Real Estate

Our Latest Buy (Part 3)

February 17, 2019
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Reading Time: 5 Minutes

Gday everyone, writing this at Melbourne airport at the moment.

Been a bit of a whirlwind weekend as a tag-along to MrsFrugalSamurai.

She’s got a work conference here so thought I’d come down and see how our Melbournian cousins are doing.

In a word?

GREAT.

Really good vibe every time we come here, people are more chilled and the food? Superb as always.

We also caught up with a few friends – some of whom have been following the last couple of posts about our most recent purchase (read here and here) AVIDLY.

Last time I disclosed the prices which I tested the waters for the fab four.

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Testing the waters.

What do you think? Any thoughts on which ones would get accepted?

Here are the responses, in chronological order.

Property 2

Asking $359,000 – offered $300,000.

The agent came back immediately and stated that she presented $300,000, but it is just too low and that the owner would not consider this.

This is because it was the cheapest 3 bedder at that price and the owner could always put It back into the rental pool (it was an investment). He wouldn’t budge much at all from the asking price.

Ah darn it, at $350,000ish, in its current condition, there’s not much value in that.

Puts arms in a cross in front of chest.

Oh well, still 3 left right?

Property 1

Asking $399,000 – offered $360,000.

Property 1 was the next agent to respond, she advised me to put in a formal offer IMMEDIATELY.

I was a bit taken aback by the timing and urgency of her response… did I offer too high? Should I go lower? How much more fat can I trim?

So, being the shark buyer that I am, I put in the formal offer at $320,000… with the excuse saying the broker re-calculated and $320k was the max.

What the hell right? I mean, let’s just squeeze the lemon until there’s no more juice left to squeeze.

Image result for squeezed lemon
There’s about a litre of juice left in this.

And you know what the agent said?

“Thanks for the offer! It is lower than we discussed but I’ll present this to the vendors and come back to you shortly”.

Desperate times call for desperate measures – poor girl.

There was also another reason that I offered lower than the initial price – that is because in Perth, there’s no cooling off period or any way to back out of a formal contract unless specified in the conditions.

So technically if you are making multiple offers, and they all accept – you’re on the hook to committing to the purchases.

That means I had to be extra careful to not put ourselves in an awkward position as we only had enough borrowing capacity.

At $360,000 – I thought it was a good price, but at $320,000 I know it’s a great price.

Property 3

Asking $298,000 – offered $210,000.

Whilst I was waiting for the response from Property 1, Property 3 came back to me also.

During the inspection for this property, the agent was very forthcoming (that’s what I’ve found odd, the transparency of Perth agents) in detailing the reasons why the owners needed to sell; they were elderly and needed cash funds to transition to a nursing home hence were in the process of liquidating their portfolio.

She also remarked in passing something about future development – but I didn’t pay much attention to this at the time.

Although I could see that the immediate area was in the midst of a construction boom, with high-rise residential towers newly and being built.

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No wonder the build quality is so shit, got 6 foot talking mice building em…

So when she texted me for an offer, I just plucked a figure of $210,000 – no one could accept such a discount from $298,000 right?

Actually, the agent did respond back – but somehow confused me with another buyer for another property.

She was also a bit dyslexic, because some of her responses made zero sense to me, I’m reading back on them now:

“Yea, offer on hand?”

“What price for the house?” 

“Look out the window.”

Anyway when I FINALLY conveyed that my offer was $210,000 on the correct property, she said to “leave it to her”.

After this, Property 1 came back and stated that the owners were actually going to pull the listing off the market, they didn’t think it was the right time to sell (D’UH!) and were going to hold onto it.

I kinda had the feeling, because when I received the documentation for the property, the title deed (legal document showing legal ownership) showed that the owners lived in one of the most affluent suburbs of Perth, with no mortgage attached, so they should be able to hold onto it without too much pressure.

Sigh, 2 down, 2 to go.

Property 4

Asking $149,000 – offered $105,000.

I was actually keen on this one the most, because earlier I inspected another unit in the same complex, asking for $179,000 and rented out at $270/week.

And remember how I mentioned in Part 1 that it was a bank repossession and the agent stated that the bank would probably accept a price $15-20k below.

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Bank officers practicing repossessions.

Whoa from a peak of $280,000 (when previous owner bought) to an asking price of $149,000 less $20,000 – that’s… that’s… $139,000, $119,000?, a lower figure.

And at $270/wk, a whopping 11% yield.

Note: be very careful with this as just because one unit is rented at this level doesn’t mean it will. The market dictates the rent, in this case being $190-$200, same with the price (past performance is not an indicator of future performance).

Still, even at $190 that’s almost 8% yield.

Unfortunately there was a catch and that was the bank only accepted an “as is, where is” offer – meaning that what you see is what you get.

And I saw a large crack in the bedroom wall from window to ceiling… as well as what appeared to be leaking water run-off from the unit upstairs, in the kitchen.

Now I’m not a builder, but anything to do with water damage and cracking in walls, you have to be extremely careful. This is because it can cause all sorts of structural issues – the ones which cost a bomb to fix but don’t add any value (as it’s usually unseen).

I paused in my enthusiasm.

Luckily the strata were very friendly and approachable and I managed to ask them about fixing these issues and whether there were any other future issues with the complex?

Image result for earthquake
“Now that you mention it, one of the building’s got a slight lean”.

Oh yes, they said, any costs would be shared, and did you know about the special levy they are raising in the next 6 months to fix concrete cancer in the car-park?

Ummmm.

So I went back and did some more numbers, and came up with $105,000 to factor the cost of fixing everything as well as foreseen maintenance levies.

At this time, the agent also disclosed there was another interested buyer – a doctor from Adelaide, but he had made an offer sight unseen (meaning without a visual inspection).

Which is why the bank rejected my offer as being too low, and were inclined to accept his.

I wasn’t too disappointed actually, it was always going to be a cash-flow play and if the numbers didn’t stack up, well they didn’t stack up.

~~~

But I was becoming a little bit antsy, would have been a shame if we didn’t secure at least 1 of these properties.

That’s when the agent for Property 3 called back and said it was one of the hardest conversations she’s had in her career, but the owners accepted our offer.

At $210,000.

WOOP! WOOP!

Come back next time and I’ll share more about this property, as well as the pros and cons that I can see with it!

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