There’s something in common with
everyone when it comes to investing. We all invest for the same reason
– to make money. And to make money investing, investors need to know
two key things: when to buy and when to sell. Large profits await when
you buy low and sell high. However, it is easy to make mistakes valuing
a property, and transaction costs can eat up your profits if you are
even a little bit off in your assumptions.
low and selling high is the oldest investment cliché, but it is very
hard to do. Why? Two things drive this: fear and greed. Fear is a
powerful emotion that causes people to sell investments and seek
comfort and safety in cash or gold. There is a lot of fear today in
light of the current global economic uncertainties. However, greed is
an even more powerful emotion than fear. Fear is temporary, greed is
permanent. Greed always overtakes fear. Greed also lulls us into a
false sense of security. For most people, logic and reason go out the
window at both ends of the spectrum.
In the secondary market
it comes to buying property, making an offer can seem like a huge step.
Whether you are buying your own home, or looking for investment
properties, it’s important to get comfortable with making offers. It
has been said often times that people make or lose more money in real
estate when they make the purchase, and less when they sell. The reason
for this is simple; when you buy you can negotiate the price (i.e. the
price you pay is in your control) but when you sell, the price a buyer
is willing to pay is not always in your control. Of course you can
reject low offers, however, at some point it has to come to a willing
seller, willing buyer situation. Getting used to making offers allows
you to make some that are unsuccessful, and the less emotional you are
about the outcome, the more willing you become to make more offers.
be afraid of making low offers. By itself an offer is not insulting. In
making an offer, you are simply saying what you would be willing or
able to pay; you are not actually saying you only think the property is
worth what you are offering. The manner in which the offer is presented
is also very important. The last thing you want to do is to upset the
seller. A seller may choose not to sell to you no matter what price you
are willing to offer after that because of it. A good and experienced
agent will present offers so that the seller is not offended.
Why would a seller accept a low offer?
There are many reasons why a seller might accept a low offer, such as:
have already purchased another property and they need the money from
the sale to close the deal or they will lose their deposit;
- The property has been on the market for twelve months with no offers and the seller is more willing to consider any offer;
- They are relocating and don’t want to leave the property empty;
- They are leaving the country and need to sell before they go and etc
What these sellers have in common is that they are highly motivated i.e. they have strong motivated reasons to sell.
a property is first listed for sale, the seller is hoping to get offers
around the asking price. After it has been on the market for several
months, the seller becomes more willing to consider offers that would
have seemed unimaginable when they first advertised the property for
sale. As a buyer, the key to buying low is to understand the seller’s
Discover the following key facts about the seller:
- Where are they moving to?
- When do they need to be in their new property?
- Why are they moving?
- Do they need to sell this property to be able to move?
- How much equity do they need from the property to be able to make their move?
- What will they do if they don’t sell their property? And more…
said this, it is not always the case that the seller must always lose
out for you to gain when you buy. Sellers can be in a compromised
profit situation where they can accept lower offers and still make
profit or hold on to it for better profits. When a seller is willing to
consider a compromised profit situation and leave something on the
table for the next buyer, then all parties stand to gain.
Know the market you’re keen on investing
is always wise to invest in the location or area that you are familiar
with. There are gems and opportunities in every location. You need not
keep up with the Joneses to make good investment decisions. By having a
good understanding of your area, you will know the kind of prices being
offered for sale, transacted prices, also the number of properties
being put up for sale and how long they take to be taken off the
market. These are useful information. Only then will you know that the
price you offer will be at the right price. It is not always the case
that you need to buy at below market price to ensure profits. Should
the area hold certain advantages that you come to know of from your
research of the area, property prices could go up because of that i.e.
the opening of a new renowned international school in the area, or new
roads improving connectivity to the area. Once you own that property,
be sure to keep track of its marketability and the goings on of the
Locking in suitable mortgage interest rates
in comes to buying low, you will also need to consider the other costs
involved in purchasing property and the largest would be the financing
of it. Buying low also means keeping the cost low. Today, BLR (base
lending rate) is in the region of 5.55%. Not too long ago it was at
6.75%. In addition to that, most banks are offering BLR – 2% and even
more which means your borrowing cost is now only at 3 - 4%. What this
means is that your monthly loan repayments to the bank is lower than a
Improvements on the property
are some investors out there who thrive on purchasing dilapidated
properties and then putting in some money to improve the condition of
the property before reselling it for a profit. This is another mode of
the Buy Low, Sell High strategy in action. The average man on the
street is afraid to purchase such properties because of its lack of
appeal plus they may not have the expertise to assess to what extent
the repair, renovation, refurbishment or a complete new structure works
may cost. You will need to have expertise here and a team comprising of
contractors and architects for this project. The difference with this
is that you will need to have the extra cash in hand to work this mode.
Packages offered by developers (Primary Market)
are many packages now offered by property developers making it even
more attractive to purchase properties at this time. Check on what is
being offered and where the savings are. Look out for Legal Fees, Stamp
Duty, Car Parks (should it be a strata property), Completion Period,
Maintenance Charges and the like. In some attractive offerings, I have
come across packages where a lot of these charges are borne by the
developer. These packages can reduce significantly your upfront cash
commitment and thus allowing you to buy at a lower price. It goes
without saying, you have got to check on the price of the property to
ensure that it is at market price based on your research of the area
(which is why point No. 1 earlier is very important).
is not always possible to time your purchase so well that you truly buy
at the lowest and sell at the highest possible. The Buy Low, Sell High
– oldest investment cliché is easiest said really. A good guide would
be to determine your entry and exit point. Similar to investing in the
stock market, upon purchase, determine your goal and once it is met,
sell. Never mind that after you have sold, the price continues to
increase. Don’t let greed get in the way of your investment and you’ll
be well on your way to successful investing. When a good opportunity
presents itself and you have done your homework and it looks good,
remember to commit to the purchase otherwise no matter how many
investment strategies you know of, will be of little or no benefit to
you at all.
Ai Cheng is general manager of S.K. Brothers Realty (M) Sdn Bhd and a
registered real estate agent with the Board of Valuers, Appraisers and
Estate Agents Malaysia; a member of the Malaysian Institute of Estate
Agents (MIEA); a member of the Institution of Surveyors Malaysia (ISM),
and a registered Financial Consultant with the International
Association of Registered Financial Consultants (IARFC). If you have a
question or suggestion on property investment, or feedback on this
article, please write to email@example.com