By Michael Knights, CEO of Horizon Property Alliance
When it comes to purchasing profitable projects, fortune favours the fast… but that doesn’t mean you act without thinking.
Ensuring you’re ready to move can result in a big boost to your bottom line – particularly when you’re being guided by a well-connected professional acting on your behalf.
A well-prepared client of mine was able to snap up a winning deal recently. I had an option on two blocks of land in Nambour, QLD that were listed with a local agent for $294,000 and $279,000 respectively. At those prices, they were feasible for a duplex project to yield a profit of around $150,000.
This is a decent outcome, but the buyer I had in mind for this particular deal was keener on achieving $200,000 in gains. Despite negotiating with the seller, we couldn’t reach agreement, so we walked away.
Timing is everything…
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Four weeks later, the agent rang me back with a tale of woe. It seems another agent in the area tried to buy the blocks directly from the seller and offered $40,000 less than the asking price, reasoning that by avoiding agent’s commission, the seller would still come out ahead. The seller took the bait, and cut his original listing agent out of the deal – and this agent was now on the phone to me.
Karma can be nasty. The contract fell through and the seller was left desperate to offload the blocks because they’d committed elsewhere.
The once-shafted agent came back to me with a new proposal – were we still interested? I called my client and said, “If you can make a decision to buy today, I can secure these blocks for a $40,000 discount on the original price which will get you a net profit of between $180,000 and $190,000. Let’s make it a cash contract but put in a condition that you have an out-clause subject to a seven-day due diligence and construction quote.”
By now, our buying client was well prepared to sign. She had been through the finance approvals, understood the market and knew there was money to be made. Within hours we had the property under contract and the final due diligence under way.
So, why was this buyer about to score a tidy profit?
It came down to her being well prepared. She was able to say ‘yes’ in moments, and cut out any potential competition.
KNOW WHAT YOU WANT
This client is a lawyer – analytical as hell. She had a profit margin in mind and was going to stick to it.
The first step to being prepped is to understand your own goals and limitations. We helped the client put together a full strategy on what she wanted, where she wanted to buy and what she wanted to achieve with her project. This made for an easy yes-or-no decision on any options presented.
Getting your head straight about the type of deal you’re seeking means you won’t flinch when the right one comes along.
THE FINANCE GAME
A vast number of contracts fail because of finance – whether it’s the bank saying, ‘No!’, or a purchaser who has already passed their upper limits. Finance is the key that unlocks potentially game-changing property projects. Use the services of an experienced mortgage broker and determine exactly where your budget sits. Know what sort of rental return you need, or end profit you require. Get your line-in-the-sand figure sorted early.
With this in hand, you not only know what you’re looking for, you can also potentially offer a cash contract. Removing the finance clause can help the seller say, ‘yes’ to your offer.
I would, of course, recommend you still include get-out clauses, but taking out the subject-to-finance clause is a real attention getter.
KNOW THINE MARKET
Another element of being ahead of the pack is knowing your market of interest intimately. In the above example, we’d provided the client with details on other deals we’d done so she could see the potential costs and returns. We’d also provided an extensive set of comparable sales. These included sales of land completed duplex units and rental evidence. These sales were all from independent agencies, and had been verified, so she could be confident of their accuracy.
We know this market…
It’s ok to ask for help. Talk to one of our local advisers today
Becoming an area expert serves you well in two particular ways.
Firstly – you’ll know a great deal as soon as you see it. You can move forward with confidence and expect an acceptable level of return.
Secondly – being across the numbers helps alleviate one of the most debilitating afflictions modern investors face – analysis paralysis.
When it comes time to sign on the dotted line, some buyers freeze as the figures overwhelm them. Being across the local market and the numbers on your spreadsheet helps free your mind, because you have confidence that a great result can be achieved and there’s very little chance of financial hiccoughs.
Coming across killer ventures with great outcomes is rare when you aren’t well connected among the agent community. That said, when your representatives front up with an excellent option, you can’t afford to hesitate – you snooze, you lose – but you must also mitigate the risks and stay safe.
Take the time to be well prepped so when the deal of the year finally arrives, you won’t flinch.
One of our area experts would be happy to help. just give us a call on 1300 859 278