Buying Ip's that are below market value?

[Chloe]

Hi Guys,

I've been doing a lot of reading on this forum and one thing that i've noticed coming up a lot is buying undervalued properties.

I don't understand this concept, if a place is undervalued isn't there going to be a lot of switched on investors out there placing bids for this home?
Is it undervalued in the sense that it is priced below the median price for the area?

An undervalued home would be a dream, has anyone really been able to pick one up below what it's worth in an area that is at least ok?

Thanks

 

[Aaron_C]

Technically if you buy something for $X, that is the market value because someone (you) has purchased the property from a seller. Unless of course it is a non-arms length transaction where you purposely sell it for a low value that has no relation to its true value.

It's mostly hyperbole - people make their big gains after purchasing their property if/when the market picks up, rather than at the time of purchase.

 

[RumpledElf]

Found one today on a private sale site. $110k, recently renovated, rented to a long term tenant for $180pw. Sound interesting? I can flick you the details.

 

[Chloe]

Yes I'd like to see if you're happy to share.

 

[travelbug]

Technically if you buy something for $X, that is the market value because someone (you) has purchased the property from a seller. Unless of course it is a non-arms length transaction where you purposely sell it for a low value that has no relation to its true value.

It's mostly hyperbole - people make their big gains after purchasing their property if/when the market picks up, rather than at the time of purchase.

Not necessarily.

I bought one villa at $215K. One very similar was listed for $235 at the same time. Owner wanted a quick sale.
Bought a unit for $209 (one sold a couple of weeks before for $224).
Bought a unit at $217 (it was originally listed for $245K). Now worth $330, 3 years later. One exactly the same but above mine sold for $235 the next week. Same owner but he needed the money so sold mine cheap. Someone offered full price so he decided to sell another one.
Sometimes people want a quick sale. Some don't want it advertised so the agents just ring those they know will buy quickly.

I've seen places advertised wrongly too. Out of area agents not knowing the right price. They go pretty quick though. Missed one by half an hour.

I couldn't bring myself to pay market value now. I'm looking for a new PPOR and that's hard because of emotions. But it still needs to be value for money for me to buy. Hopefully something cheaper in need of a reno.
I think you need to make money on the way in, rather than wait for gain. Or make money straight away via reno etc. I'm getting too old top sit around and hope for CG. I've got to get it in the beginning or have the ability to make it in a month or it's no good to me.

 

[RumpledElf]

PMed you the link Chloe.

If you decide to go ahead, my convenancer (in SA obviously) can draw up contracts, take the deposit into trust yada yada for a surprisingly small amount of money, assuming the seller isn't organised enough to have done that themselves. Seems like a good deal, its pretty damn cheap even for that area.

 

[mrmonopoly]

In a literal sense whatever is agreed and paid is the market value, BUT there are many instances where the same property if given the right conditions, time and marketing can achieve a significantly higher price.

Distressed sales are one such example in which a vendor often requires a quick sale in exchange for a lower price, however there can be all kinds of reasons behind this.

I've even had experience in the past where an inexperienced agent has undervalued a property for private treaty and the place has exchanged within hours of being on market before the marketing had even had the opportunity to take effect. This is obviously not a common occurrence but it does happen.

 

[The Y-man]

I don't understand this concept....

Neither do I really.....

But how about "under the original contract value"?

Let's say someone signs up for a flashy new off the plan project somewhere for $300,000. They put down a 10% deposit ($30k) hoping they will get a $270k loan from the bank on completion (after all they have a pre-approval don't they?)

The place gets built and settlement is in 2 week's time so they call the bank to get that loan... but the bank comes along and says "sorry, prices have fallen 10% - it's worth $270,000. Also, our lending policies have changed - so we can only go to 80% LVR. We can lend you $216k based on today's value"

Now the buyer is in a bit of a fix - they HAVE to settle. They have to find $54,000 somewhere - in 2 weeks!!

Now Chloe comes along - she's been working and saving hard, and has a bit cash ($54k actually). She also knows some great brokers who she got to know on some forum called Somersoft.

She hears about this poor person, and being the nice helpful soul she is says - look, I'm here to help. I'll buy the unit off you for $270k - that's what the bank says it's worth - so I'm willing to pay you the full price!

The buyer's sad that they kiss goodbye to their $30k deposit, but hey, it's better than being chased for $54k that might send them bankrupt!

Chloe buys brand new unit originally sold for $300k for $270k (after the broker she uses has a fit for trying to organise the loan in 2 weeks.... oh well it happens).

But I guess that will never happen in real life huh?

The Y-man

 

[JWR]

Great idea Y-Man.

Where do you find these guys though?

What about buying the last one the developer can't sell for 20% less etc...? Not sure how to find these guys either but would be great to find.

 

[travelbug]

Neither do I really.....

But how about "under the original contract value"?

Let's say someone signs up for a flashy new off the plan project somewhere for $300,000. They put down a 10% deposit ($30k) hoping they will get a $270k loan from the bank on completion (after all they have a pre-approval don't they?)

The place gets built and settlement is in 2 week's time so they call the bank to get that loan... but the bank comes along and says "sorry, prices have fallen 10% - it's worth $270,000. Also, our lending policies have changed - so we can only go to 80% LVR. We can lend you $216k based on today's value"

Now the buyer is in a bit of a fix - they HAVE to settle. They have to find $54,000 somewhere - in 2 weeks!!

Now Chloe comes along - she's been working and saving hard, and has a bit cash ($54k actually). She also knows some great brokers who she got to know on some forum called Somersoft.

She hears about this poor person, and being the nice helpful soul she is says - look, I'm here to help. I'll buy the unit off you for $270k - that's what the bank says it's worth - so I'm willing to pay you the full price!

The buyer's sad that they kiss goodbye to their $30k deposit, but hey, it's better than being chased for $54k that might send them bankrupt!

Chloe buys brand new unit originally sold for $300k for $270k (after the broker she uses has a fit for trying to organise the loan in 2 weeks.... oh well it happens).

But I guess that will never happen in real life huh?

The Y-man

But she hasn't bought it at under market value, she has bought AT market value. It's just that the fool who bought off the plan believed the sales hype that it would be worth more when complete and overpaid.
Happens all the time.

I'd still be wanting to buy it at less than market value.

 

[Ergophobia]

Owner wanted a quick sale.

I think this is the key... Get your funding sorted and let every agent in your target area know you are ready to buy if the price is right.

A deal will come up... Owner moving inter state, or overseas, deceased estate, needs the money, any number of reasons.

If you can offer a quick, no fuss transaction, you will find there are many deals to be had.

 

[The Y-man]

But she hasn't bought it at under market value, she has bought AT market value. .

Correct - as I stated at the start of that post - no idea how to buy under value - pretty sure that I never have in the dozen or so properties we have purchased.....

The Y-man

 

[redwing]

Technically if you buy something for $X, that is the market value because someone (you) has purchased the property from a seller. Unless of course it is a non-arms length transaction where you purposely sell it for a low value that has no relation to its true value.

It's mostly hyperbole - people make their big gains after purchasing their property if/when the market picks up, rather than at the time of purchase.

If someone goes into a garage sale and picks up an antique item at $100.00 because they know its true worth or value and sells it a month later for $1,000,000.00 was the true market value the $100.00 or $1,000,000.00 paid ?

I would think buying under market value is taking advantage of any market 'mispricing'?

I would think BMV Properties maybe sold below their market value when the owners are faced with some type of financial difficulty such as debt, divorce, disability, deployment, death in the family etc......

 

[JWR]

Absolutely you can buy BMV but be careful the area isn't falling and the price you pay is the exception and not the rule - because then your BMV property will become MV after a few months.

I look at the lowest prices in the area then only buy when I find a deal under that price with more land/better features. And in a growing area too to make sure I won't lose money over the long term.