Which Deal Would Make You More Money?
Please note: Nothing contained in this video is to be considered financial advice. This video is simply an exercise that shows how easily it is to be misled and how easy it is to make a mistake by focusing on price, discount and what other properties are selling for in the area.
Are you someone who wants to buy an investment property but you’re just totally confused about where to invest and even whether you should be investing right now?
Well, if so, you’re not alone.
Hi, my name’s Niro from Investment Rise.
And over the last few weeks as we’ve been helping people find investment properties in good growth locations that are really, really easy to rent, many have been asking us…
“Niro, we’re so confused about where to invest and how to go about doing so. There’s so much conflicting information out there. Everyone online has got a different opinion. Everyone we speak to tells us to do something different. And we’re just not sure what’s right for us”
So, if you’re in that position, I really hope this video will help you.
Because what I’m about to do is play a bit of a game. And hopefully, as a result of playing that game, if you stay with me until the end of the video, my aim is to help you cut through the confusion and give you maximum clarity.
So, let’s get started.
What I want to do is analyze two potential property investing opportunities, okay?
Here’s opportunity number one.
Someone comes up to you and says, we’ve got a great deal.
The price of this property is $680,000 and when you look around at similar sales over the last, say, three months, prices for similar kinds of properties have been going for about $710 to $720,000.
Even if you go on RealEstate.com.au, you can see properties selling for about $700,000 or a bit more, so it’s a great deal because you’re clearly getting a discount on this property which means that when you buy the property, you’re going to almost immediately make a capital gain because you’re buying a property at less than what similar properties are in the area.
Okay, that’s deal number one.
Here’s deal number two.
Someone comes up to you and says, look, here’s a potential investment property for you.
It’s priced at $720,000. The vendor is not going to move on that price. That’s the fixed price, okay?
And if you look around in the area, over the last three months, prices for similar properties have been selling for about $680 to $700,000. So, this property is actually a little bit more expensive than other properties.
Which of these two deals would you take right off the bat?
Now, if you immediately thought, look, I’m guessing I’d go for deal number one because it’s at a discount, don’t feel bad That’s exactly what so many people out there will want to “educate” you on & they’ll want to help you do but consider this.
In 2013, if you bought a property in Sydney, did you have any hope of getting a discount? Pretty much no, right? I mean, the market was going crazy. It was going steeply up month on month. And you didn’t have any chance of getting a discount.
In fact, you probably wouldn’t even get to pay the list price. You had to pay more than the person was asking for.
However, if at the same time, you went and bought something over in Perth, could you have gotten a $20,000, $30,000 or $40,000 discount?
Absolutely, right? It would’ve been so easy to get a discount.
Almost always, you only get a discount in a flat market or a falling market.
Consider the Sydney and Melbourne markets right now in the early part of 2019. Can you get a discount on property? Absolutely!
Are you likely though to make a capital gain in the next little while as the result of getting a discount? Probably not, right?
So, this is where when you’re looking to invest in property, what you want to do first is be clear on your outcome. And if your outcome is that you want to buy something that has a good chance of getting you a capital gain over the coming few years, what you want to first do is look at the market, look at the market fundamentals.
What’s the population growth?
What’s the vacancy factor?
What’s the infrastructure investment?
What’s the jobs growth?
All those key, capital growth indicators. Then when you’re happy and you’re confident that you are buying in a market that’s rising in value, then you look to get the best deal you can at that particular time.
But if you start with the mindset that so many investors do of, “I want a discount” because that’s what so many people out there will almost teach you and train you to do, it’s so easy to make a mistake.
I know some people who who bought in WA, in 2013, 2014, who were so proud that they got a discount while those of us who bought in Sydney at the time were paying more than the list price.
And yet today, their properties have fallen to almost what they paid for. Well, we know what Sydney prices have done. Even regardless of what has happened in the last 12 to 18 months.
So, as an investor, be clear on your outcome first.
Don’t get persuaded by a discount. Don’t get persuaded, by saying, oh, look, I’m getting something cheaper than similar sales.
If your property is cheaper than what properties have been selling for in the last three months, it probably means the suburb is falling…
But if you’re buying a property that’s a little bit more expensive and you can see it sort of matches similar sales today but it’s more expensive than properties over, let’s say, the last two to three months.
Well, then, as long as you do your extra due diligence, the odds are you’re buying in a rising market and if you’re confident that that capital growth rate can continue or even might improve, then you’re more likely to be buying a property in a market that’s got a good growth potential.
So, I really hope that little exercise which I believe if you can go through and really get it, that exercise in reality could save you tens of thousands of dollars because it could be the difference between buying in Perth in 2013 versus Sydney, or buying today in two different markets, one where someone will get you a discount and another market where somebody can’t.
It’s not about the discount, it’s about the capital gain of the coming few years, that’s what you want to focus on.
I really hope this video helps and if you believe it’ll help another investor, please share it and let me know what you think in the comments field below. Bye for now.
November 13, 2020
November 4, 2020