One day when I was bored because my friends were at their jobs and I had no one to play golf with, I rang my two top agents, Phil Thompson and Arn Mehta, and told them I’d like to hang out with them. I’ve done this a few times and find I learn a lot while driving through South Auckland with them for the day (even when they have clients with them).
As we were driving around on this particular occasion I told Phil and Arn about a property I had tried to buy recently. It had been listed at $380,000 but when I offered the owner $350,000 he wouldn’t have a bar of it. Arn and Phil decided we should all go and have a look at it.
On sighting it, they told me in no uncertain terms that it was worth well over $400,000 and that if I wasn’t able to buy it for $370,000 they would be prepared to pay a bit extra to buy it themselves. The value was confirmed when they called their valuer to ask his opinion.What he said in fact was that he thought it would be worth about $415,000 without even seeing it.
Armed with this information, I called the listing agent and told him I’d meet him at McDonald’s in Greenlane in an hour’s time and was ready to give him an unconditional $360,000 offer. Would that work for him? Indeed, he thought it would.
Soon afterwards the vendor accepted my offer and the property valued up at $409,000 without my spending a cent on it. The yield on this deal was actually under 10%, but as I saw the area (Papatoetoe) holding potential for capital growth rather than cashflow I wasn’t too worried. Papatoetoe, while predominantly a cashflow area, has some good and quite expensive capital growth areas. My new property was on the edge of one of the good areas, in an exceptional street that backed onto a reserve. In any case with the rental increase I will get over time from this property it will become a good cashflow deal fairly quickly.
It’s worth noting (again) that because I average my yield across my whole portfolio this deal actually gave me over 10%. At 8.8% yield the property was providing positive cashflow after tax, and before tax it was still about neutral (which means it wasn’t making a cashflow profit, but it wasn’t costing me money either).
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