In the past 5 days we have purchased 5 properties. they have been geographically and financially all over the place. We have purchased under the hammer at auction, bought at an in-rooms auction, private sale negotiation, a negotiation prior to an auction and and late on Saturday secured a property after a passed in auction. However, there has been one overwhelmingly similar factor. Every property has sold at a level similar to that which we thought it would. None of these properties sold cheap, but none sold “over the top”. Each of these properties had competition. Each of these properties were in good locations within their respective geographical areas and each of these properties represented sound fundamentals for long term growth. In other words, each was not purchased as a unique offering for a particular client, but as a property that would not only suit their current needs but would be a good long term investment.
The Real Estate Institute of Victoria has released the first auction result figures that at least give a reasonable indication of clearance rate. This being, 71% on 620 auctions. just on 16% sold prior, and just under 30% passed in, 94 of these on a vendor bid. RP Data and APM had similar results on a different set of numbers, but overall, a sample of 600+ auctions clearing better than two thirds is a reasonable indication that the market has not changed substantially since the end of the spring selling season. Next week and the week after we will see “Super Saturday” conditions of 1000+ auctions.
In a balanced market, if you are looking to purchase a property being advertised for auction, then you need to be ready to negotiate in a one on one situation with the best negotiator the Real Estate agency has as well as being ready to “perform” at a public auction. Whilst there are no definitive numbers on how many properties would actually sell under the hammer, the anecdotal numbers would be much, much less than 50% of the time. This means if you add the times where a property will sell prior to the property passed in and sold, or not sold, then sold prior to the amount of properties that are put up for private sale in the first place, then we are talking about 1 in five properties may sell under the hammer during the auction at the front of the property.
If you were feeling that it would be easy just to outbid another inexperienced member of the public, think again. you would have less than a one in five chance of this occurring. And so you had better be thinking very carefully how you will handle the negotiations with a professional Real estate negotiator. Over the next few weeks we will work our way through some of the normal negotiations and some “not so normal” ones.
On another topic, Self Managed Super Funds, the article in today’s Age by Max Newnham, resonates quite loudly in my ears. He is writing about the failure of The Charterhill Group and the fact they integrated a “one-stop-shop” approach to setting up a SMSF, organised the loans to buy property, found the properties for the SMSF to buy, and or developed them, and then managed them as well. The fact that one of the key factors in doing this was the promotion “negative gearing relating to the depreciation of the asset. This does not make any sense when you are in the SMSF low tax environment.
I am regularly asked to find new, highly depreciable properties for people to purchase in their SMSF, because their financial advisors have tried to get them to buy interstate or mining town new properties, and they have wanted something local. It is when i explain that many financial planners are paid huge referral fees to get their clients to buy these properties and then explain the low tax rate “negative gearing” scenario, that the penny drops and they realise they probably shouldn’t have even set up a SMSF.
Always get a couple of opinions when thinking about buying new property in your own super fund!
If you are thinking of buying a property this year, please drop us a note. We would be happy to come and have a chat. If you are already a landlord and you want to get some professional management, please give us a call, we would be happy to have a chat about this as well.
JPP Buyer Advocates