Deal 1

Well, I just negotiated my first SUCCESSFUL real estate deal!! It’s only a little unit, but it will be ours! I’ve wanted to get my hands on my own piece of real estate for almost 5 years…… from trying to buy Dans partner out of his house at 20 to seeing little opportunities present themselves along the way; which might I add would have made me a gold mine. BUT everything happens for a reason. Had I have purchased that unit out the front for 90k could have I progressed; or as it is; obviously I wasn’t gutsy enough to go it on my own; and I do believe the outcome is meant to be as being behind the 8 ball has made me look and learn. I have desperately looked for a ‘smarter and better’ way to exist on this planet.

Deal 1: Unit 29 Exmouth Villas, Exmouth Western Australia
Purchase Price: $260,000 Rental Return: $350 per week Outcome: WIN WIN

I am in the process of reading “One minute Millionaire’ and this deal has given me absolute faith in the teaching of the book.

Firstly; I didn’t believe it would be possible to find a positive cash flow property in Exmouth. My investing strategy is positive, positive, positive; however I thought I would be breaking all of my own rules for this deal; paying too much as it is a sellers market, having it as a negatively geared property etc etc. However, I was prepared for this as I initially began to look at the property as a home for Daniel and I. With skyrocketing rents and a housing market that seems to climb ferociously defying the trend of the southern WA market; I sought out this property so that Daniel and I could remain in town, rationalizing that if we were going to be paying upwards of $300 a week rent we would be better off pouring that money in to our own mortgage.

Now, I will elaborate on this; because it doesn’t always work out better to rent. In many cases you are probably better off renting rather that incur the enormous expenses of home ownership ONLY if you are disciplined enough to re-invest the savings you’re building through renting.

I had to equate the cost of the interest of the loan vs the annual cost of renting.
I knew roughly what my purchase price would be; so I used the following formula.

To determine interest only payments:
Purchase price x interest rate = annual interest; divide this payment by weeks of the year, months or whatever suits to show the cost. In my case:

$260 000 x 7.85% = $20, 410.00 / 52 weeks of the year: $392.50 per week.
In my scenario I also added on the fixed costs of this property; in this case strata fees, shire and water rates which is $90 per week GRAND TOTAL of $482.50 per week.

To rent would cost us $18,200 per year and it is increasing rapidly. To own our own home would cost us $25,090 per year - $6,890 more per year. In my opinion it was better for us in our circumstance to wear the extra expense for the sake of
paying off our own mortgage and
I know the capital growth on the property will far surpass the holding costs.

So, I decided to buy a home! However what next unraveled changed the entire scenario!

I had been put in contact with the owners of this property via a friend; so we were basically negotiating this deal privately. I went and inspected it and they showed me through; we chatted about what they wanted and what I wanted and then I went away to go over the figures and discuss it with Dan. I already knew it was mine; I liked what I saw. They asked that we discuss the rent they would pay (as they wanted to rent it back off us for a period of 6 months) the next time we spoke should we decide to buy the property; so I left it at that.

I didn’t contact them until late the next day; although I wanted to do it 6am in the morning. They invited me around to discuss my offer in person. My business deal turned in to a 2 and a half hour lesson on finances, investing and the sorts; which I am thrilled to add that after 75 years of their investing and buying houses; they didn’t tell me anything I didn’t already know; so that reassurance was great in itself. But I sat and listened and didn’t let on that I knew anything. I felt that my being there was an investment of my time as I think they just liked to chat to someone who has enthusiasm and could make them feel good to be able to pass on some of their knowledge; so I stayed and felt good about staying and listening (it did drag on a bit in the end).

I asked for a purchase price of $250 – 255k and a rent of $250; they counter offered with $260 and $350 per week rent. I nearly fell off the seat. I probably could have haggled regarding the purchase price, but didn’t bother because I felt I was getting a great deal. They were happy I was happy and the meeting ended with us all having a hug me thanking them for imparting their wisdom upon me and them thanking me for my time.

In the course of this transaction i:
Didn’t forsake any of my own values and I tried to look after theirs too.
I knew they wanted answers reasonably quickly; otherwise they would list it on the Monday. Not only did I know that if it had been listed it would have sold within a day, but I felt I owed them to make a quick decision.

Over the passed month I have never felt so thankful that I have poured so many hours in to researching real estate, reading books, making offers, having offers knocked back etc because it is all invaluable knowledge and experience.

In the last fortnight; I made an offer on a property, but walked away because I had done my figures and I knew what I wanted to pay for it. Just dealing with the real estate agents and applying my knowledge was fantastic.

For example; I asked for all the standard expenses of the property; to which the agent replied she didn’t have them. The agents had told me that this particular property had been under offer 3 times! To which I had to wonder; why didn’t they have the figures I had asked for? Any serious investor will want to know these figures for their diligence; which made me think there wasn’t nearly as much interest in the property as what they were saying and might I add this particular property has sat on the market for longer than any other property in town. It’s brand new and is actually a really good buy for the right person; so it does leave me scratching my head. Another thing I caught out; due to making the rates enquiries is that the agent was struggling to get in contact with the owner. When I went in to the office to submit my offer the agents husband (also an agent and co-owner of the business) walks in saying ‘Tim just got off the phone from the owner – we’re trying to talk him in to selling! This offer would have to be right on the money to get him to accept’ WHATEVER – she has just told me you cant get hold of the owner and you’ve come in saying this – which might I add he had also told me the same thing a week earlier (one must have a great memory if they’re going to lie) because I picked up on it straight away. My offer remained the same; the owner they said counter offered at full asking price; to which I asked the agent to have him sign the refusal and I would counter offer on paper – because I wouldn’t stand for them verbally pushing up the price; I wanted to be sure that my offer had in fact been presented.

All in all it’s been a busy month. I will conclude this post by saying; if you’re serious about getting your portfolio started; just get out there and get involved; even if it takes 6 months to get the deal you want (which I doubt it will) dip your toes in the water then start swimming; because as the old adage goes; you learn more by doing!

DO STUDY
DO YOUR DILLIGENCE
DO FIND ADVISORS – No one has to go it alone these days; why try and re-invent the wheel? (I use Destiny Financial Solutions – my advisor James is a gem and has helped me learn the formulas etc www.destiny.net.au )
DO MAKE A START!

(that sounded like a Dilmah tea ad; DO TRY IT) J lol

Xxx Kat