As part of my Property Investment NZ portfolio I had recently decided to purchase an apartment off the plans and I was aware, of course, that other people had done the same thing. One of them called me close to settlement day to tell me he was looking to sell his apartment because he’d bought it when interest rates were 7.2% but as they were now 9.5% – he was having trouble financing it. This sort of difference is massive when it comes to capital growth property, so he’d decided to try to sell the property for what he paid for it, which was $260,000.
I asked him if he’d had it valued and he told me that indeed he had and it was now worth $270,000. I thought this was probably on the light side and while I like doing good deals, I also know that what goes around comes around so that sometimes it’s worth giving a little to make a little. With this in mind I said I’d do him a favour and pay $270,000 for it.
What?’ he exclaimed. ‘You’ll pay me ten grand more than I just asked for?’
‘Yes,’ I replied. ‘I don’t have a problem with that because I know you’ll have some costs associated with it.’
We did the deal and I got a new valuation for $395,000, which gave me $120,000 instant equity. It was a great capital growth property and I could easily afford to service it.
While it is not unusual for investors to buy properties off the plans, if they don’t know what they are doing and don’t have an exit strategy in place, they could get into trouble should interest rates go up. When it comes time to settle they can all too easily find themselves in a sticky predicament.
It was good news for me, of course, because when I buy property from someone in this situation I take all the equity they have built up over the two years or so that the project has been under construction without having to put any money down.
The above post is based on the book “The 15 Million Dollar Man” by Sean Wood, to read more click Property Investment and download 2 free chapters.
|For further reading on Property Investment NZ, click on the articles below:
Setting Goals for Financial Independence – click here
Tips for Becoming a Property Expert – click here
Buying Rules for Property Investment – click here
5 Tips to Add Value through Renovation – click here