Let me tell you about a couple of recent lunches. Lunch One was at a very nice Spanish restaurant near the water with a developer who introduced us to a new Spanish beer. Now you may think I’m just bragging but its an important detail. Property investing is not about one single event, it’s about the journey. It’s also about the importance of the business overall and the value each party places on any interaction (lunch) or transaction along the way. A friend of mine calls it the ‘value curve’; and the deal is done when the value curves meet – at the point where all parties see the benefit.
Back to lunch one. So, this particular developer is keen to move onto an addition stage and with currently, a low number of investors in the estate, they were interested in how we could introduce more of our clients. Now we love the estate and believe it to be a high growth area into the future, but when there are plenty of options for investors we agreed it needed a ‘little push’ to really stand out given the entry price is higher (with good reason) than other estates in the region. We didn’t want to affect valuations by dropping the package price directly because that’s no good for anyone but there needed to be some benefit to the investor.
With cash flow being a major concern to most investors we agreed that a rebate on settlement to the client was the best way to go so, on the larger lots we got agreement on a $30,000 reduction (yes that’s a ‘3’ with four ‘0’s after it!) being offered on just three lots bringing them down to the price of other smaller lots in the area. Better yet, after another lunch with one of our builders (I’ll get to that in a second) we were able to deliver a package price (house and land) $100,000 less than established sales in that development ie; creating immediate equity, a circa 5.5% yield and $30,000 to cash flow the project and hold it for many years to come … Lunch One = deal one done!
Now, to that lunch with the builder. Of course builders would always like more business too and because this particular one love’s how easy we make it for our clients and they really appreciate the incremental business we bring through our clients. So, over lunch and a lovely Kiwi Pinot Noir we discussed where the house build price point needed to be in this market and what features and specifications the properties needed to have to maximise the rents for our clients. After much tooing and froing, they rejigged their offering and reaffirmed themselves to us as one of the lowest price builders still delivering a quality product. Perfect!
All very well and good you say, Mal enjoying a nice Spanish beer or two over lunch but, what’s it for me? Well, a combination of ‘lunches’ with both developers and builders has meant we’ve been able to secure some very “Hot Lots’ to offer our clients. For example, we’ve now got some very limited packages as low at $327,700 in estates where the average package price is $390,000 and some other packages at circa $420,000 where their neighbours on similar size lots are building for over $450,000. Don’t forget here that these deals only serve to improve your ‘buy price’ in the current market but have little or no impact on the rental price or final valuation on completion so it’s simply ‘money in your pocket’
Add to this the actual sale price of completed properties in these areas and our clients who secure these opportunities are making serious money on day one in what are expected to be strong, stable high growth areas in over many years to come AND, you’re not compromising future capacity to secure a great deal because you’ve built real equity.
The lunch’s actually only took a couple of hours and we did go on to finish the restaurants supply of that Pinot Noir, but like I said… it’s important to enjoy the journey.
One of the reasons we can make deals like this work is that we have the capacity to deliver volume business to both our builder and developer partners which means that we can create more opportunity than one lone individual investor can negotiating one house.
So while there are many lessons for an individual, if you would like to find out more about these deals you couldn’t achieve in these areas for yourself, then give us a call – we’ll do lunch!