How To Buy Great Property Investment Deals In Every Market

Posted on Friday, January 25 2013

Finding Great Property Investment Deals In Every Market-Can It Be Done ?

Buying an investment property that ticks all boxes at a bargain price when the numbers stack up is not as simple as one would think.

In this article I will touch on the basic requirements for you to successfully find a great property investment deal, maximising the opportunity by applying the right strategy at the right time in the property cycle.

Strategies For Buying Properties in the Downturn and Slump Phase

“Be greedy when others are fearful…” – Warren Buffett

Mortgagee and Forced Sales: In the economic downturn there are a lot of business and individuals who are experiencing financial difficulties, whether they have been redundant, their business is failing, or simply the lender has gone broke, to name just a few.

In this situation investors who are cashed up or have pre-approved finance can take advantage of an opportunity to purchase a property at a discounted price.

Example 1:
In some situations the vendor has to sell a property to release some cash for injecting in to a failing business.

Example 2:
In some cases the lender or bank will sell a property and the mortgagee will be willing to take the amount of the loan only, which is less then the actual value of the property.

Note: Rules vary between countries. In New Zealand for example, the lender has a legal obligation to try the best they can to recover their funds by selling the property at a fair market value. Failing to do so, can potentially leave room for the mortgagor to claim that no attempt was taken to prevent them from being bankrupt for example.

This is the reason why in NZ 90% of mortgagee sales are done via public auction.

Newspapers, Flyers and Private Sales Advertisements: Newspapers and flyers work well in a downturn when a lot of vendors are contemplating whether they should list their property with an Estate Agent or wait until the economy and property market are showing better signs of some recovery.

During this time most of these property owners will be responding to your advertisement as they would be happy to sell privately and save the Real Estate commission on sale.

Private sales advertisers will be frustrated by the lack of enquiries as usually the properties are poorly advertised in an environment were there are less buyers than sellers.

Online Platform: Offering sellers a solution of a fast sale and settlement to address their financial stresses is another great way to put yourself out there as a Private Property Buyer.

As an example have a look at my website: www.WeBuyProperty.co.nz

Auctions: Are good options for the BUYER in a slow market. Usually when a property is taken to auction the owner has committed a few thousand dollars for marketing the property and they also require a cash unconditional offers.

This method of sale is a double edged sword which can work in favor of the seller in a hot market when there are many buyers out there and competition can push prices way above the vendors reserve price. In the downturn however, when there are less buyers in the market who can purchase unconditionally under the hammer, your chances are greater to be the only bidder or to have the first right of refusal after the property is passed in at auction due to no bids at all.

Tip: I hardly ever attempt to buy at auction in a hot market, I prefer to wait and see if the property sells and then negotiate with a vendor on a conditional offer basis.

The downturn is usually a Buyers Market meaning that vendors are more flexible on the price and have more of the upper hand at the negotiation table. Properties take longer to sell and that’s why the sellers are usually more “conditioned” to receive a lower price than the initial price they had in mind.

There are also various other more complex strategies like buying with Vendor’s Finance where the vendor leaves money in the deal as a first or second mortgagee. This is out of the scope of this article but it is a very handy strategy in a market when banks are tighter than usual or if the purchaser requires a larger deposit then they actually have.

Other strategies that work well in the downturn are Lease Options and Sandwich Lease Options. Sandwich Lease Options especially, is one that solves serviceability issues to a distressed property owner. (Search the terms online or more information).

Last but not least Estate Agents: Keeping good contact with a few agents is key for finding great deals in any market. Usually when you start up as an investor or trader you will be chopping and changing who you work with until you find an agent that has a deep understanding of your business and goals.

Once you have an established relationship with a team of Estate Agents and when you have purchased or sold with them the relationship will be worth it’s weight in gold.

Strategies for Buying Properties in the Recovery and Boom Phase.

I would like to start with quoting Warren Buffett again:

“Be fearful when others are greedy” – Warren Buffett

While the recovery is arguably the best time to buy investment property, the problem is that 90% of investors are not able to identify the optimum time, which is usually the early recovery stage. So personally I prefer the bottom of the market.

The reason that most investors will not identify the early recovery stage is that they are not spending sufficient time in the market on a daily basis and there will still be some negative media commentary etc which distorts the picture of what is actually happening.

In general I think that it is always a good time to buy a deal that stacks up. A property in a good location, that generates cash-flow from day one and has the immediate opportunity to add value should be seriously considered.

The early recovery is a time when the market is starting to pick up some momentum and some astute vendors sit on their hands and wait until the media is saying things like “House prices are rising”… ”There is an under supply of houses….”

In the early recovery most of the strategies stated above under the slump and bottom of the market phases will work. It is the best time to purchase properties to on-sell that require work or rehabilitation, then you can bring the renovated property back to the market later on towards the market upturn.

However as the market peaks this can be, in my opinion the most dangerous time one can buy a property, especially for the average investor who is paying too much. All too often after 12-24 months their property is worth less then what was paid. So steer clear of competitive auctions when one can get carried away as these are not a good idea at this time!

The peak of the market is a good time to be offloading under-performing properties or any do-up properties that were purchased to on-sell.

At the peak of the market property owners become less flexible on price and terms, and the market becomes what we call a Sellers Market.

Strategies like vendor finance and sandwich lease option are less attractive to vendors at this time where there are many buyers out there.

In a hot market an online platform still works but most sellers will be those who have high expectations and those who paid way to much purchasing during the previous boom. They are just unwilling to make a loss and have exhausted all attempts with the Real Estate Agents. Our Team at WeBuyProperty.co.nz and PropertyBuyersAuckland.co.nz Are NZ Leading House Byers company and we are Actively buying Houses in any market, hot or cold.

The best away for buying in a hot market is buying “off market” via private sale or via a Real Estate Agent who knows a vendor who for some reason doesn’t want to go to market publicly or sell at auction. They will likely want a very fast sale due to some left field event and have a need for an immediate cash injection. This way as an investor you can negotiate and work with the seller to create a win-win situationFind Property Investment Deals In Any Market

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Expert's Bio

Hadar Orkibi

Hadar is a full time Property Investor and Trader, Specialising in Do-ups & Add value, Multiple income properties, High Yielding, Commercial, Equity and "Move Forward" Properties. Hadar is co-owner and Sales & Marketing Mangers at www.PropertyGenie.co.nz. Owner of the Private House Buyers companies www.WeBuyProperty.co.nz & www.PropertyBuyersAuckland.co.nz/ Find Hadar on Google+

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