Once you’ve inspected a property the first thing you’ll do is to assess whether the property is worth the advertised price or not, writes David Shih.
To develop the optimal offer price, investors can do the following:
1. Research all recurring expenses, such as council and water rates, strata fees, insurance, etc. You can usually get these from sales agents, property managers or sometimes from the sales listing;
2. Call several property managers to confirm the achievable rent of the target property. This will feed into your lower rent and upper rent;
3. Assess the estimated weekly, monthly and yearly cash flow position (before tax) for the proposed property and perform risk assessment at a higher rate if required; and
4. Submit your optimal purchase price to the sales agent and if the offer is rejected, don’t be disheartened – simply move on to the next opportunity! Otherwise congratulations – the property is now under contract. Time to move onto organising finance and building and pest (if applicable)
We also know that agents are representing the vendor/sellers so their interest lies with the seller. But hey, they also want to make the deal work because if they can’t sell the place, then they don’t make a living. They want to sell at the highest price possible, and as investors, we want to purchase the at the lowest price possible.
So, the question is, how to make it a win-win situation for you as the buyer and the agent? The key lies on whether you are able to extract the important information from the agent. This is where the importance of asking intelligent and probing questions comes in.
For example, when you ask why is the owner selling, agents could tell you the owner has bought somewhere else and is therefore looking at offloading their current home.
What this means is there could be a deadline in which the owner must sell the current property in order to fund the new one, so it’s open for some discounts via negotiation.
Similarly, if the property has been sitting on the market for some time, then it’ll also be open to negotiations so look out for the agent’s response on these probing questions as these will also have an impact on your offer price.
Once you are able to determine the offer price and assuming you’ve done all the due diligence checks, you’ll then be able to start the negotiation process.