01 May How to win in a sellers’ market | Cosmetic reno tips | Getting started in property development | Researching | Dealing with banks and more…
Strong competition for properties and rising prices has created a sellers’ market in many parts of Australia. So how do property buyers tips the scales in their favour? In this week’s show Michael Yardney explains the 3 critical property negotiating pressure points at work in every negotiation; either you are applying them to the other party or they are using them on you.
Also in this show, Jane Slack-Smith runs through some quick cosmetic reno tips that will return high value, Josh Masters tell us where you can go wrong when researching a market or a property and Nhan Nguyen has some very helpful tips for you to follow when you are starting out as a developer.
Miriam Sandkuhler explains how having a view of the end tenant you want in an investment property has helped her.
And Andrew Mirams, from Intuitive Finance digs deep and tells us some of his tips for dealing with the banks. Now that’s worth listening to a broker on how better to deal with the banks.
Kevin: A strong competition for properties in rising prices has created a seller’s market in many parts of Australia, so how do property buyers tip the scales in their favor? Well, let’s find out. We’ll ask one! Michael Yardney is one of the best-known buyer’s agents in Australia from Metropole Property Strategists. He’s also a regular guest on our show.
Good day, Michael.
Michael: Hello, Kevin.
Kevin: How do you tip the scales in your favor?
Michael: I believe negotiating, even in this hot market, can help savvy property investors get themselves a pretty good deal. What they really need to understand, Kevin, are the three critical negotiating pressure points.
Kevin: Okay. What are they, Michael?
Michael: These work in every negotiation. Either you’re going to apply them, or they’re going to be used on you by real estate agents who have been taught well how to negotiate. The first one in my opinion is options. The person with the most options has the most power.
When you’re buying a property, it’s important to convince the seller that you have more options than they do because the power of negotiation, as I said, goes to the person with the most options. Look at it this way. If a seller has two buyers willing to offer him $500,000, you probably don’t have the option or the ability to get your offer of $480,000 accepted.
However, it’s important to realize that in negotiations, often perception is the reality. Agents will often tell you this other buyer is interested or they have better offers than you, and maybe it’s not the case; it’s just a pressure tactic.
Kevin: What sort of language can we use in this case, Michael?
Michael: I’d let the agent know that you’re interested in the property, but I’d say something like, “I like this property, but there are two others I have in mind. One is in a bit of a better location. One is maybe in not as good a location.” You actually let him know that yes, you’re interested, but not that much – because the person with the most options has the upper hand.
Kevin: Wow, that’s very powerful. What’s the other one, Michael?
Michael: Time is another critical pressure point in negotiations. If the vendor is highly motivated, if they’re under time pressures, you can find yourself a terrific buy. Now, sometimes it’s hard to know the pressures on the vendor. Some agents will sometimes tell you, but other times, it’s worth asking some questions, Kevin, to try and see what’s really behind it.
Kevin: Michael, what sort of questions?
Michael: Now, you may even know the answer to these, but what you want to know is what’s going on in the background. I’d ask questions like, “How long has the property been for sale? Have you received any other offers? By the way, how did the vendor come to his price? Was this your suggestion? Was it his suggestion?”
Kevin, I like to use time pressures when writing an offer. I put my offers in writing, but I tend to put a deadline. I put in an offer something like this: “This offer expires at 6:00 P.M. on Thursday the 15th of the month,” but I give a reason why to make it make sense.
Kevin: What is that reason, Michael?
Michael: Well, I say something along the lines of, “I’m considering purchasing this property – that’s why I’m going to give you an offer – but if it doesn’t come off, there’s another one I’m looking forward to go to at auction this weekend. If the vendor doesn’t accept my offer by Thursday afternoon, I really have to withdraw my offer because I can’t have it remaining open and end up at the weekend possibly end up owning two properties.”
Kevin: Yes, I suppose by explaining it that way to the agent, you’re giving yourself a better chance for it to be portrayed in that way to the seller, Michael?
Michael: You are. It’s actually giving a reason for it rather than just being a bully.
Kevin: And the third one?
Michael: The other big pressure point is knowledge. In negotiations, the side with the most knowledge will do better. The fact is that most property investors have done homework, have done research, and they really probably know more than the seller and sometimes even more than the estate agent, who may only know a particular segment of the market.
Apart from researching the local market, you also have to find out a bit about the vendor, like we’ve already said. Get yourself as much knowledge as you can. Be confident that you’re therefore making a good offer at the right time of the property cycle, and this could create a win-win solution that’s going to let you buy a good property at a fair market price.
Kevin: The thing that comes through for me listening to you, Michael, is that it’s not always about just making a cheeky low offer as the strategy, is it?
Michael: It is. You’re right. There is some thought process to it, and most Australians are uncomfortable with negotiation. They’re taught to be courteous and polite. While you can still do that, there’s no reason why we can’t negotiate hard. Remember if you don’t, the other side will against you.
Kevin: It’s always good talking to you, Michael Yardley from Metropole Property Strategists. Now, I know how you do it! Thanks, Michael.
Michael: My pleasure, Kevin.
Kevin: I received an interesting e-mail from Stephen, who writes about the session I did recently with Andrew Mirams from Intuitive Finance talking about mortgage broking. What he asks in the question – and Stephen, thank you for that – is he just wants to know some tips on what Andrew thinks about the best ways to deal with the banks.
Andrew joins me. Good day, Andrew. How are you doing?
Andrew: I’m going well, Kevin. How are you?
Kevin: Do you have any advice there for Stephen and anyone else who may be thinking about the same subject?
Andrew: It’s really interesting. If you just keep it in the broader context of tips for dealing with your banks, it probably depends what you’re doing with them about – if it’s opening an account or getting your Internet banking set up or getting a credit card or actually then going in and asking for a loan. We could probably allow the context of that to run off in a whole different range of ways, but let’s keep it in the area of expertise and in the lending side.
Kevin: I think that’s pretty much where Stephen was talking. It’s a truncated e-mail, but he does actually say he’s looking at talking to the bank about future financing. What would be your advice to him?
Andrew: My first tip would be to seek independent advice, and that would be to find a good mortgage broker. Obviously, we’d love to help Stephen here at Intuitive Finance. But going in and dealing directly with the banks, often their primary goal will be selling them what they think is the best. They don’t have the range of options as mortgage brokers do.
If you know specifically what you want, etc., then you have to go in and be very open and honest with them. But it depends. If you’re really just shopping around, then I wouldn’t go into just one bank and say, “This is what I want” and “Yes, I’m happy with that.”
Kevin: I guess it’s a key point not to rely on just dealing with the one bank. Shop around at several. This is probably the reason why brokers have become so popular, because you guys actually don’t need to talk to the bank managers because you know what the current deals are.
Andrew: Absolutely, yes. Brokers now are representing more than 50% of mortgages across Australia, and for some of the banks, that’s even a higher figure. We’re experts in that field. We can generally ascertain what our client’s needs are first and then match them to the right bank and the right product.
When you go and you talk about tips on dealing with the bank, often people go in and they don’t know, they rely on the bank manager, and bank managers have a wide range of experience – from a first-timer who might be someone out of university to your long-term banker. It really depends on the relationship you have and the advice you’re getting as to what you’re going to get, whereas a broker will generally be an expert in their field and know exactly how to match the client’s requirements with the end outcome.
Kevin: If I have a good relationship with my bank manager and I’ve spoken to him and I believe I’ve driven the deal as far as I possibly can, is that a good point to still consult a broker and say, “This is what I’ve done. Is it a good deal?” – in other words, getting almost a third person’s input into the deal.
Andrew: Absolutely. Banking and finance is all about relationships, because at the end of the day, all the lenders are selling basically the same thing. They all do things a little bit differently, they all have features and niches that they all do, but in broad terms, they’re all doing the same thing. They’re looking to lend money.
If you have a great relationship with a manager in a bank, we often will say, “We don’t want to step on the toes there. Make sure you do that.” But I’m happy as a third party just to come in and say, “Yes, that’s a really good deal,” or “I think they can do a little bit better,” or “Last week, we got a better deal so go back and see if they’re willing to do that,” etc., and give them some advice.
If then the manager is not willing to do that, that’s when the ball comes back into our court and we can show the client how we can do it maybe better, maybe cheaper, maybe with access to more funds, depending on what their requirements actually are.
Kevin: Do the banks actually like having a broker in the middle of the deal? Obviously, this has been the trend. You said over 50% of loans are now done through brokers. The banks are obviously encouraging that?
Andrew: Yes, absolutely, because it’s cheaper for them to pay a third party – as in a mortgage broker – a commission rather than have to have all the infrastructure in place with a branch network and paying wages and things like that.
The approval rate is very strong with the mortgage broking industry. The loan reuse rate is very low in comparison to what the banks do in general themselves directly. The banks recognize that brokers are professionals in their field and are able to present deals in a much better fashion that gets a higher approval rate and a much lower reuse rate.
Yes, banks really enjoy dealing with brokers. But that’s not to say all the managers and branches – because they have their own sales targets – enjoy it as much as the actual CEOs might, but yes, as a rule, banks like dealing with brokers.
Kevin: Stephen, I want to thank you for sending the e-mail into us. It’s a good question. It was great to have it on the table, and it was good for Andrew to address it so directly, too.
Andrew, thanks for your time. Andrew Mirams, of course, is from Intuitive Finance. You can find them through our website on the homepage. They are one of our supporters, and we thank them for that. Andrew, we’ll talk to you again soon.
Andrew: Thanks, Kevin.
Kevin: You might recall a few weeks ago, I spoke to Jane Slack-Smith from Your Property Success, who is also a mortgage broker with InvestorsChoice.com.au. Jane created “The Ultimate Guide to Renovation,” which is currently underway, and a number of people inside that program now are really enjoying the benefits of that decision they made to join up.
Jane joins me. Hi, Jane.
Jane: Hi, Kevin.
Kevin: A great learning experience, not only for the people inside the program but for you, as well. You must be picking up some great tips on what’s really working with renovations.
Jane: It’s wonderful. Every day, I get to open up my e-mails and someone comes back and says, “Oh my goodness, that last module I learned something new,” and in the private Facebook group, people are sharing what they’re doing straightaway. They’re applying things, which is great, and for making a profit from renovation quickly, sometimes it’s just the little things that you need to do that can change everything.
Kevin: Help me. Let’s have a look a couple of reno tips that you’re picking up on that are actually working that we make some money from. Can you give us a bit of an idea?
Jane: I think amazing number one renovation tip is more of a macro tip, which is get the location right. You can start with something that needs a bit of the paint job, but if it’s in the wrong location – there’s no pricing disparity between renovated and unrenovated properties – you’re not going to make money. Just getting the location nailed and the right property ripe for renovation is my number one thing that I’m seeing people coming back with.
Kevin: Yes, that’s a very good tip. What about some of the renovations that are actually making some money, too?
Jane: It’s funny. One of the students in the course had done over 15 renovations, and he was in the middle of starting a new renovation. He was going through the modules, and he said, “It never crossed my mind that I didn’t have to rip out the bathroom.”
I talk about refresh, repaint, repair. Maybe you don’t have to replace. He sat back and said, “You’re right, I can resurface the bath. I can paint the tiles. I can put a nice vanity in here.” Instead of spending $5000 on a bathroom, he’s out of it for less than $500 and it still looks fantastic.
Kevin: I was going to talk to you, too, about ways to maximize the value of your property. You’ve probably given us a really good tip there that you don’t always have to go and buy something brand-spanking-new. Look at what you already have, because it might just have very good bones, Jane.
Jane: Absolutely. It’s funny. We can apply that to people with existing portfolios, as well, because often, you may not have maybe the servicing ability to get more money out to buy new property, but you might have enough money to go into one of your existing properties and refresh it and be able to get more rent.
Kevin: It’s marvelous what a difference just a fresh coat of paint will make, as well.
Jane: Absolutely, and that’s not just inside. A lot of people miss the kerbside appeal. When you’re trying to make a first impression, maybe a bit of work on the landscaping and rather than put up a new fence, push up the old one, paint it up, make it look good and sturdy. Just give people that first impression when they walk up that it’s a property that they want to rent or buy. I think a lot of people spend a lot of time inside and they forget the outside.
Kevin: Jane, what about those big-ticket items, like the kitchens and bathrooms? Is that where the focus should be?
Jane: Absolutely. It’s where you’re going to spend your most money, but it’s where the most value can be demonstrated, as well. As I said, you don’t have to rip things out. Maybe just getting in there and replacing or repainting the benchtops in the kitchen and making it light and bright. Just make sure that you’re not renovating to your personal taste, but to what the market wants.
Understanding what the market wants is always my prime concern. Get out there and do a bit of detective work and find out what others in the market or your competition have on the market at the moment. See what people are after, and then try to reproduce that yourself.
Kevin: Congratulations on what you’re doing with “The Ultimate Guide to Renovation.” I know many, many people inside the program are enjoying those benefits. Will the program be launched again at some stage in the future for anyone who may have missed out this time?
Jane: Yes, we’re really concentrating on our current students. But at the end of the year, we’re going to be opening it up again, so watch for it.
Kevin: That’s fantastic. Look out for it. It’s called “The Ultimate Guide to Renovation,” and you will hear about it through our program.
Jane, once again, thank you very much for joining us. I look forward to catching up with you again real soon.
Jane: Thanks, Kevin.
Kevin: The best advice we could ever give any investor is to make sure that you do your homework. But just doing your homework doesn’t necessarily mean to say you’re going to buy the best property. Let’s have a look at where some people go wrong with their researching when they’re looking at either a market or at a property. A man who is experienced with this is Josh Masters from BuySide.com.
He joins us. Good day, Josh. I haven’t spoken to you for a while, but it’s nice to have you back on the show.
Josh: Thanks, Kevin. It’s nice to be here.
Kevin: Now, where in your experience do people go wrong with their researching?
Josh: We really take a top-down approach to research. We start with the area and then look at the property. In terms of looking at the area for research, I find most people really base their findings off opinion rather than facts and figures. They’ll be standing around the barbecue or they’ll talk to a friend and they’ll get their opinion on where they should be investing rather than really looking at the data and the research that comes out.
There are a couple of key indicators that we look at that are quite critical that anybody can find, and most of them are free. But here are some of the probably key ones that I would look at:
- Amount of supply in the area. You can look at infrastructure plans that are coming up. Often the local government websites have those.
- Days on market and vacancy rates. They’re key indicators on what’s happening in the marketplace and how quickly it takes to sell.
- Of course, the king of them all is probably the capital growth rate and the position that that area is in the cycle in terms of that growth cycle.
Kevin: Let’s have a look at couple of those, if you don’t mind. It’s one thing to know that they’re things you could look for, but what is that you’re looking for in those stats? In other words, for instance on days on market, what would you be looking for there? Maybe explain to us what that really means.
Josh: Absolutely. That’s an excellent question. Basically, it really falls down into a risk or reward component. Now, days on market is a risk component. It measures risk. What I mean by that is a lot of my clients put their money into a property market and they don’t want to risk it; they don’t want to lose it because they worked very hard to get it.
Now, if they’re invested in five properties and they get into financial trouble and they need to sell one of those properties off, property is quite an illiquid asset. That means it takes quite a long time to get that money back out of the marketplace. It’s not like a share where you can just sell it today and it’s transacted in a second.
What we want to do by measuring days on market is find how quickly that property would take to sell if they need it to. Now in a lot of the metro areas, you’ll find days on market could be anywhere between 30 and 45 days, which means if you go to auction, it’s selling almost before it gets to auction date, and it could also sell within the first couple of weeks.
Now if you go regional, you might be looking at 120 days plus, which means if you’re in financial trouble and you need to sell one of those little pieces off or those little properties off, it can often take months to really get your money back out of the market, and by then, it could be too late.
Kevin: Yes, you could sell it quicker if you sacrifice the price. But that defeats the purpose of it, doesn’t it?
Josh: Absolutely. Yes, it does.
Kevin: Yes, it does indeed. That’s one of the keys. Some of those other ones you mentioned, as well. I can understand the importance there of days on market. What are some of the other indicators for you, and how do you monitor them?
Josh: Vacancy rates is another one that we look at. That’s often a good indicator of supply in the area. To give you an example, you can go onto SQM’s website and look at this information for free. You can look up a suburb, and you can actually track over time the vacancy rates for that suburb.
Now, if vacancy rates are trending upwards, which means there tends to be more vacancy in that area, that tells me that there’s probably an increasing supply of units or developments coming onto market, the market isn’t absorbing them or demanding them as strongly as it has been in the past, and as a result, you have a lot more vacancy or lack of tenants in the area than you did before.
For us, that is also a risk component. It does indicate the demand in that area. Now, over time that may get absorbed, but I don’t want to buy into an area that’s on the incline for vacancy rates, as an example.
Kevin: That’s a very good explanation there. That website you mentioned, SQM, is SQMResearch.com.au if you want to go and get those stats. That’s Louis Christopher. He’s also a good friend of ours as well, Josh.
Josh: He’s a good man.
Kevin: Yes, he’s a very good man. It’s been great talking to you again. I’d love to have you back on the show again in the next few weeks. Thank you. You’ve been a great help in helping us research the marketplace and the property. Thanks again, Josh.
Josh: My pleasure, Kevin.
Kevin: A lot of things to do when you’re buying an investment property, and one thing that most investors want, of course, is to have happy tenants who are going to stay in there for a long period of time. One way to make sure that you do that is by making sure that you pitch the property to the tenants you want and who are going to best fit that particular marketplace. This is a topic I want to discuss with Miriam Sandkuhler.
Miriam is the author of a great book I’ll tell you about in just a moment but also the founder of Property Mavens. They are buyer’s agents. The book itself, which is a great read – I read it some time ago – is called “Property Prosperity: Seven Steps to Investing Like an Expert.”
Miriam, great to be talking to you again. Thanks for your time.
Miriam: Hi, Kevin. How are you doing?
Kevin: Good. In the intro there, I was talking about happy tenants. I know a passion of yours is that you make sure you buy for your tenant demographic. Tell me a little bit more about what you mean by that. How do you go about doing that?
Miriam: It’s about having an understanding of the type of property that you’re after and what your objective is. If you’re looking for a capital growth property, you want to be able to hold that property for the long term, so you need to attract a tenant who’s going to be prepared to rain checks on you, so you have to factor in what’s going to appeal to that particular tenant.
For example, if I’m buying property for clients in Ballarat, and they might have a cash-flow strategy, I know that generally Ballarat is a really cold climate, so we always want exceptionally good heating in the place, we want insulation, because that can be the make-or-break as to whether or not the tenant will rent the property.
Again, if you want to appeal to a family, you need to make sure you have decent size bedrooms; good storage; there’s a garage, maybe a shed. Whereas if you’re appealing to maybe professional singles or a couple, you might not need all of that extra space or storage. By understanding who your market is to rent the property, you can make sure that in your buying decision, you’re taking that into account.
Kevin: One of the important things as an astute investor is to make sure you’re not buying from the heart. Always use your head and think about these things logically, Miriam?
Miriam: Absolutely. It’s about being practical. It’s not about self-referencing. It’s not about whether you like the property or whether you would live in it. Again, it comes back to understanding that demographic.
The other thing I’ve found, too — and I’ll use Ballarat as an example again — is that it’s a totally backwards market in some respects to, say, Melbourne. When you’re buying in a regional town where you think everybody wants to be close to cafés and shops and within walking distance, that’s not necessarily the case, and if you use that framework and apply it to a different area, you can very easily make mistakes.
Again, you need to do your research in the areas in which you’re buying to understand who the tenants are, what they want, and what you need to provide them at a minimum to ensure they’re going to rent your property from you at fair market value.
Kevin: What’s the best way to do that? Is it to visit the area and talk to some of the locals, talk to the agents, and see what people do?
Miriam: Talk to the local property managers. Do your research in your area. Understand what the population is made up of, what the job opportunities are, the usual growth drivers, your infrastructure fundamentals, why people are going there, and then by talking to the local property managers in the area, specifically maybe identifying suburbs that you’re looking in, they can give you an indication of which sort of tenant tends to live in what particular suburb and what the drivers are for them to be there.
For example, some suburbs may have some great primary schools or a great high school or great private school in that particular suburb. That will give you an indication of who would want to live there and who your likely tenant will be, whereas other pockets might, again, be very close to the city or the CBD area, and they might be prepared to pay a premium for a property within a block or two of the main drag, so they can walk to those areas and enjoy that lifestyle.
Kevin: Great advice there. That comes from Miriam Sandkhuler. You can contact her through the website at Property Mavens.
Great talking to you, Miriam, and we’ll catch up again in a few weeks’ time. Thank you.
Miriam: Thanks, Kevin.
Kevin: I guess one of the progressive steps as you become an investor in property is that you want to get bigger and bigger properties, which probably leads you to becoming a developer in your own right. It seems like a pretty easy step, because you’re learning as you go through. Some people probably move to that developer step a little bit too soon, and they learn their lessons the hard way.
Nhan Nguyen is from Advanced Property Strategies. He specializes not so much in making mistakes, although he’s probably made a couple he might admit to, but he certainly is a very good developer. I’m keen to find out from Nhan what you need to know if you’re going to start out as a developer.
Hi, Nhan. Thanks for your time.
Nhan: Hi, Kevin. Thanks for having me.
Kevin: Any mistakes you’d like to admit to first off or not?
Nhan: Mate, I’ve made hundreds, if not thousands, of mistakes over the last ten or 15 years. Part of being a developer is being open to making mistakes. One of the biggest tips I can say in learning to be a developer is thinking big and starting small, because there’s so much to know.
One of the things that I suppose defines a developer is what you want to develop. There are so many ways of developing, whether you’re doing a removal home, a subdivision or townhouses. One of the things you do need to know, especially when you’re starting out, is the rules, because there are a lot of rules you need to know.
Kevin: Are these rules from councils and things, or just rules that you live by yourself?
Nhan: I’m talking about council rules and regulations. Every suburb has different rules, every council has different rules, and even from street to street, there are rules on whether you can demolish a property or whether you can build to a certain height. Not just rules; there are other physical limiting constraints, such as flooding, overland flow, and pipes in the ground.
It is a bit of a minefield for a budding developer. Yes, there can be a lot of money to be made, but I’d definitely tread with caution, especially when you’re starting out and you don’t know what you don’t know
Kevin: I guess in securing a development site, too, you’d no doubt want to put some due diligence in place. Do you normally try to do your due diligence before you go to contract or after the contract period?
Nhan: Both. Initially, before the contract period, when I’m looking at a property, I might jump online, look at PriceFinder or RP Data, look at various tools there, and do as much research as I can. There’s another tool called Dial Before You Dig, which looks at infrastructure underground, as well as going to the local council website that hopefully will give you as much information about zonings, what you can do, and what you can’t do. For example, if it’s zoned for a shopping center and you want to do a block of units, you may not be able to do that, and vice versa.
Being an area specialist who’s very much high on the criteria, you have to know an area and know it inside-out and upside-down. Also, be open to change, because the council rules change. Every six or 12 months, I reckon, there are various changes. For example, Brisbane city council, on July 1, 2014, made some huge changes to their city plan, as well as other local councils. It’s an ongoing process of changing.
Kevin: I guess one of the other things, too, is you never take things at face value and never accept someone’s word on something. Do your own diligence and find out for yourself. You’ll have no regrets that way.
Nhan: Exactly. That’s where you have to bring in consultants and other engineers, builders, certifiers, and surveyors. When you’re buying – let’s say – a normal investment property, you might do a building and pest; you’d do a check for the rental appraisal; you’d go to the bank and get a valuation. That’s pretty straightforward. Once you go to the next level in development, there’s a whole new team that you need to bring on board, because there are other variables and things that you have to either adhere to or be able to satisfy the council requirements.
Kevin: Yes. They would be too complex for us to go into in this chat; It might be something we’ll follow up on on a later occasion. But I guess the bottom line is if you want to step into being a developer, start the process slowly. What were your words? “Think big and start small.” I think that’s probably where we should leave it for today.
Nhan, I want to thank you so much for your time. Nhan is from Advanced Property Strategies. Thanks, mate.
Nhan: Thanks, Kevin. Thanks for having me.