What's $10k or $15k over the long term?

I often read people complaining that they paid too much for their PPOR or an IP by $10k or $15k(Based on a $350-500k prop). Over the long term, say 10 years+, does it make all that much difference? When I look for a potential IP, I don't necessarily care paying market value or a little bit more as stated above, providing the location is good, because of one key factor...."Time in the market".

For the long term investors only, does $10k or $15k make or break a deal for you, even if your numbers don't quite add up in your favour? Ie, do you look beyond the numbers?
 
I often read people complaining that they paid too much for their PPOR or an IP by $10k or $15k(Based on a $350-500k prop). Over the long term, say 10 years+, does it make all that much difference? When I look for a potential IP, I don't necessarily care paying market value or a little bit more as stated above, providing the location is good, because of one key factor...."Time in the market".

For the long term investors only, does $10k or $15k make or break a deal for you, even if your numbers don't quite add up in your favour? Ie, do you look beyond the numbers?

Good point. I tend to agree and disagree at the same time.
Property investing is about creating equity. And creating it from start is as important. A profit is not made when you sell it, its when you BUY it.....
 
Good point.
I see people all the time who miss out on what could be great properties to own because they try to shave a few grand off the price.
Good, well located properties in a strong market will always command a good price.
The people who try to save a few, short term, bucks and miss out in the process then complain years later when they see same or similar properties commanding big $$$.
I'd rather secure a good long term deal, even if it costs a few extra $$ to do so. The way I see it, those few dollars will be just a rounding error in 5, 7 or 10 years time.
 
$10k is 2% of $500k so at normal growth rates I’ve lost several months of CG. If you’re financing around 90% LVR then you need to stump up another $1k deposit which is negligible. The flip side is $10k less equity later on when you want to draw down on it. In my mind, it’s no biggie if cash flow and capital potential are compelling.
 
Getting the price "right" isn't an exact science either, as there are many variables to consider with properties- particularly those that have few comparables or are of a "unique" nature. You only need to look at auction sales where the reserve is exceeded by many tens (or hundreds, in some cases) of thousands of dollars to see this.

In the end, it comes down to supply and demand. If there are more buyers for a given no. of properties it's more likely that one of those buyers is going to pay more than perceived market value to secure the dwelling. This can mean paying anywhere from 1-20% over the market guide or price- as investors watching their bottom line it's a little different from emotional home owners who tend to drive prices up. Most home owners will pay a little more to get into that particular street or neighbourhood, even though valuations come in low or comps show them otherwise. It's simply human nature.
 
( going off track to get back on track down further )

Given what Rob has said , is it such a bad idea that newbie's use a BA for there first couple of IP's . yet on here they appeared to be viewed with a such scepticism.

why is that ?

is it because its hard to know when you have a good one ( think accountant and lawyer, PM )

To me I would think that a good BA, would make you the 5 or so K + they charge by getting you into the right property sooner, than you would be able to yourself, without all the hassle that seems to go with buying, if posts on here are anything to go by, as not everyone has the time to do sit on R/E .com.au and do every weekend looking for that diamond in the rough , and yes I get the 'teach them to fish thing' but time is money .

Imagine if a boom started and it took you many months to 'find' the perfect IP , would you not be behind.

Would it not be as The_Bludger and troyhunt have suggested be better just 'getting in' and riding the wave and looking at what it real costs are to save 5/10k.

I have bought 3 IP's with a BA , and will continue to do so for many reason's , and most of the reasons are profit , I can imagine where I would be without my BA and most of them would be standing still waiting and waiting and wondering, saving that 5 or 10 k, and even now that I know what my BA does I still don't think I could save the 5k anyway ( like the R/E are going to ring me with deals pffft).

would a ( good ) BA let you pay 5/10k over what you should anyway ?

I think that sort of answers itself ,for the more experienced, I think alot of it would have to do with time available whether they would use a BA at all ,or even pay 10k over.

But if your a buy and hold kind of investor , The_Bludger troyhunt may have a good point to ponder

stuart


PS I heard it once said

'buy as much as you can as soon as you can'

good luck to all the newbies like myself !
 
I overpaid on my first property - listening to the REA who had other interests, eg his own commission - and ended up paying over market price - consequence is, 18 months on I've got no equity to draw down on! Started with 87% LVR and with market movements its now at 81%...If i hadn't paid that extra 10-15k, I'd have that to now draw upon plus a little extra equity to fund the next purchase...so over paying too early can really delay your 2nd, 3rd, 4th etc IP
 
Agree with Blue Card! but I think it's more about %ages than $$.

Paying $10k over the odds for a $150k property is a lot different than paying an extra $15k for a $500k property.

Also depends on your goals. If you want a quick reno and flick, then every dollar on purchase counts "more".

If you're looking at 1 IP every 2-3 yrs, then getting extra equity ASAP is less important; if you want an IP every 6 months and rely on growth to get into the next one, then buying well below value is also important, as JoshyBoi mentioned.

(Of course, I'm sure we'd all love to always by below value :) - and some probably can :D but some of us are happy just to pay "fair" value and let future time do the work.)

Hope I made sense!
 
I overpaid on my first property - listening to the REA who had other interests, eg his own commission.....

AND he is contractually obligated to do exactly what he did - get the highest price for his vendor :(

And yes, overpaying initially is long forgotten in the longer term of 10+ years BUT it can, as you rightly point out, slow your acquisitions initially - with long term repercussions.

That is why I like darcy13's BA story. (and just for the record I am not the BA he uses)
 
It depends on your strategy. Mine is to buy and hold properties that are well priced with good future yield growth. In this sense, paying 10-15k too much doesn't really matter.

That said, it's often hard to determine the real value,and when spending 3-400k on a property, that 10-15k can represent nothing more than a local market fluctuation.

For me, it simply comes down to what I'm prepared to pay for a property. There's a price under which the numbers 'work', and this is what I bid up to. After that, I walk. And this is why the 10-15k doesn't really matter to me.
 
good post darcy13... ive been considering this recently

I'm looking for my first IP in Perth for around $400K and trying to juggle a 9week old baby plus new job... we're getting nowhere. From the snippets of research ive done i see very little on the market at the moment that suits my criteria and worry about never making that first move...

I'd imagine $5-8K on a BA to secure a well-located, strong cash flow property would be well worth it in my position.

Does anybody know a good buyers agent in Perth?
 
I see people all the time who miss out on what could be great properties to own because they try to shave a few grand off the price.
Yes, it's INSANE.
Rob Williams said:
The people who try to save a few, short term, bucks and miss out in the process then complain years later when they see same or similar properties commanding big $$$.
I'd rather secure a good long term deal, even if it costs a few extra $$ to do so. The way I see it, those few dollars will be just a rounding error in 5, 7 or 10 years time.
Probably not even rounding error.

I remember agonising whether we'd paid too much for our current PPOR in 2001. We went up to $230K, they were at $243K and not budging. (I think that was exactly what they needed to finalise a bitter divorce.) So we just "bit the bullet" and paid $243K (which we felt was still at or slightly below market anyway ;)). Last valuation: $790K, prior to our recent renovations. Do you think I worry about that $13K now???
A profit is not made when you sell it, its when you BUY it.....
If there is any value in this saying, I think it's to do with finding the right property, the "diamond in the rough", not in getting it at the lowest possible price. It's silly to interpret a dollar saved at purchase as being more valuable than any other $.
it's often hard to determine the real value,and when spending 3-400k on a property, that 10-15k can represent nothing more than a local market fluctuation.
Exactly! If you can purchase within 5% of the price you consider a bargain, be happy; prices simply can't be known as precisely for anybody to ever tell you definitively that the house you purchased for $420K was really only worth $403,632 and that you overpaid, or that it was worth $436,254 and thus you got a bargain.

The best strategy, IMHO, is to buy a property where the magnitude of the anticipated growth (either via market movement or manufacturing growth) makes the 5% variation in purchase price "fade into insignificance". ;)
 
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