Day 11

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When buying a property, you usually negotiate through a real estate agent who represents the Vendor or need to be the highest bidder at auction.

After careful consideration of YOUR numbers, you determine a maximum price. Next, it is important to buy it for under your maximum price if you can.

The mindset to carry is that you will probably miss out on this opportunity as someone else will probably be prepared to pay more than you. This is perfectly ok and is because most people do not carefully financially analyse and therefore overpay.

You are looking for a good deal… you do not need to buy for the sake of buying if there is no margin or profit. Remember time is money and plenty of people have incorrectly factored time in property deals and will happily renovate properties with effective hourly rates for their time in the range close to $0. Don’t be like that.

This is a video from the Property Formula Workshop. There are several unlocked for you and included in this course. To get access to all videos and spreadsheet calculators please apply for the workshop.

Method of Sale - Negotiation

To get any property under contract (even auction listed properties), you can offer a price and your terms in an attempt to knock other interested parties out of the running. The dichotomy is that speed counts a lot for newly listed properties. But, for properties that are struggling to sell, taking your time adds more pressure to the seller and agent.

Let’s refresh our memories of what we are looking for: 

Once your filters are set up on RealEstate.co.nz, Trademe.co.nz and you are signed up for a few Branch newsletters (ie Barfoot, Ray White, Mike Pero etc) then you can start requesting documents for properties that catch your eye.

The most common approach to property investing is to see a listing, visit the property, talk it over, then make an offer after reviewing the documents. This may take a week or more. It can take a LONG time and can be a big waste of time viewing properties on your weekends that are not worth even looking at.

In our opinion, the best strategy used by sophisticated investors is to request all documents up front and do your calculations BEFORE visiting the property – then make an offer with your conditions and see if it is accepted. Do your work from the couch and save travel for super good properties that have passed your criteria for investment.

This approach means you can make many offers relatively easily. It won’t take too much time and you can do this at 5am, 11pm, 3am, it does not matter. If your price is rejected, or your offer refused, you can rework the agreement or move on. The reason many potential buyers give up is the weekends spent trawling through properties can take a toll. Especially without a result.

This is where understanding the sale and purchase agreement and appropriate conditional clauses will give you an advantage over other investors and inexperienced agents or vendors.

Assessing market conditions and the interest in the specific property is key because your ideal scenario is to get the property locked up but still conditional on your due diligence. All this with time to get finance approved or lined up and all the necessary checks done. You can check during the due diligence period for development potential, renovations costs, or building integrity etc. and you do not have to waste time/money on the property without having the price and terms agreed upfront.

Most agents will not appreciate a sale and purchase agreement that gives you an out for no particular reason. To get the due diligence clause approved by the Vendor’s agent and the Vendor, the timeframe and offer need to be reasonable. A cash-out clause is your bargaining chip which means if another buyer comes in with a better offer, you have an elected amount of days (1-5 usually) to go unconditional or your contract will expire. Only use this if you have to.

You can learn in detail about the due diligence process in the PFW course. Within the course, it is broken down into actionable steps for finance, legal and building conditions. For example, video 76 goes into detail around clauses to use and includes several clauses you can copy and paste into your agreements.

Check out Blandon’s tips for working with agents

This is a video from the Property Formula Workshop. There are several unlocked for you and included in this course. To get access to all videos and spreadsheet calculators please apply for the workshop.

Method of Sale - Auciton

It is super frustrating dealing with auctions for investment properties, especially when competing with first home buyers who are less likely to be price-sensitive because of an emotional connection with the property as opposed to your logical numbers-based approach. Check out our video Property Buying Tips NZ | Bringing Auction Forward.

You can search online, there are numerous articles about auction techniques, bidding first, bidding last, making a scene, bid amounts in odd or crazy numbers, etc etc.

At the end of the day, the highest bidder will win. The preparation required pre-auction is much more involved than with negotiation offers. You will want to be approved for the property in question before bidding. The bank will want to review the property details and raise concerns about unconsented works and any issues with the title, location, etc. before offering you an approval.

Your level of work for auction properties will be a lot higher than with negotiation and the risk is wasting a lot of time on a property that is not likely to fall into your hands unless it fails to sell at auction and you can properly start negotiating.

Preapprovals typically take 4-5 times as long to be approved at the bank if you do not have a specific property and agreement in hand. You can often jump the queue if you have a sale and purchase agreement, whereas if you do not have much time before the auction there is no guarantee that you will be conditionally approved in time.

You always take risks at auctions if you are not doing exhaustive due diligence. If you are looking at 10+ properties a year seriously, it is probably too expensive to properly assess each property (inspections, legal costs, valuations, etc). So tread carefully when agents are insisting on auctions, it is unlikely to get the price you’re hoping for.

Having said all that, plenty of awesome deals are found at auction. When the vendor says sell no matter what, and bidder interest is minimal because of perceived problems with the property or the market, deals will be found. We see clients pick up good deals all the time, especially lately. Just be prepared to take the risk when buying a property at auction if you have not done the preparation beforehand.

A mortgagehq adviser will help you assess your understanding of negotiations, sale and purchase agreements, introduce you to a lawyer and other professionals if needed, and help you streamline the buying process.

Tomorrow we are going to deep dive into the goals, habits, and the ‘why’ you need to identify for yourself if you are to push through all the difficult and boring times.

Regards,

Andrew & Blandon

P.S. Check out our youtube channel for further insights and more videos and flick me a response if you have specific questions.

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