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Home>Articles>Tricks Of The Trade: How Smart Property Investors Buy Under Market Value

Tricks Of The Trade: How Smart Property Investors Buy Under Market Value

Investing is an effective way of making your money to make it grow. From stocks to bonds to property, there are many ways to invest. However, one thing that sets real estate investment apart is the fact that an investor can buy a property under market value and instantly benefit. Business guru Warren Buffett’s share-buying strategy can actually apply to property investment – and it’s far easier to master the strategy of buying property under value, than it is to chase undervalued shares. It’s all about perception of a home’s value, and how you capitalise on that to make a profit.

Discount vs under market

Buying under market value is different from buying at a discount – a discount means that the asking price was lowered. However, the asking price doesn’t necessarily translate to market value, especially since many vendors inflate a property’s asking price at the beginning of the sales campaign.
A discount could indicate that the property was over-priced to begin with, but it doesn’t necessarily mean the property is now being offered to market below value.
Buying under market value also differs from getting a bargain. A property can be a bargain, even if you paid a large amount for it, if you know how much it could be worth in the future.
Rather, buying under market value means that you buy a property for less than what market data suggests it should have sold for. This value is typically determined according to the sale prices of similar properties in the same area.
So what does it take for a property investor to buy under market value?

Patience

Most of the chances to get a property for under market value come around when a vendor is eager to sell, perhaps as a result of financial trouble or as part of a settlement. You can get wind of such opportunities through buyer’s agents, real estate agents, or through databases of the National Mortgagee and Deceased Estate (such as NMDdata.com.au). Research is the key to making this work – get the inside scoop by contacting local agents, and determine the kind of market you’re getting into so that you know whether there’s a chance of growth.

Moreover, it’s still important to conduct an independent valuation to know for yourself how much the property is worth, as selling agents can still “overestimate” the property’s actual value. Patience is key to your success here; you may need to wait for the right deal to come along, but you do so knowing it will be worth it in the end.

Negotiation

When you encounter the right seller, the next step is to negotiate for an advantageous deal. An important thing to remember is that negotiation aren’t just about pricing, but can also involve non-monetary factors like the seller’s circumstances and how you can sweeten the deal for them by offering to accommodate their needs as well. It will take patience to negotiate effectively, and the best negotiators know that the best outcome is a ‘win-win’. If the vendor feels like they have been accommodated, they will be much more likely to reach an agreement with you than if you adopt an aggressive, hardball approach.

Strategy

Looking into an oversupplied market will often give you leverage when negotiating a good deal. With a number of states experiencing (or expecting) a property oversupply, particularly with units, it may be a good time to swoop in and nab an under-market off the plan property while developers are desperate to sell. Some can even be picked up for below replacement/building cost. However, note that as a landlord, the risk here is that you may be getting into a market with more supply and higher vacancies, so you will need to be able to financially withstand vacancies or lower cashflow. Having a clear strategy will guide you here.

This article is provided for general information purposes only. Its content is current at the date of publication. It is not legal advice and is not tailored to meet your individual needs. You should obtain specialist advice based on your specific circumstances before taking any action concerning the matters discussed in this article.

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