Like a pot of gold at the end of a rainbow, buying a property under market value is seen as the epitome of investment success.
However, it can be an elusive goal – especially for new investors who don’t fully understand what it is and what it is not.
Take the current market conditions as an example.
In most cities around the country it would be fair to say the market is in the buyers’ favour rather than the sellers.
That’s because there are fewer buyers generally so sellers are having to price their properties accordingly to secure a successful result.
The thing is, even when buyers are thin on the ground, demand for investment grade properties remains strong because of their potential for solid capital growth.
Savvy investors are always on the look out for the best properties that are likely to outperform the averages regardless of market conditions or sentiment.
Price is what you pay
As I always say, price is what you pay – value is what you get.
You make money when you buy your property, not by purchasing it cheaply, but because you buy the right property for the right price.
Unfortunately, inexperienced investors often don’t understand this strategy.
Instead, they think that because a property seems to be a “bargain” that it will therefore be a good buy.
They falsely believe they are actually buying under market value.
Of course, that is wrong.
Buying a bargain means they will likely end up with an inferior property that won’t kick any capital growth goals anytime soon.
The price they paid was low because the property was no good.
Many other buyers understood this, which is why the price was bargain basement.
A cheap secondary property today is likely to be a cheap secondary property tomorrow.
However, if they had understood what buying under market value actually meant, they could have saved themselves much financial anguish and regret.
Not for newbies
It’s important to realise that buying under market is a skill that requires plenty of practice to perfect.
Because most people only buy a few properties in their lifetimes, their chances of becoming expert negotiators are slim.
For someone like the team of buyers agents at Metropole, though, because they have helped buy thousands of properties for clients, they have the experience to secure investment grade properties for good prices.
How do they do this?
Part of the strategy is understanding the vendor’s motivations, such as if they are more interested in a fast sale than anything else.
Perhaps they are in financial difficulty or have suffered a relationship breakdown.
Of course, I’m not suggesting that you take advantage of their situation.
The key is to understand what they want more than anything and then negotiate on that factor.
So, in this example, perhaps a short settlement of 30 days is more important than price.
We would ensure that meeting that requirement was front and centre in the negotiation.
That, in turn, would create the opportunity to secure the property for a price under what it may have achieved if it had gone to auction for example.
Another way that we buy properties for under their market value is because we know something that the vendor and the agent does not.
Perhaps, we know that the property has development potential, or maybe there has been a recent zoning change that increases the property’s potential.
Again, we negotiate to secure the property for a price that the seller is happy with, but we also understand that its value is far greater because of this development potential.
As you can see…
Buying under market value is achievable – if you have the skills and experience to make it happen.
You also need to know the market intimately so you can identify properties that are worth more than the seller or the agent understands.
The thing is, it is nowhere near as important to buy a bargain as it is to buy a property that will outperform in the capital growth stakes over the long-term.
If you can achieve that, well, you’re ahead of the masses already.
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