Guide to buying interstate, fly in-fly out, without a buyers agent.

[DavidMc]

I've used big brand name buyers agent with a pretty poor experience. The property took over 6 months to acquire, I missed out on an amazing deal, was asked to break the max limit we set at auction and now I have this property with hopeless yield. Also, this 'investment grade, high growth, inner presitge,' property has averaged 5% capital growth over the last 4 years (2007-2011 Inner Melbourne market).

I want to write up a little 'plan of attack' for doing a fly in/fly out purchase interstate I plan to make, quickly and efficiently and without a buyers agent. Obviously I don't want to waste money or time.

Assumptions
Goals set, property helps meet future goals, finance sorted, area researched, all the usual stuff.

The month prior to the trip

1. Determine strict buying criteria (eg. Established house, Land size 600m2+, 4 bed / 2 bath / 2 garage, walking distance to shops, 400-450k)
2. Shortlist properties from web.
3. Contact agents to determine reason for sale, time on market, get a feel for the deal, ask about rental potential.
4. Inform them of plans 'I'm flying up for one weekend, will shortlist down to 5 and then and will then buy 1 or 2 of those'.
5. Book hotel/rental car/flights

Trip itinerary
Friday night - land, pickup rental car, perhaps do a drive around the different areas to get a feel for it.
Saturday - the day spent inspecting shortlist of properties (hopefully 6+, if all lined up and organised well). The night enjoy the town.
Sunday - the day spent inspecting shortlist of properties (if possible, another 4 or so). Fly back home that night.
Monday - Hopefully at this stage I will have 3-4 properties I really like (and I don't really mind which one I get).

Week after trip

1. Organise pre-purchase inspections (building/pest/independant valuations).
2. Negotiate on 3 at the same time. Perhaps offer each property 10% under asking/valuation, then 5% under, then valuation and take whichever one accepts first (or something similar - the target area is a bit of a hot spot so I expect I'd have to move quickly).

Some Buyers Agents say you need to inspect 50-100 properties and 'massive' amounts of research in order to find a good one (and that takes so much time, so you should use a BA). I think this is an exaggeration. I think after viewing say 50-100 online over a period of a month or so, then talk with the agents about 15-20 of them, physically inspect 10 of them sufficient for an investor with say 5-10 years of IP experience and 5 or so properties under their belt should be able to end up with 2 or 3 that would make good investments.

Sure the above is unlikely to get me the bargain of the century, although even if I paid $10k more than BA could get (and in my experience, this was definately not the case) I'd be no better or worse off.

(A 3% BA fee for a 420k property would be $12,600).

It's my opinion the whole 'up to 30% of RE deals were off market transactions and we have access to those, and you don't' was a load of BS too, the few deals I was presented over a 6 month period none of them were off market.


Questions
1. Am I being overly optimistic here?
2. Any tips or tales from someone who has done a fly in/fly out purchase like this?

 

[Aaron_C]

That's going to be pretty expensive to organise building and pest inspections and independent valuations for 3+ properties

 

[Propertunity]

Sunday - the day spent inspecting shortlist of properties (if possible, another 4 or so).

Depending on which town we're talking about, Sunday viewings could be a problem:
1. Tenants do not have to allow inspections on Sunday.
2. Some (many) REAs do not open on Sunday (depending on area)

[*]Negotiate on 3 at the same time. Perhaps offer each property 10% under asking/valuation, then 5% under, then valuation and take whichever one accepts first (or something similar - the target area is a bit of a hot spot so I expect I'd have to move quickly).

This could be a problem if the 3 you like are all with the same agent.

10% or any % really, under 'asking', means diddly squat, because 'asking' means diddly squat. You won't have access to 'valuation' in 1 week-end.

(A 3% BA fee for a 420k property would be $12,600).

3% sounds very high.

It's my opinion the whole 'up to 30% of RE deals were off market transactions and we have access to those, and you don't' was a load of BS too, the few deals I was presented over a 6 month period none of them were off market.

30% off market sounds extremely high. We buy off-market too but nothing like 30%. In a hot area (that you're talking about), off-market would be rare.

 

[DavidMc]

That's going to be pretty expensive to organise building and pest inspections and independent valuations for 3+ properties

OK, so save building and pest until after acceptance, if one can get a vendor to accept a contract with a subject to these two items.

Valuations should be around $350-ish, if I get 2 or 3 perhaps slightly cheaper. Sure, $1000 on valuations is expensive, but that's a cheaper way to 'purchase' someones knowledge of local prices than buying it from a BA (which, unless a BA specialises in that area, could be more accurate).

Of course I could buy myself a number of RP Data etc al reports on past sales, drive and see those properties and do the valuations myself if my confidence level was high.

 

[Aaron_C]

May I ask where you bought your property with the BA? Which suburb?

 

[DavidMc]

Depending on which town we're talking about, Sunday viewings could be a problem:
1. Tenants do not have to allow inspections on Sunday.
2. Some (many) REAs do not open on Sunday (depending on area)

This could be a problem if the 3 you like are all with the same agent.

Good point. I suppose I could take the Friday off instead. Or even the Thurs as well. I would have thought if the 3 I like were the same agent it would be even easier to a) inspect and b) negotiate (the REA will know I'm not bluffing about the multiple offers). Why would it be harder?

10% or any % really, under 'asking', means diddly squat, because 'asking' means diddly squat. You won't have access to 'valuation' in 1 week-end.

One would think that the asking price has at least some resemblance to the market price. However yes, definately not something to rely on or place much weigh on, I agree.

Also yes - valuations take a while, thank you for pointing this out. I suppose I'd have to find a valuer who could provide these quickly. I will have to find out more about this.

3% sounds very high.

Propertunity, what do you think are the going rates?

30% off market sounds extremely high. We buy off-market too but nothing like 30%. In a hot area (that you're talking about), off-market would be rare.

Good information. Thank you.

 

[DavidMc]

May I ask where you bought your property with the BA? Which suburb?

Toorak.....

 

[Propertunity]

I would have thought if the 3 I like were the same agent it would be even easier to a) inspect and b) negotiate (the REA will know I'm not bluffing about the multiple offers). Why would it be harder?

They have an 'ethical dilema' becuase they have a duty to all 3 clients. They can hardly tell them all the real story when they put your offer/s. Maybe they can. I know I am using the word 'ethical' in te same sentence as REA.

Propertunity, what do you think are the going rates?

Most who do %'s are anywhere between 1.1% - 2.2% inc GST and depending on price range. It is also a function of degree of difficulty - both on property selection/price and client expectations/access for decisions.

Good information. Thank you.

Ah you're always welcome David. I'm sorry you ended up with a bad experience before. I would have thought you could have done Toorak yourself - aren't you nearby?

 

[DavidMc]

They have an 'ethical dilema' becuase they have a duty to all 3 clients. They can hardly tell them all the real story when they put your offer/s. Maybe they can. I know I am using the word 'ethical' in te same sentence as REA.

I don't quite get it. I still think that would be even better for me. They would still have to pass on all of my offers surely, especially if I put them in writing (and if they are going to be honest with their vendors, which you'd think they'd want to be, they'd also mention that I have real offers on other properties).

I would have thought you could have done Toorak yourself - aren't you nearby?

I probably could have and in hindsight I should have. I felt I underestimated my skills. I don't think they added much value, other than a bit of a feel good factor. In fact, they missed a major issue with the property that I pointed out to them AND their 'follow up, value add to increase yield inspection' missed out on the huge bang for buck potential of adding a 3rd bedroom by splitting the huge loungeroom. They suggested about $10k of work to increase the rental by $50pw, whereas a wall would be $1.5k and increase it around the same (and not to mention far less complicated).

The result of that experience is noone is as interested in my success as I am myself, even if I pay them.

I used a BA because it was my largest purchase (by almost 3x!), my first ever auction, in an area I didn't know at the time (cuthroat inner Melb, where you can easily overpay (like I probably did!) - I'm from the bogan outer east burbs) and I bought into all the BA claimed benefits. I also wanted to use a BA to buy quick to capitalise on a rising market, although it took 6+ months.

I am not writing off BA's all together and I fully accept there are great ones out there. In fact, finding a good smaller operator would be the way to go - the larger BA firms place you at the bottom of a list of buyers esp if you're after the typical 'good IP for 350-450k' (or whatever). That's what I felt happened to me anyway.

If I could find a good one who charges towards the lower end of the 1.1% - 2.2% I'd consider using one ($4,620 to $9,240 on a $420k property). I know exactly what I want, and it's not overly specific. I'd be an easy client to work with.

If you know of any that service/specialise in Gladstone I'd be apperciative.

 

[Propertunity]

If you know of any that service/specialise in Gladstone I'd be apperciative.

There must be a lot of people looking. If you google "gladstone buyers agent" it even pre-fills the search for you

There are a few there by the looks.
http://www.gladstonepropertysolutions.com/buyersagent.aspx
Sorry I don't know any personally.

 

[The Chaser]

Hi David

I live in Perth and purchased in Gladstone in the last 12 months or so. Following is what I experienced buying interstate...

Based on your assumptions I am guessing you have already done the following... I spent ages researching the area (mainly online) but specifically talking to REA's and Property Managers to guage exactly what type of property was most in demand (for both investors and OO's) and likely to remain in demand in future years when mining activity settled down. I also researched the status and future prospects of all the approved or proposed mining projects in the area. It became clear that 4x2 houses seemed to be the top of the pile and newer properties were most attractive to mining companies wanting corporate leases and also to mining employees moving to Gladstone with their families.

Where I differ from you is that I also concluded that brand new (or only say 2-3 years old) was better overall for our personal circumstances and future goals than buying established properties. My focus then shifted to zeroing in on learning all I could about the various new land estates, including what house and land packages were available and what was a fair price. There were (are) some operators who are sucking in interstate investors and either locking in low 'guaranteed' rents or inflating prices.

In 2010 when I was looking, stock (new and established) was being snapped up the second it hit the market. Making discounted offers on asking prices was pointless because most stock would sell for the asking price. Having said that we gained equity from the day we signed the contract due to the rising market, so paying the asking price was not overspending in that market.

Calling agent's to say I was looking at doing a trip over to buy something was pointless because sales were just walking out the door. This may be different now and also for established properties.

One thing I did do that is similiar to using a buyer's agent, I researched which property investing companies were advertising specifically to investors as having house and land packages available. For example Cameron Bird Group, Rocket Property Group etc... We were looking in Emmadale Gardens and ultimately found that the best all inclusive and most competitvely priced house and land package we could find was through one of these companies. The difference to using these companies versus a traditional BA is it does not cost the buyer anything, as the developer pays the buyers agent's commission. Obviously you need to go in with your eyes open, but the upside to these arrangements is that there are bulk deals involved, so the BA can negotiate a competitive rate for the building costs - this is where we saved the most - and building packages are all inclusive turn key packages. You also then have an intermediary (if desired) who will generally have people in the area on a semi-regular basis who can generally keep an eye on things and do things like take photos of your project and they often send regular updates on the local market including advice on the latest mining announcements that could impact your investment. This can be handy when you live interstate. For the record I had/have no other dealings with these companies and have only used one so I could access our Gladstone purchase.

Ultimately I was confident enough to buy without the use of a BA, BUT I just couldn't get an investor's building package that was as competitively priced as those packaged up by the BA and in fact land was selling too quick in Emmadale anyway to get into current releases.

In regards to flying over I would definitely lean towards weekdays versus weekend days. REA's are more readily available and if perhaps you tack on a Saturday to cover all bases inspections shouldn't be an issue. I would avoid a Monday, as some agents have this day off and if you were looking in newer estates the sales offices are often unmanned.

In relation to booking accommodation and hire cars...do it well in advance! When I flew over to attend handover this year, I had to choose a Thursday because the place where I stay was completely booked out for Mon-Wed. I would also keep a close eye on the Brisbane-Gladstone flights as availability can be limited at times depending on the FIFO workers schedules and it is only a smaller plane. I think I was about the only 'civilian' on a plane full of mining workers all in their yellow and navy shirts!

One other thing I did differently, is I already had an unsigned contract for the house and land package we were considering, but I had secured the deal by putting in an EOI and paying a $2000 fee. I also had lined up a local converyancer to review the contract and provide their advice before I even flew over. I then used the trip to be absolutely sure that we were getting the good deal I felt we were. I met with the builder BUT I also met with other builders, visited land sales offices, display homes and drove past numerous established properties to be sure of the local values.

Admittedly we were very confident that we had found the best deal for us, but this was our peace of mind. Whilst there we were also able to then see our conveyancer and sign all the relevant contract documents in person, thus saving the delays of posting documents back and forth between Perth and Gladstone.

In regards to valuations, unless it is the official valuation being done for lending purposes there isn't much point spending the money. Banks won't accept it and IMO you can estimate a pretty accurate value by being familiar with what's for sale and sold. Have a look at sites like onthehouse.com.au for both lots of data for free. Also I believe that there aren't that many local valuers in Gladstone and so a lot of the banks will use the same valuer. Crazily enough our first bank approval came back with the land being undervalued relative to its purchase price! There was not a single sale at the reduced price the valuer had given BUT there were many at the same or greater price that we were paying. In the end we went with a bank that had an in-house valuer and had no problems with getting a valuation at full asking price. Funnily enough we have already refinanced once on this property and the land value alone had gone up by $30K plus (and would be a lot more now), so just shows how inconsistent valuations can be in Gladstone at present.

Hopefully this info is some help. Good luck with your purchase.

Angela