I'm Jeremy Sheepard. >> And I'm Daniel. >> We use data to expose deceitful property experts and their marketing BS. >> This is the expert busting series. >> Welcome to episode 8 of the expert busting series. Buy well.
Why you don't make money when you buy. >> Yeah. So, how many times have you heard one of those experts say you make money when you buy? I have never made a single scent when I buy. Instead, I lose money hand over fist to uh lawyers for conveyancing, you know, um stamp duty to state government, etc. So, you make money, and I've only ever made money in property when I hold.
That's when capital growth takes place, and that's when the rental income flows. You could make money doing a rena flip, but uh it's a bit of nonsense really. You don't make money when you when you buy. You lose money when you buy. Uh let's get on with expert busting number eight. >> All right.
So, what you lose when you buy it. >> Yeah. So, I was going through some of those before. You can see a list there. To buy a property, you not only need a deposit, you need stamp duty. You need to pay for building and pest inspections.
You need maybe a strata report. Uh there's legal fees, too. Uh and then there's all that time that you spent researching, >> uh arranging finance, visiting open inspections, uh haggling, signing contracts. Uh there's a colossal expense in buying a property. There is no way you can buy a property in Australia and make money when you buy. >> I' I'd say that's one of the negatives, right?
>> Yeah. the entry costs >> and that's why I think a lot of uh individuals pivot to maybe um dollar cost averaging in index funds or share portfolios because you buy you forget about it. There might be a small brokerage fee. Easy. But with property, it's a very large lump sum of time costwise, but also time and even uh a buyers agency buyers agency cost too. You need to factor that in.
So up front it's really hard to um >> yeah there's a huge amount up front. You make a mistake in this sort of area and it's it's going to be a big one. It's going to be costly. >> Renovating too. You might buy something that's um needs a bit of work and you have to add that in there. >> All right.
Yeah. So after it settles, you need to do a few touch-ups. Yeah. >> Yeah. So the people who do make money when you buy are real estate agents, >> buyers agents, property developers. when you buy property developers, >> uh obviously the vendor, conveyances, building and pest inspectors and of course the state government.
So the these are the people who make money when you buy. You don't make money, you lose money when you buy. So yeah, how are you going to recoup that? It's when you hold. >> Jeremy, I bought a property under market value. You hear this all the time in marketing spills.
And is this actually how did this episode come about? Is it? >> That's exactly it. Under market value. >> People will talk up buying under market value and they say they've made money when they bought. >> And this is this is the problem.
You actually don't make money when you buy. >> And you know the the markets that where is that pricing pressure is they're moving really quickly or they might not even hit the market in certain pockets potentially. That's how quickly they're moving. >> Yeah. Yeah. Exactly.
Yeah. So, um I know that this is uh when I say you don't make money when you buy, you lose money. I'm probably taking things a little bit too literally. Uh there are going to be some experts out there who are saying uh you've locked in some equity by buying under market value. Um but again, I think this is it's not only wrong, but it's it's bad advice to attempt to buy under market value. you are targeting the kind of markets that are the worst for capital growth.
So cold markets where supply is clobbering demand, where prices might be in freef fall, you can easily pick up an undermarket property, but 6 months later it looks like you've uh paid too much. uh in a hot market where demand is absolutely clobbering supply, you put in an offer that's under market and you'll just get laughed at. That's if you can even get a real estate agent to hear your offer. So yeah, it's it's a case of if you target undermarket properties, you are targeting the wrong kind of locations. And I know there was an example I can think of now where um someone reached out to us a while ago, maybe close to, yeah, like I said, it's a while ago now, and they actually bought a property and they said they got a great deal under market by a significant amount and that that area had a low DSR3 score one, but then bought it at a heavy discount. And typically uh a metric you can look at is what may be vendor discounting to see what are these markets that are highly discounted because to me that says there's not much price pressure or demand in that pocket.
Typically um the discounting will be more than likely in the negative because it's getting advertised for let's say 600 but you know they're selling for 77 750. >> Yeah. Yeah. Exactly. >> So agents are playing a bit of a game trying to bring people in and then it pushes the price up. But um >> yeah, in that case though, like the listing price can be above what the the property's true value is or it can be below it, but it's irrelevant.
So, how do you actually calculate I bought it >> $30,000 under market value? >> It just sounds good, doesn't it? >> Someone comes up with the idea this property is worth X and I'm buying it for less than X, therefore I've bought it under market value. But that's just someone's opinion. And the thing is who has the final say? It's the valuer.
The valuer will tell you this is what the property is worth. And as soon as you've paid x - $30,000, that's the new value of the property. It is worth x - $30,000. And if you and others like you are able to buy these undermarket value properties, that is the sign of a market in freef fall. That's negative growth. By definition, that is negative growth.
The definition of capital growth where prices are going up is where people are actually doing the complete opposite. They are buying they over market value. They are paying more. So the sign of a healthy market is actually uh where you cannot buy under market value. And I've got this um saying where I say every single undermarket value purchase is a kick in the groin to capital growth because everyone sees that it pops up and everyone goes well I want one like that too. If that guy got one, I want one.
>> And and so, yeah, there's pressure on prices to go down, not up. >> That's funny. U a bit off topic here, but looking for couches at the moment, and you you go in and it's like you got the price discount, discount sale, sale, but it's a sale all year round. It's just funny. I'm like, look, you don't need to market to me. I know what it's worth.
Um and you say, oh, can you do it for me a bit cheaper? Oh, no. This is the best price. You wait a month or two and the price will come down. >> Yeah. Yeah, sales and marketing.
>> Love it. So, >> yeah. So, um this slide we're showing that uh yeah, if you It depends on what your focus is. If your focus is on buying well, you're going to end up targeting the wrong locations. >> Uh if your focus is on capital growth, holding well, then you're going to target the right locations. So, I would much rather pay over market value in a hot market, 6 months later it looks like I got a bargain than pay undermarket value in a cold market and 6 months later it looks like I paid too much.
>> I think you'd be getting most probably a little bit concerned when the agents >> constantly harassing you to put an offer in or whatever it might be because you know that there might not be demand potentially in a certain pocket. If you're constantly gettingounded or there's no offers in, you know, there's a little bit a bit of wiggle room. But if you don't hear back from the agent, property's more than likely sold. >> That's right. Yeah. If the if the agent just uh treats you with complete disrespect, that's the sign of a good market.
>> I think that's the main point. I think we get caught up in the now. I want to get a discount. I want to get the best price. And look, you want to pay, I guess, at fair value. You don't want to go way over.
So, you need to have your limit that you're willing to go to based on your comparables and what you're looking at. But in 12 to 18 months time it won't matter because you get the people forget that that's the period 12 to 18 months get that valuation. >> Yeah. [clears throat] Capital growth trumps every other other strategy. And yeah I think this is this is the the issue that we're talking about here. If you if you go to that last slide >> uh it it really comes down to focus.
What are you focusing on? If you are focusing on uh supposedly buying well getting undermarket value then it means you have to target the wrong kind of locations it also means if an expert if this is an expert's um forte if this is what they do it means they don't understand capital growth and how significant it is. You think of what uh buying 5% under market value for a $500,000 property, that's $25,000. But 5% is nothing within like 6 months of a hot market. The market's grown by 10%. So uh if you are targeting the locations that allow you to buy 5% on the market value, you're missing out on the 10% in 6 months time uh of a of a hot market.
So yeah, the conclusion is focus on holding well, not focus on buying well. >> Perfect. So that wraps up episode 8 of the expert busting series. Join us next time for episode 9, knockout [music] bids, why they don't win auctions. >> Oh, and actually just before we go, some similar topics like this one. uh expert busting number two which is um under it's titled undermarket value and there's also one coming up which is called expert busing number 18 um under median value.
It's a similar sort of topics. >> All right [music] great. So that wraps up episode 8. No more. >> Yeah. Thanks very much.
>> Thanks for watching.