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A real estate mistake that cost me $300,000+
FEBRUARY 19, 2011 BY JON
I hope you’re having a good weekend.
I want to take you through a deal that in the end didn’t happen – but it’s educational for you in any case.
First of all, I’ve been researching the Brisbane market a lot. Not so much for its potential in the next 12 months, but over the next 3-5 years I believe this market will have a lot to offer investors who get in early.
So let’s talk about the deal and what you can learn from it (I learnt a lot).
With the property, it was offered to me by a friend of mine who makes about $200,000 a year doing nothing else but finding real estate deals for investors. Of course he keeps a few to himself, but he realises that he can’t buy them all and hence has created a side-business which is booming.
Now, that’s your first lesson. The education that you get when you invest in courses can go a long way if you think outside of the square.
The funny thing about my friend was that I used to hire him to video-tape some of our events and because he was into the content of the seminars, he would actually take the information in and use it.
In the last 3 years he has gone form earning $50,000 a year to over $400,000 a year and even more if you add up the equity that he’s created with his partner.
Now, let’s talk about the deal…
The property was in a suburb called Hawthorne, a blue-chip area about 5kms from the CBD. Having bought over $3 million of real estate in the inner-city of Brisbane in the last 7 years, I knew the area well.
Here’s a photo of the property…
Not much to look at, however I was only interested in the land component, which was around 607 square metres.
The next thing I wanted to do was get a bird’s eye view of the position.
Now, here’s why this property was of interest to me…
You can see that it backs on to another property which is numbered 16 in the satellite image and it has a decent-sized vacant section to its right. The plan at this point in time was to negotiate with the owner of the possibility of buying that section.
The vendor of that property was happy to sell us that piece of land for around $200,000.
So that heightened my interest in 13 Balmoral St. Hawthorne.
The next thing I did was get a recent sale report from RP Data to see what has happened in the area in the last 6 months.
Here’s an example of a few comparable sales…
Now, looking at these, I knew that the $450,000 asking price was a reasonable deal in the making.
Considering I wanted to demolish the site eventually and I know that in Queensland this can be an issue sometimes, I got onto the council’s website and pulled up a report to see if there were any restrictions.
Here’s the report:
By looking at the report, I was confident that it could be demolished.
You’re probably wondering how long this all took. Well, probably no more than an hours work in total and it all happened within an afternoon.
So, confident that I could achieve what I wanted to, which was to eventually develop the site and take advantage of the land at the back, I could get rear access as well as access from the front.
That was a big asset to me.
I put in a contract for $440,000 and I added a few conditions. The major one was that it was subject to 30-day due-diligence period to establish whether I could in fact demolish the property.
Subsequent to those conditions being met, it would be a 30-day settlement.
So what happened?
I got pipped at the post and believe that somebody on the same day made a better offer, I’m guessing about $450,000 and bought the property.
So what are the lessons from this?
If you know what you’re doing, you can research property very fast and work out if its a deal worth persuing.
Of course you need a criteria and a think-outside-the-square attitude and you can see value where most investors just walk on by.
Considering that I wanted to develop this block with the adjacent block at the back, I estimate that I probably lost anywhere between $300,000 – $500,000 of capital gain over the next 18 months… Which makes up the time to get a permit and build.
Now, I’m not too upset about losing the deal, although it does hurt when I think of the opportunity and the potential gain evaporate. But, I know that in this marketplace there are probably 100’s of deals like this and it wont be long before I’m making an offer on yet another one.
The lesson here is don’t get too emotional if your deal doesn’t go through. Especially in this climate – there are plenty of opportunities.
My mistakes…
Usually if I like a property and I think it has plenty of upside, I pay the asking price and don’t stuff around with long drawn-out negotiations. Now considering that I probably lost this property for $10,000 and I could have made $300,000 in the next 18 months – it does seem ridiculous, doesn’t it?
I’ve said in previous articles that I’ve written that you could pay $20,000 more than what the vendor wants and if your attitude is long-term, you can’t go wrong… But because with this particular property my friend was at the forfront of negotiations, I let him run with it.
He was of course trying to do the best thing by me and get it for the best price… However, looking at the comparable valuations I think we were buying this at about 20% below market.
That’s always handy… When you can get some equity upfront as well as some upside potential.
The other mistake that I think I made was that my contract had conditions on it to take the property off the market for 30 days with a due-diligence clause. We knew that the vendor was desperate and he needed a contract to satisfy the banks.
Considering the homework that we’d done on the demolition aspect, a phone call to town-planner (10 minutes) would have confirmed or denied the accuracy of that report. So I could have gone unconditional (even better for the vendor) and settled in 60-days.
Now, that’s my fault again because I was allowing my friend to tie this deal up because after all, I was going to give him a $10,000 fee for finding it and negotiating it.
Ok, I could go on and on – but the lesson that I want you to learn here is that there are plenty of these deals around and right now vendors are very nervous about the future of the real estate market and happy to consider any deal.
With education, you can do as I do and immediately identify potential deals in a couple of hours, know where to go for all the resources and information quickly and assess if they’re worth following through on.
Also with education, you can do like my friend does, get really good at this and make a BIG second-income helping investors like me to find deal after deal after deal.
So, there’s a double-whammy in investing in your own education.
Now, I’ll be out and about again looking for these bargains and sooner or later I will pick up a few.
I hope this information was valuable for you today and you got something out of it.
Signed with Success,
Jon Giaan |
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游马尔代夫都喜天阙岛 (2019-3-16) Walle 
楼主:ahom
发表于 2015-3-2 22:26
