Simon Loo is an expert property buyer’s agent and director of property buyer’s agency, House Finder. He has been working in the property sector for many, many years and has a wealth of knowledge when it comes to building a property portfolio. We are lucky to have him share his opinions and his advice with us on the best way to find properties to invest in.
Join us as we delve into today’s topic of investing during these uncertain times, we discuss the current state of the property market in the midst of the COVID-19 global pandemic, why you should be staying ready to jump at the right opportunity, the best way to safeguard investing in interstate property, we hear an amazing story about one of his clients’ investments, and much much more!
We dive right in and discuss the current state of the property market especially during these uncertain times.
It is very interesting times at the moment. You know, especially, I mean not even obviously with regards to the property market, but you know, with the share market, everything, you know, financially across the globe is taking a bit of a beating more or less. From a story perspective, I’m exposed to a lot of buyers. I’m exposed to a lot of sellers in my profession. And things have definitely had a significant shift on the ground. You know, the type of sellers that are selling at the moment are more or less people that are secluded into two groups. You know, the first group are, they don’t really need to sell. They’re still hanging onto that, I guess, their ideal price, which is fine, you know, more power to them.
And then the other group are people that are distressed and even now more than ever, they’re looking at ways to exit the property, you know, which one of the main driving factors is the price. And I guess the story that I have is, from my perspective as a buyer’s agent, a lot of my buyers, I’ve been actively telling them, you know, now is actually not a great time to buy. And the people that I’m telling that kind of information to are clients that may not be 100% financially secure. They may not have a good cash buffer in place. They might be in employment situations where it’s a little bit shaky and I’m telling them, you know what, let’s just hold off for 6 months or however long it might be.
Reassess, make sure you’re financially secure and then we can sort of look at progressing. Then the other 50% of the buyers that I’ve had, and this includes, you know, people that are, I would say new buyers, are opportunists. I wouldn’t say, I don’t want to use the term taking advantage, but it’s more about just being active at the moments when there are definitely sellers out there who are looking to sell a property maybe even irrespective of the price. So if you’re financially viable, if you have, you know, a good cash buffer, if your employment isn’t at risk, it is definitely a pretty good time to be on the grounds. At least with your eyes open, you know, you don’t need to have to feel any pressure to move quickly.
Even in the midst of a time where we really don’t know what is going to happen even from day to day, you still need to be ready to jump at any opportunity that may arise.
Don’t worry about, Oh, I need to buy something in the next 2 to 3 months in line with my own personal goals or in line either with pre-approvals. But if the right deal comes along in the right deal, that situation comes along, I think being prepared and being able to act on that at the moment. It will reap the rewards in the long term. One of the stories that I’ve got, you know, is actually a client of mine. They’ve already bought a couple of properties from me in literally the past 6 months. And this particular buyer is an expat. So they were based in, they’ve got Australian citizenship and all that kind of stuff, but they actually work and live in Hong Kong. So they’re taking advantage of the Australian dollar to, you know, maybe sort of pick up more properties just from their perspective.
So they’re still quite active. And when I came across this property that I was actually negotiating on before this whole pandemic started, and back then they were looking for a price of around about $300,000. Now, to give you a bit of colour on the type of property we’re talking about, it’s a three bedroom brick house in Brisbane on 628 square metre block of land. It’s about 28 kilometres from the Brisbane CBD, walk to the station, shops, you know, schools, parks, transport, all that type of stuff. It’s under rented at the moment at $305 a week for 2 tenants. That’s $305 a week. And that’s 2 tenants that have been there since 2011. So they’d been there for a very, very long time. The landlord has increased the rent during this time obviously because they’ve just been good renters.
They’d been paying the rent on time and they’re not too fussy or anything like that. So obviously these renters intended to stay, you know, before the pandemic they were after about $300,000, literally overnight, the agent called me up and said, look, Simon, these sellers, they really, really need to sell. The banks are foreclosing on them. And if they’re foreclosing on them, they’re going to be in a worse off situation financially than if they had to let go of this property at the moment. So, you know, after a bit of negotiating we ended up picking up the property for $226,500.
We find out about why they felt the time was right when they bought it and how it all came together.
They just didn’t want to mess around any longer. I mean, I’ll be completely transparent and upfront. The house isn’t 100% perfect structurally. It’s fine. There’s nothing wrong with the bones, but it probably, I mean it’s been tenanted for most of its life, so it’s just got a lot of wear and tear and probably needs about 10,000 to $15,000 worth of cosmetic work. When we did the quotes on it and had some tradies through. So it was visually unappealing, which in this current time is even harder to try and sell a property. You know, the properties that are selling at the moment are properties that are quite polished, you know, people are looking at it from a very risk averse perspective. So, you know, the one thing going for this property was the fact that it was already tenanted. So in many ways there was some level of security there. And the seller knew that it was going to be hard to sell this house to an emotional buyer because of the cosmetic work that it needed.
So, you know, we went in, we started negotiating. The agent actually just came out and said, look, if you can get me a $245,000 offer, we can probably get this deal done. And then even at that point, I was like, wow, you know, a $60,000 drop overnight, you know, on a $300,000 purchase, that’s like 20%, you know, or thereabouts. So, you know, I had a chat with a couple of buyers and this particular buyer that I had was quite keen to explore the option. But after a bit of negotiating and looking at some of the work that needed to be done on the property, we ended up with that particular figure, which was $226,500. Which I would say it’s a good deal to say the least.
With one with one particular statistic that kind of outlines why it’s a good deal. And that is the unimproved council land value which came in at $225,000. So this is the land value that council deems the value of the property to be. The retail land value is probably worth quite a lot more. So essentially you’re buying it below land value and you’re getting a free house that’s already rented, you know, it does need a little bit of work, but at the end of the day it’s definitely a long term moneymaker, if that makes sense. So, you know, like I’m seeing a lot of these kinds of situations at the moment where, you know, you’ve got sellers who are kind of just sitting on their hands, like I said before, and they’re not really moving on price despite everything that’s happening at the moment.
We delve into how this global pandemic has affected the repaying of mortgages and home owners looking to sell their property.
You’ve got banks that are deferring mortgage repayments for 6 months. So even if some of these sellers are, you know, maybe unemployed or financially taking a bit of a hit personally, they can simply defer those mortgage repayments and they’re not in a position where they are forced to sell a house. But then you do have, unfortunately, situations where, you know, sellers are desperate to sell. They’re in financial situations where even if they do defer mortgage repayments, they might be struggling elsewhere in life, you know, whether it’s a business or whether it’s other investments, their share portfolios perhaps. And they’re just willing to let go of properties or assets and they’re not 100% concerned about price. And you know, at the end of the day there’s just not very many buyers out there.
Like from what I’m seeing on the ground, the mum and dad investors have completely dispersed, you know, the people that have replaced the mum and dad investors are quote unquote professional investors who are looking for deals. So, you know, if you have a situation where you’ve got a seller where they’re genuinely desperate to sell and they’re not concerned about price, but then you’ve got buyers that are also thinking, you know what, it is a very risky situation at the moment globally, I do want to invest in property, but I only want to invest if the right deal comes along. And if you marry the two together, it can be a win win situation for both parties. So that’s what I’m seeing quite a lot of on the ground. I think it’s very, very important to ensure that the fundamentals are also there.
So, you know, a lot of people talk about the demand for property, you know, will property go down in value. I actually think properties will go down in value over the next, you know, 12 to 24 months, but I can only see it happening significantly at the very top end of the market, you know, so multimillion-dollar houses, thousand dollars a week rentals, like those other kinds of properties people simply can’t afford anymore, you know, regardless of what situation you’re in. But the more affordable housing side of things, you know, there will always be a necessity for a roof over people’s heads. And I think this is where the market is more or less, you know, insulated to some degree.
We discuss what the main goals were for Loo’s clients and whether they had a specific amount in mind for the properties they wanted to invest in.
For these particular guys, they’re quite astute investors globally. They’ve done extremely well in their line of work. And they’ve invested heavily in markets like the US and you know, in parts of Europe and Asia as well from a property perspective. So they knew what they were looking for and these guys were definitely looking for properties where it’s a very unemotional purchase for them. It was more about, okay, you know, what kind of value was there with this particular property? If they’re buying a property that’s, you know, 50,000, $60,000 below what it’s worth, then potentially they can use that equity to help them buy the next one. And similarly with cash flow as well, these guys have a large portfolio, so they need that kind of steady rent from day one, which you know, $305 per week on a $226,000 purchase. You know, you’re looking at around about 6.5% rental yield, which obviously fulfills that purpose quite well.
You know, they’re not too concerned about the little cosmetic stuff. They’ve sort of been through, I wouldn’t say the trap, but I guess the renovation situations with a lot of their properties so they know what is structural and what is just cosmetic at the end of the day. And I think for them they’re just looking for good deals. Like most of the investors out there at the moment, they are simply looking for good deals. You know, they’re not really too concerned, like I wouldn’t say they’re not too concerned, but I would say that they know the fundamentals for growth is not as important as the actual value of the deal itself. So what do I mean when I say that instead of thinking how much a property can grow in value, you know, how much are we buying it for below that value? I think that’s what a lot of investors are looking at and this is what this particular client was looking at as well.
The property market continues to ebb and flow during this pandemic and it might continue on this up and down path for the foreseeable future.
I speak to dozens of selling agents on a daily basis and it’s very interesting because before Easter when the government was announcing all the bans on, you know, going to open houses and you can only do virtual inspections and they were banning auctions and people weren’t too familiar with the whole sort of online auction process. There was a lot of fear in the air immediately. There was a lot of apprehension about the property market as a whole. And things were actually quiet according to the selling agents. You know, there were extremely low inquiries on any property in the market. Now after the Easter weekend from speaking to literally dozens of agents saying the same thing, the inquiries suddenly picked up significantly over the Easter weekend.
Now it could have been a mixture of, you know, people who are in lockdown and they had the 4 day break essentially from working from home. So maybe they didn’t have many things to do around the house. Maybe they were just on www.realestate.com.au looking at properties, things like that. But I have noted that in literally the past week, the markets that I’m looking at predominantly in affordable housing markets, the inquiries and even the amount of offers and properties that are going on to contract have picked up. Now, I’m not suggesting that it’s going to continue that way, but it’s interesting just during a situation or a pandemic that we’re experiencing right now. It’s so sensitive to, you know, government announcements and new policies that are coming out, restrictions and things that are happening, you know, even case numbers, you know, the fact that as we speak now case numbers in Australia have reduced significantly.
I think all of these issues play a really big part and immediately have triggered effects on the market itself. So definitely very interesting times. The amount of listings coming online is extremely slow as well. So as I said, you know, people aren’t putting their properties on the market unless they really have to and the people that are putting their properties on the market are, I mean, they don’t have their head in the sand, they know what’s going on. So, again, there might be some good opportunities to be had for sure.
Having professional help on your side that can inspect the property for you and find you the best deals could not be more important at a time like this.
Whether you’re buying in your backyard or whether you’re buying interstate, you definitely need someone to inspect it, you know, a trusted third party. Like buying a property completely sight unseen is not something I would ever recommend. The way that they doctor images and real estate listing images at the moment is just, it’s so far from the reality of what the house can sometimes look like. You’re really taking a massive leap of faith if you’re buying completely sight unseen. Some of the things we do like virtual tours and you know, we get like complete third parties, unbiased third parties to just take pictures of every little defect that they see on the property. You just get a really clearer picture and not just relying on agents telling you or the selling agents telling you. So, I mean, even if you’re buying in your backyard, that’s fine because you can still do inspections, you know, one-on-one inspections and all that type of stuff. But if you are buying interstate, definitely need someone to inspect these properties for you.
We find out about how he is able to access interstate properties and whether he can get a team on the ground to work on these properties.
Getting access to the deals is still ongoing. At the end of the day we’ve got a bunch of selling agents out there that are still needing to eat and they still need to do business. So they’re still trying to sell properties. Sellers are still trying to sell properties even though it’s not, you know, the buoyant market that we had prior to the pandemic. From an on the ground perspective, how I do my inspections, I actually have an office in Brisbane and a team that worked with me. So how it normally works is I, you know, obtain the deals. I analyse the deals, I go through the whole, you know, figuring out, looking at comparables, working out whether it’s a good deal or not, does the cashflow make sense? All the fundamentals, all that kind of stuff.
And if all that stacks up, then I just simply get a call to one of my guys to go out and inspect it, take a hundred pictures, you know, do a video and make sure there’s nothing weird or nothing negative visually about that property. And if all that kind of stacks up, then if one of my buyers decided to buy it, then we go through the building and pest process and obviously ensure that there isn’t really any sort of structural issues or anything like that as well. So I guess at the end of it you do have a very thorough understanding of the physical condition of the house. It’s not just a hit and miss type thing. The people that are on the ground doing these inspections, they’ve seen thousands and thousands of properties.
So they immediately know, that’s a trip hazard or you know, you’re going to need to replace three palings on the left hand fence or you know, these neighbours are a little bit messy or the main road might be a little bit too busy or whatever it might be. You know, they could kind of provide me with that kind of feedback. So, you know, whether you’re doing it yourself or engaging a buyer’s agent, I think it’s really important just to have that kind of, unbiased and on some level trusted third party in whatever market you’re buying in, whether it’s Brisbane, Sydney, Melbourne or wherever. I think that having that team on the ground is super important.
The risk might be a bit higher in these times because of the limitations that have been set on us, yet there is always going to be some sort of risk when purchasing property.
Don’t get me wrong, you know, even though we talk about buying below market value, we talk about buying distressed, we talk about buying good deals. I don’t think there is any time, with whatever you’re investing, whether it’s good times or bad times, that there is such a thing called risk-free. I think the risk element will always be there and I think it’s in every investor’s duty to minimize that risk as much as possible. Just based on the deal itself, based on, you know, analyzing the numbers, what it’s worth, we’re talking about property, then you know, where it is, what it is. I think at the moment like, I mean it’s just about the fact that, you know, there are just a lot less investors out there at the moment.
A lot less buyers out there at the moment, you know, and the demand and the supply for properties is still, even though it’s dropped off, it’s not reflected through the demands as much. But I think supply and demand issue at this point, I think it’s just purely a supply and demand issue. And if you’re at the right place at the right time with the right offer, then you can safeguard yourself against any, well, I wouldn’t say any, but significant risks in the future. I mean, using my example earlier on, if you’re buying, you know, at council land value, I really don’t think you can get as less risk as that, especially since the property is tenanted.
That’s what the dirt is worth, you know, not the house itself. The risk could be that if this thing, you know, it gets even worse and it just, you know, becomes significantly more eroding to the economy or globally or whatever it is. There could definitely be a worse downside, but I guess you kind of have to look at the upside as well. If you’re buying a three bedroom brick house, 30 Kilometres from a major capital city, you know, for 220,000, $230,000. How much further lower can it go if it does go lower. But I think more importantly, what’s the upside to that? If this thing is to have like a 12 month or a 24 month run, you know, in 12 months time or 24 months time, you might be able to potentially sell these houses right off the bat and make significant money out of it. So I think from an investor’s perspective, you just kind of have to look at, you know, as though you’re just buying at any other point in time, you have to look at the upside and the downside as well and just kind of make a decision on whether you think, you know, the upside is worth the risk.
A lot of people are going through financial hardships right now but it’s about making the most of a seller’s situation and trying to help them out.
It’s not about just taking pure advantage of sellers that are in really tricky situations. You know, this particular seller that we were working with is in a situation where, you know, letting their property go for the price that we bought it at still made more sense to them financially than if the bank went in and closed in on them. For them, this property would have still been sitting around not doing very much had we not sort of been negotiating and was timely in the sense that we could act quickly. We didn’t stuff around too much on finance conditions or building and pest conditions. Like we made the deal happen for them quickly, which was more of a priority for them rather than, you know, maybe sitting around waiting for 3 or 6 months, you know, and hoping for the right price to come along.
So, you know, that’s what I mean when I say, okay, you know, just be ready, you know, is what I’m trying to say. If you’re financially able to buy again, if you’re in any situation where you’re a little bit unstable, a little bit uncertain, then you know, it would probably make more sense for you to just sit it out for now, you know, even though there are deals to be done, I think the sleep at night factor is probably the most important thing in any of our lives. Even if we’re buying a property, even if we’re making really good money, if you can’t sleep at night, I think there’s no point to it at the end of the day. So that’s where I’m at at the moment.