Reading Time: 6 Minutes
What’s up guys!
How’s everyone’s weekend?
Thanks for coming back to your favourite Frugal Samurai.
We continue today with the story about how I let the one (ring) to rule them all slip through my grasp.
If you haven’t read the first part – do so here.
If you have read the first part, you’ll notice that it’s overwhelmingly emotional and yes I may have been blindsided by the superior numbers on offer such as the 13% gross yields or $70k asking price below my perceived value.
So why didn’t I pull that trigger then?
You snooze you lose!
Technically this is true as I did sleep on it prior to calling the agent…
FIRST thing next morning.
“Hi, this is TheFrugalSamurai how are you…”
Here’s the summary of that conversation:
- The property vendor is “very, very, very old”(agent’s words) and is looking to finalize his estate.
- The online listing has only been up for a day or so and already there were 14 enquiries.
- The agent knew it was under-priced, but an independent valuation had confirmed a value of $300,000 based on the fact one of the previous tenants (unit 2) had punched a few holes in the walls (as you do). Insurance claim was underway but hence why it was vacant and valuation came in low.
- A couple of offers were presented already – one from a gentleman who just sold a land lot in his portfolio and had offered cash to settle by Xmas.
- The first open viewing was on the weekend, no special viewing times before that.
- The real estate agent had just returned from Fiji, and whether I had ever gone to Fiji? (No, but I hope one day?)
In hindsight, following on from that convo – there were a fair few things to take away.
- Always, always, ALWAYS find out WHY the owner is selling.
- This is absolutely paramount in negotiation and determining your offer. If they disclose the 4 D’s – Death, Divorce, Debt, Disaster, as the buyer you’re in a good spot.
- If you think it’s a good deal, don’t be naive enough to think that no one else would spot it.
- See why I got so emotional (in part 1)? I can guarantee that there were 14 other prospective buyers who were equally as emotional and seeing the dollar signs, just like me.
- The valuation.
- Even though this one was an independent valuation – do valuers act in the best interests of the owner? NO. The valuer’s first interest is their own – that is, to not be sued.
- You see valuation reports often end up in the court of law to determine formal estates and proceedings, go too high and BAM someone can sue the valuer for misrepresentation of value. Best to err on the side of caution.
- Usually the valuer can only assess if properties are fit and habitable to live in – given unit 2 has issues with holes being punched in or other issues (agent didn’t say) it may be that unit 2 was heavily discounted or only assessed on land value, or even factored out altogether in the final value.
- As buyers this is where a significant arbitrage opportunity exists between what the assessed value is pre-renovation, the cost of renovation and the added value post-renovation.
- There’s already a precedent set with the offer of cash to settle by Xmas, that is a significant offer to better.
- Hmm I wonder how Fijian coconuts would taste…
Food for thought?
Needless to say that after this conversation with the real estate agent I was thinking over and over in my head whether I should just make an unconditional cash offer to settle by Xmas without inspecting it.
The pros of the deal were evident on paper, in the numbers and through the research I conducted in the moments following.
But there was this nagging thought of the issues of going unconditional:
- Unlike the other buyer, I haven’t sold any land lots, (or any other lots) recently and certainly don’t have a spare $300k lying around for moments like these.
- I wasn’t 100% confident I would obtain the finance for this either in such a short time-frame.
- Without inspecting the properties, I wouldn’t have a clue what works are required for unit 2 (or unit 1 and 3 even). Last time I checked if someone punches holes in walls, they usually do some other naughty stuff as well. The cost of renovation could far exceed what I anticipate.
- Instead of being the deal of the century there’s a chance this could be a significant cash drain (although mitigated by unit 1 and unit 3 grossing 9% rental yields).
So I played it safe, politely asked my existing property manager to have a look at the first open on the weekend….
What happened next?
Suffice to say that on Wednesday night, I checked the listing again.
Lo and behold!
It went under offer.
A quick call to the agent confirmed that the buyer (whoever they are) had offered unconditional without inspecting the unitblock at all.
Cue my ramblings and tantrums which MrsFrugalSamurai put up with.
And you know what she said?
“Why didn’t you just buy it, I buy stuff online all the time”.
Yes dear, but a Tom Ford “Nude Dip” eye-shadow palette is somewhat different to a $300k unitblock.
Looking back, I can appreciate the fact that yes this was a fantastic opportunity to get ahead in our financial goals.
And to be fair, it would appear that the agent didn’t exactly do the right thing by their vendor – they priced it wayyy too cheap.
In my opinion, a longer, more-drawn out campaign (certainly not over Xmas slow-down period) or perhaps even go to auction.
But maybe the vendor was one of those adamant old-school types of doing things their way; or the agent wanted a quick and easy commission; or all parties involved wanted an early Xmas present.
Whatever the reason, I’m very disappointed but can’t help but feel a bit optimistic of what’s coming next.
You see, in the grand scheme of things – there’s a generational wealth shift coming from the asset rich, cash poor baby boomers – and we are on the cusp of that.
So who knows, perhaps deals like this will pop up more and more?
You won’t find me so cautious next time!
What do you think? Did you enjoy this post? Please help me out if you enjoyed this and put your email in and click on the little “subscribe” button on the right hand side. This way, you’ll never miss my words of awesomeness! So do the right thing, be a subscriber and get it straight to your inbox fresh out of the oven!
P.S. MrsFrugalSamurai has always been the wiser one of us two, and she always says there will be another good deal. And you know what? She’s right! We might be onto one right now… but shhhh it hasn’t been finalized yet, I’ll be sure to let you know if it does!