How do you value a prospective investment property?

[SRB]

I am interested to know how you go about putting a value on a property yourself without using a valuer to try and find the real bargains.

We are about to dip our toes back into investing in property and are particularly keen on buying on the northern Gold Coast within close proximity to the broadwater, transport and employment.

Researching selling prices I have occasionally found properties selling in the early $300k's but with unimproved land valuations (Govt Valuations) in the mid $200k's - typically the house / improvements being around $70k on top of the unimproved valuations (June 2012). These aren't derelict houses either, most are older but very livable / rentable and have been updated, modernised or low end renovated.

These have now become my focus as target properties however finding them is hard without looking at a property around $400k and then ending up in an argument with the agent when I want to go low $300k on the offer. In each case I end up walking away hoping to never see that agent again, and probably vice versa. I am absolutely amazed how few of them actually either dont know the local selling prices for comparable properties, or at least, pretend they dont know.

Does anyone investing in Queensland and particularly the Gold Coast use a similar method using unimproved valuations in trying to locate the true bargains for investment or know any success stories doing it?

 

[thepeoplesagent]

It’s funny…Everyone wants a bargain. When they are selling, they want 10% above what the market indicates.

I would define a bargain as a price below what the target market would pay. You purchase a property for $320,000- great. But you’re the only buyer who was prepared to pay that price. If you had a crystal ball, and it worked, it may tell you there were 5 other buyers but none of them were prepared to pay over $305,000.

If it’s such a good buy, where are all the other buyers?

My conclusion, there is no such thing as a bargain unless you buy the property from a friend or family member exclusively.

Best of luck with your endeavours. I am flying to the Gold Coast tomorrow, staying at the Q1. I should have a good view of the floods. I might be able to spot some ‘bargains’ for you. All be it, these homes may be a bit soggy.

 

[SRB]

When I say bargain .... I mean something worth my time to bother even walking through the front door .... as the rampant over pricing going on at the moment is half the reason nobody shows up at open inspections.

Not a lot of cashed up buyers around here at the moment and plenty to pick from .... just looking to see how others shortlist properties worth looking at.

I have always believed the deal of a lifetime in real estate comes around about once a month.

 

[Jake Milne]

There is no substitute for in person experience. If you want to know your values commit your time to inspecting properties for sale, going to auctions, following the weekly reported sales and documenting the prices of as many properties in your target areas as possible.

Play a game with yourself by lining up all your inspections on Friday and writing down the prices you think they'll sell for. If they go to auction you'll know straight away, if they're private sale you'll need to keep tabs on them.

 

[Peter_Tersteeg]

Determining a property is simple. You collect a lot of data, you go to a lot of inspections and auctions, you talk to a lot of agents. Eventually you'll start to understand what properties in the area are worth.

Then you determine the value of the properties to you, which involves figuring out where the properties would fit in your strategy. If you feel the properties in the area are too overpriced for them to be of value to you, then you probably need to look elsewhere.

I'm willing to bet that Jake (a buyers agent in the previous comment) looks at 10 properties for every one they make a successful offer on. For every 10 properties he looks at in person, he's probably looked at 100 online. There's no real shortcuts in this game.

 

[vaughan]

Eventually you'll start to understand what properties in the area are worth.

You also need to understand what people are prepared to pay for properties in the area (as distinct from what they are worth).

There is no point having arguments with agents because houses sell for more that you think they are worth, despite all the justifications of valuations you may be able to produce.

In my experience, people are happy to over-pay. Vendors often over-value their properties and are often stubborn enough to leave them sit on the market.

 

[devank]

It’s funny…Everyone wants a bargain. When they are selling, they want 10% above what the market indicates.

Is anything wrong with that expectation?

Play a game with yourself by lining up all your inspections on Friday and writing down the prices you think they'll sell for.

Very often friends and family ask me to look at properties they are interested in.
I tend to over value older properties but under value newer properties!

 

[SRB]

I can only really comment on the Gold Coast market because that's where I have been doing my research and the open inspection slog.

I can confidently tell you the difference between asking prices vs selling prices rocks your confidence a lot, and I believe, a reason the market is still a basket case here. Speaking to valuers and banks they agree the market is spooked by these wide variations.

Each time you put this to an agent it is met with assurances that "the market has picked up since that sale", or "that sale was an exception" or my favourite "we've already had interest at ...". I have watched the sale prices on those that "had interest at" and without exception, they have sold 5-10% under what the agent quoted me. Its a disgrace. The only way to level that playing field is either lowball and hang on for the ride, or come up with a reliable formula that matches with actual sales figures.

 

[Jake Milne]

I'm willing to bet that Jake (a buyers agent in the previous comment) looks at 10 properties for every one they make a successful offer on. For every 10 properties he looks at in person, he's probably looked at 100 online. There's no real shortcuts in this game.

Pretty much.

The only thing I can say is that when you get to know areas really well; and by that I mean being able to recall what the street and building looks like in and out when you've nothing more than an address it really shortens the time it takes to sort the corn from the chaff.

 

[Jake Milne]

Very often friends and family ask me to look at properties they are interested in. I tend to over value older properties but under value newer properties!

Sounds like you're a valuer!

 

[Suzy912]

Nothing better than getting out there on a weekend and getting to as many properties as you can - both inspections and auctions. Do your own homework but try and network with people who are doing the same thing too.

 

[mrmonopoly]

View, view and view some more. Before you know it you will know your local area better than the agents. Also don't limit your viewings to just those for sale, view properties for rental as well so you can see which investments command a premium rental and improved yield. Take notes of what the local market values, some people want shiny and complete, others will pay similar money for complete unrenovated dumps just to put their own stamp on it, even at the expense of over capitalisation.

Study past sales results using reports from the likes of Residex, RP Data, APM or even free sites like onthehouse.com.au. Cross reference sold addresses to the initial online listing using a simple Google search. So much of this information is free if you know where to look.

Remember you're not just competing against investors with rational thought processes and a focus on numbers, but owner occupiers who may let emotion get the better of them. If this is the case, then just move on. "Some will, some won't, so what, move on". The deal of a century comes around once a week as the cliche goes.

Last but not least, don't just go looking for bargains, create bargains, find problem properties with issues you can easily solve but might deter the majority. I.e. Properties with incumbent tenants on a long lease, which might deter home buyers. Buying problems and selling solutions has been a tried and tested method for donkeys years.

If you still don't feel confident, you're probably allowing analysis paralysis to get the better of you, so maybe employ a decent buyers agent with a proven track record to give you that peace of mind.

 

[SRB]

Last but not least, don't just go looking for bargains, create bargains, find problem properties with issues you can easily solve but might deter the majority.

That's very good advice, exactly what I was looking for, I have inspected 1000's on the net, been through probably 10% of that, and find that the ones that attract me are the ugly ducklings with the car body in the front yard, the bins that stay on the footpath all week, the lawns that are up to the window sills ... because there is absolutely no competition to buy them ... and so easily fixed.

I think at the peak we were paying a premium for these types of properties but now they are very hard to move and the agents are just happy to ring the vendor to arrange an inspection time.

 

[vaughan]

...because there is absolutely no competition to buy them ... and so easily fixed.

Properties remain unsold for a reason. Might be priced too high, or their might be serious structural issues, some obvious, some not. (Damp and termites scare me the most.) Or a combination of both.

So be sure to know what the property's problems are, and the cost to rectify, before committing.

 

[Of The Vultures]

following the weekly reported sales

Would you mind please elaborating on how you go about finding these? I've googled but no luck so far.

Cheers,