Is it possible to buy at 70% of market value?

[invester]

Hi, in the United States, it's typical for residential landlords to buy at 70% of market value.The reason is because 70% is enough margin to cash flow after debt service and other expenses.

In some countries I've heard you just can't buy at 70%, Malaysia for example. Can you guys tell me what's a typical target purchase price, as a percent of full market value, for a wholesale property purchaser in New Zealand with an intent to buy and hold?

[spaceman]

It is not typical for anybody anywhere to buy @ 70% of market value...... you're dreaming mate

If you buy the property on the open market you pay the market value..... no matter what any body tries to tell you

The only way to buy below market value is through "backdoor"/private deals and then you never really know the msrket value as it was never tested.

Cheers
Spaceman

[invester]

From personal experience as a US investor I completely disagree. Buying at 70% of market value is possible and done every day. Your quip about not truly knowing the market value is theoretically nice but not relevant to a real-world investor who knows his market.

I never said off market deals were excluded. I do extensive direct mail campaigns. Why are you focusing on retail prices? Aren't you an investor?

[spaceman]

You're kidding yourself mate........ try looking up the definition of market value......there is no way to set market value without guessing unless the property sells on the open market.

If you want to estimate the market value @ $100k and then tell everybody how clever you are buy phurchasing @ $70k, go right ahead.... the only ones you're fooling are yourself and the gullible

Off market deals aren't the common way to buy houses....yes it can be done as I allowed in my first post.......but they're certainly not typical or common.

The market price is the market price.... neither retail or wholesale......once again if you want to kid yourself that the price you paid was wholesale go right ahead ..... but maybe you might want to look up retail/wholesale and see what they mean too

Cheers
Spaceman

[invester]

We can continue back and forth with this but it seems the points of dispute are more country specific than anything else.

I, and other investors and Southern California, know how much equity we're acquiring right from the initial purchase. We make money when we buy, not when we sell. Values change over time but at the point of sale there is no guesswork involved. It's called knowing your market better than anyone else. Your assertion that buying at wholesale prices is impossible is just flatly false in the United States at least.

I'll take your word on the rarity of off market deals in New Zealand. If you're going to tell me the off market deals are rare in the US, I'm sorry but once again you are incorrect. Some of the higher volume wholesalers in my area are flipping 5 deals or more a month, and Southern California is not exactly known as a high-volume market (for those, look at Memphis or other cheap areas of the country)

[spaceman]

Lolz....you make money when you buy..... o rly??? ...,,, sonebody has drunk the koolaid

Lets see..... you buy a house $100k ..... great deal at the time.... 1 year later the market had tanked and youre forced to sell for $50k

Exactly how much money did you make?????.... and did you buy something nice with it????

Cheers
Spaceman

[invester]

"You make money when you buy" is just a saying that helps people understand the idea of buying at a discount to capture cushions of equity. You posted an extreme example where it doesn't hold true. Good job with that. I could post a few more realistic examples here that shows how purchasing below-market compounds cash on cash returns and IRR, but quite frankly I don't want to engage with you any further. I'll let you have the "smarty-pants win" if that's what you're after.

[spaceman]

LOLZ......extreme example .......yeah right because this http://en.wikipedia.org/wiki/United_...ket_correction never really happened and even if it did it'll never happen again.



It's a stupid saying that doesn't hold true for a split second.

It's not so much I've got the smartypants win......you've got the dumbass lose.

Cheers
Spaceman

[Rosco]

Hi, in the United States, it's typical for residential landlords to buy at 70% of market value.The reason is because 70% is enough margin to cash flow after debt service and other expenses.

In some countries I've heard you just can't buy at 70%, Malaysia for example. Can you guys tell me what's a typical target purchase price, as a percent of full market value, for a wholesale property purchaser in New Zealand with an intent to buy and hold?

Hi Invester,

I'll rephrase to avoid the above argument.

Yes if you are a smart trader or investor, you can buy better than the average person. There are traders buying at good values, so that they can resell at a profit. Your 70% of what the average person is paying is probably close.

If you are looking to trade in NZ , watch GST.

Ross

[orion]

Market value is definitely an interesting subject.

I've been doing a few free seminars in Hawkes Bay lately and the other evening we did a negotiations exercise which is a great exercise for people to look at their negotiation skills and also talk about value.
We did 4 different scenarios and a range where the vendor would take 'x' amount and the purchaser would pay up to 'y' amount. The last 2 we did were actual properties, one of them I bought a couple of months ago where it was going to go to mortgagee sale and the bank agreed to take the loss of $50,000 or so upon the sale. The vendor had paid $183k and I bought it 4 years later for $123k, that was in Whakatane.
The other one is a piece of land zoned commercially. Two different valuers did a registered valuation on it, on was $400,000 and the other was $900,000. So a huge range there because of two different opinions on price. The purchasers were told they had a valuation of $900k and the vendor was told they had a valuation of $400k. So the deals (25 pairs of people) ranged from around $400k up to nearly 900k for the same piece of land, because of what they perceived the value to be.

You could have a property sell for say $200k one day, next week it sells for $250k, then a month later sells for $180k. What is the market value? Does it change because either a purchaser is very keen to buy, or a vendor very motivated to sell?

You could argue and say market value (specific definition) is what someone is prepared to buy/sell for. That may be true, however what Invester is talking about I assume is what would be fair market value, buying at 70% of that.
In that case, you can definitely buy at 70% of that for any number of reasons, and go out and sell a week or so later for what would be considered fair market value (willing purchaser and willing vendor).

[Damap]

In the US flippers would typically buy at around 50% of FMV actually. Usually REO's and from asset managers. You can buy at 70 to 80% of FMV on the MLS in some cities. So ignore Spaceys rants Invester you are quite right. But the USA doesn't have fixed or reliable values like New Zealand we are quite a different ball game. Here your focus is more going to be on the net return rather than the discount. Because unlike the USA we don;t have the distressed real estate or the government created and backed financial circus they have.

Our historically predictable capital growth once coined the phrase you can't pay too much in New Zealand but sometimes you pay too early. You could/should aim for 80% of FMV here which will involve making lots of offers and looking for motivated sellers. However if yo can find a cashflowing rental at 100% of FMV don't let the lack of equity put you off. It will be a cheap buy in 3 to 5 years.

NOTE: All the above is premised on the fact you are in a major city, preferably Auckland. If you are in the provinces then these rules do NOT apply.

[invester]

Good information Damap, thanks for bringing this NZ newbie up to speed :-)

[Wayne]

Buy enough houses at 70% of market value and statistics make that the market value - so you brought at 100%.
The house is on the market
you brought
that is the market value!

[Davo36]

invester, ignore Spaceman et al.

You *can* buy well in NZ, but there are a lot of people trying to do just that and it's arguable our houses are overvalued en mass.

So I'd be careful down here if I were you.

[elguapo]

Hi, in the United States, it's typical for residential landlords to buy at 70% of market value.

If it's typical, then you can't be buying at 70% of market value by definition.