buying below market value

[brains]

Hi all

Im relatively new to investing and recently went to a seminar in Brisbane, at the seminar they spoke about buying houses at below market value. I came home full of enthusiasm, ready to buy a fixer-upper but the market i am trying to buy in is pretty strong at the moment (NSW Central Coast) and i am finding it very hard to snare a "bargain" as vendors know they can get close to their asking price (according to the agents). I have been scanning the papers, the net, driving around and the agents without much luck.

Anyone have any advice/strategies i could use to solve my dilemna.

Thanks

Wayne

ps: if any NSW central coast investors want to get in touch, please message me.

 

[Jacque]

Hi Wayne
Nice to see you all fired up, but a word of warning.........
Buying below market value, in my opinion, is something of a myth. You see, the market is us! Whatever we are willing to pay determines the value.
Sure, you may hear some of these excitable seminar presenters spout that it's easy to buy 10-20% under value, or "wholesale" but, in reality, the market value is what the buyer is actually willing to pay. Most of these presenters then go on to tell you that you need to look for motivated vendors. Well, this is true- a vendor who is going through a divorce, for example,or who needs to sell quickly for whatever reason is going to usually be more flexible in their negotiations. But, even if you get 10% or 20% off the asking price and consider it a good deal, will your bank? You are unlikely to get a valuation that will be 10-20% above what you paid.
Remember that, in a normal loan, the amount you borrow is determined by the bank valuation of the property. It's certainly not in their best interests to value the property for more than what you are paying for it. If anything, bank valuers are being more conservative now, in this overheated market with the threat of legal action hanging over their heads for a "wrong" valuation.

In fact, apart from marketeering campaigns (where the developers and salesmen use their own valuers) is there anyone on this forum who can share a story of a lender actually valuing up their property? For eg, if you paid $250K on an asking price of $290K did your lender then value it at $260K or $270K?
Of course, like Michael Croft has done, you can buy, renovate during the pre-settlement period and then have the place revalued to borrow more, but I am only referring here to straight transactions. I would be interested to hear anybody's stories of success here

Another thought, Wayne, is to think about getting an independent valuation done before making an offer. This way, you are getting an unbiased true market valuation. It still may be conservative, but at least will give you some indication of where the market is at.

Also check out Residex and HOme Price Guide for the latest sales data. You will have to pay per postcode (around $40) but it's enormously helpful when comparing apples with apples.
Above all, have fun searching and keep on looking- the next reno may be just around the corner. Keep us posted

 

[Ace in the Hole]

Brains

Persist in your search. Make heaps of offers and let them know you are buying. Something will come up.

Genuine desperate and distressed sellers don't really want you to know their position before you make an offer do they?

Regards

Adrian See

 

[phm]

Hi there.

Another company that you can use to provide information about a postcode, suburb or individual property is propertyvalue.com.au. From the stats that they have, they can also provide you with an approximate value of a property within available variables.

 

[PIppety]

Jacque,

Have to agree with you there about the Bank Valuations. I recently bought a unit off the plan and there had been re-sales of over 10% above what I paid yet come loan time the bank "as usual" valued it at the purchase price.

A little trick I use sometimes is to get my own independant valuation from one of the bank's valuers (if you can find out who they are) and then ask the bank if they will accept it. This has worked for me on most occasions but generally this would be for valuations on existing IP's, not the one you have in mind for a purchase.

PIppety

 

[gailh]

Hi,

My advice is to wait until its no longer a seller's market. I disagree that the market is 'just us'. Well, its certainly true in one sense, but its undoubtedly the case that some properties don't realise their true value. Generally because the vendor wants out quick so isn't prepared to wait.

If its a buyer's market (which will mean waiting a while - the current situation will change), then auctions can be great for buyers. At auctions, the price tends to sink to the lowest common denominator and the buyer only has to pay what other buyers who attend the auction are prepared to pay. I bought my PPOR for a steal at an auction 3 years ago because no-one else was interested in the property and the vendor was committed elsewhere so had to sell. Though, I'm not saying you'll get a higher valuation straight away. That may take a while (get it revalued a year later and tell the valuer you have done some stuff to it).

Anyway, my advice is to be a little patient. Hard when you are fired up, I know. But it is a seller's market where you are looking - a dangerous place for an invester. Also, just after Xmas can be good if the properties have been on the market through December. The market stalls and many vendors will want out once Xmas hols hit.

Good luck

Gail

 

[see_change]

It is possible to buy below "market" valuation , though whether the banks will value it above the purchase price is another matter.

I've been watch the Logan market for the last six months and on three occasions have seen adds which appeared to be REAL bargains.

The first one we purchased subject to inspection and went through with the purchase.

The second ( private vendor - three in one package for ? 170 -180 ) turned out to be three of the most miserably put together houses I've ever seen ( and that's saying a lot in logan .... ) . I passed on these , though they still probably represented below market valuation.

The third , recently , was 20 K below anything I've seen for several months ( in a fast moving market ) and although it was a renovators special , it was probably still a fair bit under market ( ? 20 - 25 % ) . I didn't physically see this one as it had already sold by the time I saw the add. If it was still for sale , I would have bought it subject to inspection.

Both the first and the third ones were being sold by agents from outside logan , who , I believe , didn't really know what was going on in the area , and were to lazy to find out. One was the property manager with elderly vendors and the other was doing a "favour" for a friend.

see change

 

[Jacque]

Hi Seech! Long time, no speak.........
Some favour that agent was doing his friend, hey?

Now I think the issue here is with the term MARKET itself. If we truly believe that we are buying "under market", then why don't the lenders see it that way? As far as I'm concerned, I can buy what I see to be a true bargain but my lender is not going to value it at any more than the purchase price. That seems to be standard practice. Who is wrong then?

Like you, SC, I've come across properties that seem cheap compared to their peers. I consider them to be "underpriced" but "undervalued"? Well, there's a different story. If it's going to be the lender who determines the actual market value then will it ever change?
I would be interested to hear other's opinions here, especially people like Rolf, who deal with valuers all the time.
Perhaps we should all be paying for those independent valuations prior to purchase so that we can take our papers to the lender and start arguing........