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Buy
Right
Add
Value
Everytime
Over the next few months, I want to share some thoughts with you about Buying Right... the why, where, when and how... If you have any questions or specific things you'd like me to write about, please email me! I will also start sharing about Adding Value in future BRAVE e-Newsletters so be sure to subscribe - I especially love adding value on a beer budget so if that interests you too, keep an eye out for some GOLD :)
So lets begin... WHY is it so important to buy right? Well, you'll probably know that I'm quite "bearish" about the current market!!
Buying right is one of the easiest and safest ways I know to secure equity in a property. Together with adding value, these are the only two controllable ways of creating equity in property. OR you could do what the majority of investors do - buy retail, hope and wait for gains in the market over time... doesn't work for me sorry! The BRAVE philosophy is the basis of the value I build in for properties I turn around in the short term and my "insurance" or hedge for long term investment property for when the market goes sideways or backwards (the market has always been cyclic and will always be that way guys!)
It's really important to build in an appropriate margin to cover risk, reward and contingency of a project. The higher the risk (time, money, complications etc), the more contingency that needs to be incorporated and the bigger the profit should be percentage wise to make it all worthwhile. I am absolutely stunned by the tiny margins, small contingencies and poor feasibility's that some people are happy to work with - even for a "simple" renovator! You will get caught out if you skimp in any of these...
I reckon its crazy to pay ‘retail’ on anything – just a bit of research and knowledge pays big dividends no matter what you are buying…and usually just by asking a question... or in the case of property - a few good questions and paying some money to access a property database. Don't be afraid of NO's! Every NO is one step closer to a YES and it means NOTHING about you! I always ask for a discount in shops etc... quite often they will say what type of discount... just return with a question... "Well, what discounts do you offer" eg trade, RACQ, corporate rates, student etc You will be surprised what you are entitled to or will just be given!
There are deals in every cycle of the market in every part of the world no matter what the market is doing... Its up to you to flush them out and structure the deals to work well!!
Buying right with terms is a great way of managing risk. In some cases, it is possible to effectively reverse most of the risk. For example, you can control a property without owning it with contract terms (eg very long settle subject to long due dilegence) or property options to work up value via a Development Approval, amalgamating adjoining property or other value add proposition. In this case, the risk you take on is the cost of the value add proposition but hopefully not the holding costs of the property or obligation to buy the property. Of course, you need to make sure your terms reflect your intentions with a good solicitor so you don't get caught out!
In the context of the current market, think about Warren Buffets famous quote “Be Greedy when others are fearful and be fearful when others are greedy!”
Something else that needs to be clarified here is the distinction of buying right on price vs buying right on price. Especaially with bigger deals, I find that terms are far more important than price. The overall effective deal numbers can be significantly reduced by paying a little more but getting great terms for you - especially if you can negate holding costs such as interest, rates, land tax etc etc!
No matter when you are buying... remember to buy right EVERYTIME.
We'll continue our discussion of buying right next time!
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