Wow what a December it was, finishing off the end of a great investing year.
I always say investing before Xmas is a great time to get in, as vendors mentally want to offload their properties so that they know the deal is done before the holidays and they can relax, well the desperate vendors anyway.
This year proved itself as a “Vintage” (special word for excellent wine year) of a year to invest.
Consumer confidence is back and in full swing with the Sydney & Melbourne markets going crazy. I cannot explain how or why the Melbourne market is performing the way it is, but it is…
Speaking with my man on the ground in Geelong, December capped off a stronger year & January has started with a great leap… playing little sister to Melbourne should see a great year for Geelong in capital growth. We are already seeing signs of this in the more expensive suburbs of Geelong and this will ripple effect throughout the region.
But with things going so good, what’s install for 2014?
To me:
Yes the opposite to what the sheep are doing…
As soon as you hear that consumer confidence in Sydney and Melbourne markets is up and they are performing, then you should be looking elsewhere, as you have missed the boat.
Brisbane is already being targeted as this years Hot Spot and set to perform better than Sydney & Melbourne. Again too late…
While out having a beer with friends at a bar last weekend, I met a couple who just purchased an investment property in Western Sydney. It had taken 6 months to secure a property purchase as they kept getting pipped at the post from buyers willing to pay “even more”. There were that many buyers around that it was literally like a dog fight to get a deal accepted. This frustration made them even more determined to buy a property, which meant they had to pay more and more. They secured a property eventually but paid a ridiculous price for the property, in a market that will cool off in the next 12 months. So much so that when we were buying houses in that area we were securing them for $80k less or should I say 25% cheaper and that was only 5 years ago.
Can you see how market timing is a major key to investing…
Once a market cools off, buyers disappear and vendors become desperate to sell. They know they have missed the peak of the market and now have no option but to reduce their selling prices to bag a buyer. This negative effect can carry on for 5 years before the market may turn back to positive.
Those investors at the bar will make no money from this property for around 10 years.
In what world does this make sense???
You need to be looking wHere everybody is not…
In locations that have all the attributes of a great investing area but are currently seeing little action.
I can tell you, that these locations are getting harder to find currently due to low interest rates, but they are out there and the spoils are waiting for the taking.
And even within those locations, there are signs of deals even better than the great ones. I am on the verge of securing my first property for the year. It is a 8 year old, 4 bedroom, 2 bathroom double garage with a tenant that has lived there for 5 years and wants to stay another 5 years. Never missed a rent payment.
So what you say!!!
Let me paint the picture.
Well the tenant runs a home business from the property. Their business equipment is bulky and would cost a ton to move, hence he is going nowhere. Because of the nature of their business, he has not allowed for any internal photos of the property to be taken for advertising the property for sale. When you look online, the advert is terrible.
The vendors are a mother and daughter, who are in court sueing each other, and the bank is weeks from taking over the house. All this has scared off the few people that have inspected the house. Hence the property has been on the market for almost 12 months.
I walked in and liked the property and made a low ball offer, as I do… It was counter offered at $30,000 higher than my initial offer. I made a second and final offer a few thousand higher than my initial, to which they tried to get me up another $8k. In my return email I stated that my previous email did state that this was my final offer and please represent to the vendors or I am walking. They accepted.
Or so I thought…
Lets get back to the tenant. Their lease is due to expire in April. The yield is already 6.1% and I will sign them onto a 2 year lease (not my normal suggestion) but squeeze another $10 per week from him from day 1 with a $10 increase every 6 months. By the end of the 2 years he will be paying $50 per week more than he is now. This will take it to a 6.8% yield.
Not bad considering interest rates are around 4.9%…
You see, because he runs his own home business from there, he will be claiming part of the rent against his tax, so he really won’t mind about the increases and they won’t affect him financially at all.
Now I can all hear you saying, wHy didn’t you buy that one for me???
I wasn’t allowed to take internal photos, remember???
To avoid this same problem when I sell the property, I will give them the option – allow me the internal photos so I can sell easily or sorry but I will have to move you on and have the house vacant.
I will also explain to him that because the yield is very attractive that we will have a great chance of selling to an investor which will allow him to stay… win win…
So we signed the contract and emailed back to the agent, ready for the vendors to sign. And then came the next battle. Between the daughter and her solicitor they decided that they would try and get more money from me and instead of signing, the counter signed the price with a figure $10,000 higher than what was verbally accepted.
Wow this woman really is delusional…
We immediately withdrew from the contract and walked away…
The nice thing about buying in a buyers market is that time is on your side… so for now the property will sit and we will touch base with the agent every week or two and see how much pressure the banks are putting the vendors to sell.
Then when their boiling point arrives we will put another offer to buy the house… a much lower offer of course…