Real Estate

We Bought Again! (Part 1)

Reading Time: 4 Minutes

WOW guys.

Wow fooking wee.

“Wipes forehead”.

So yes, we bought again as you can tell from the title.

Another little acquisition for the portfolio.

I’ve been hunting over on the West Coast for the better part of last year and just when I thought it was all to come to naught… up pops this one which I had already…

Oh wait.

Of course, where are my manners.

Some background first?

Background

Those of you who have read this blog for a while know that in late 2018, we were in the fortunate position to purchase our first West Coast property in Perth (read about it here).

It’s a beautiful city.

I say fortunate because late 2018, was one of the best buying opportunities in the last few years.

There were SO many factors scaring potential buyers away. The main ones being:

  • Federal Election in May 2019 and the likelihood of a Labor (anti-real estate policies) win. They didn’t.
  • Banking Royal Commission throughout 2018 with unprecedented media coverage, this meant the banks were focused purely on reputational risk (and not profits for once).
  • Government oversight (APRA) on lending practices which effectively caused a credit squeeze – it was INSANELY more difficult to obtain a loan. For me, for everyone.

Naturally, I was smacking my lips.

“The time to buy is when there’s blood in the streets”.

And naturally again, when I looked around the property markets in Australia – I could see that Perth truly has been bleeding.

In fact, it’s been bleeding for years now:

Painful.

In fact, it was only from about late 2017 onwards that I started to look into the Perth market.

Now I won’t repeat what I had already written earlier (read here), but I will say that as a buyer nothing beats the combination of desperate sellers, zero competition and ready finance.

The first purchase for $210,000 is now valued at around $300,000.

Oh, and it’s still zoned as a multi-storey development site.

Property Two

Which is why I was pretty desperate to go again as quickly as possible.

So why did it take me over a year to find property number two?

Simple.

The market.

What do you mean the market The Frugal Samurai? Are you blind? Can’t you see from that graph the market’s been trending downwards?

I…I think n…not?

Please, let me explain.

The Market

It’s true that if you refer to the graph from REIWA then the trend line is not looking good for Perth.

However, when I go shopping, I deliberately target the lower price ranges.

Even now, my hand shakes at thinking of dumping $480,000 on a median priced property.

Image result for trembling hand gif
Kinda like this… minus the Jell-O… and the velociraptors… and Jeff Goldblum.

You see, I look for higher yielding metro property with good cash flow and a chance at some capital growth in the medium-long term.

Contrary to popular belief, I’m not interested in pure negative gearing or forking over my hard-earned to service debt. It’s all about trying to mitigate risk.

Which is why I was playing at the bottom end.

2019

And so throughout 2019, I poured over the real estate listings RELIGIOUSLY.

Honestly, I think I was spending a ridiculous amount of time on Perth property – something like 10-12 hours per weekend.

Don’t do this at home kids. Get a life and marry a rich (wo)man. SO much easier.

The thing is though, from early to mid 2019, the market was still terrible – and I was obsessed with trying to chase a deal similar to our first property in terms of ROI.

And so every weekend would see me trawling through whatever properties were listed on the portals, shortlisting about a couple of dozen and then at the end of the month, culling those shortlisted properties which I didn’t like for whatever reason.

Image result for doll house
Like this one. But mainly because I am not a five year old girl. Perhaps one day, a man can dream.

When I had about 25-30 properties remaining I would try to arrange a weekend to fly over and inspect as many as I could.

I usually squeezed in about a couple of dozen physical inspections each time.

I don’t think I’ve ever worked harder in my life.

Now I write this not to highlight my inadequate social life and lack of weekend adventures (true and true), but to highlight that investing in a foreign market requires dedicated time and effort (perhaps not to my extent). If you’re serious but are time-poor… get a buyer’s agent instead.

On The Ground

And this was the curious thing.

You see, I was over there what, maybe 4 or 5 times last year?

At the beginning of the year, the market was still in the sh1tter.

Image result for toilet fail
Only for true BFFs!

Properties were languishing, agents were still pretty desperate, and I (stupidly), was still trying to eke out the last dollar from every offer.

And then about the middle of the year, I noticed something.

I suddenly started noticing more people.

More people at the home opens.

More people talking to agents.

More people on the ground.

Mind you, this was at the lower end – my playground.

So not necessarily in the higher price ranges.

And then towards the end of last year, something REALLY interesting started happening.

From the time I had shortlisted the properties, to the time I went over for an inspection… the properties more often than not were “under offer” (which meant the owner accepted an offer subject to conditions e.g. finance being met etc.)

In fact, my last trip was in late November 2019… and I’m looking at the shortlist I had… “pulls out an excel spreadsheet”… from 27 properties shortlisted, I was only able to view 11.

This told me two things.

  1. I might be onto something. There are people out there who are interested in the same type/price of properties that I am.
  2. The market is moving.

Indeed, I started to notice multi-offers, decreased days on market, agents not as responsive, not being taken seriously (in a desperate market, ANY offer is taken seriously).

False dawn? Or something else…

Which is why I say that we were extremely lucky to buy the one we did get.

But… you’ll have to come back next time so I can tell you what it is.

Haha, see you then!

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6 Comments

  • Relentless Finance

    I love that chart that looks like this. \. Not because it means there is a surefire opportunity. Simply not enough information and I cannot even pretend to have any knowledge of the Perth market. Besides that its apparently west coast.

    It is interesting and a good talking point. One thing that is happening in the US is that luxury is having a hard time. Not necessarily because no one is willing to put down money. A little of it is prioritization as a generational shift. A little may be a shift in people openly displaying wealth. But a lot of it is in product, the generation that is coming of age to buy high end properties is not looking for a large lot with a huge house in the burbs with a terrible commute and no walkability. This probably impacts the median house sale, but doesn’t necessarily mean the market is softening. It is that preferences are moving some of the lower cost homes faster.

    The cool thing about seeing that chart from an investor point of view. Betting against the growth of any economically diversified metro area over the long haul would be a questionable bet. The average price dropped but volume remained the same. It’s just very interesting.

    Anyways congrats on the purchase. I am excited to see what the details are.

    • The Frugal Samurai

      Oh I get what you mean by a chart that looks like: \ Haha, initially I thought it was a typo, but it’s just a downward slope.

      “Betting against the growth of any economically diversified metro area” <- SPOT on with this statement... if you believe that things will be better in the long-run, then it's time to buy. Thanks for reading and commenting (very astute).

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