANTLY OVER value".

Cheers,

The Y-man
 
most auctions around my local area go for more then the places are worth yes even supposed mortgagee sales been to quite a few

have bought under market a few times always direct through an agent

or had a place built which if I bought would cost a min of 30-50k more

these ones though were usually land private sale and owners just wanting to get there money out
 
Not all corner blocks are equal. Being in the Council area that it is, you will find that a corner block needs to be over 600sqm to be split. A lot of them are just under that.:D

Hi,

Looking at selling a 800sqm corner block, 17klms from Brisbane CBD and wanted to use that as a selling pt - how would I go about looking up what's the minimum size lot to be split?
 
Hi,

Looking at selling a 800sqm corner block, 17klms from Brisbane CBD and wanted to use that as a selling pt - how would I go about looking up what's the minimum size lot to be split?

Try speaking to the Town Planning Dept of the local Council.
 
Looking at selling a 800sqm corner block, 17klms from Brisbane CBD and wanted to use that as a selling pt - how would I go about looking up what's the minimum size lot to be split?

I'm not saying you should do this, but I'm sure a lot of people that advertise that sort of thing don't bother checking, they just add the words "subject to council approval". eg. "Check out this 450sqm splitter block (STCA). Or you could demolish the pre-war house (STCA) and build your own high-rise (STCA). The choice is yours!".
 
Agents don't know squat.

Looked at one a few months ago that was over 4000sqm and advertised as a splitter but with the house placement and being so narrow and with council regulations, best you could get without demolishing the house and building units with a common driveway (ie, NOT WORTH IT - the very average condition house sold for $250k in the end, land value was $60k) was to split it into two blocks. Two. One would be 15x100m. Hardly worth it.

Practically every corner block around here gets advertised as "potential to subdivide" whether you can or can't.

Ours wasn't advertised with potential and we subdivided it. Agent hadn't even considered the possibility. Same agent noticed the possibility on another house but neglected to mention that it had a different zoning and a very wide easement and could only go into 3 not the 6 you could get if you took away the easement and moved it 100m to the left. And it was already priced at slightly more than 3x blocks of land would be worth PLUS you'd need to add demolition and subdivision costs.

Seen plenty of other more mundane ones but those two really stand out.

Do your research.
 
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