Case study: The power of strong negotiations

Thursday, 31st Jan 2019

Strong negotiation skills play an incredibly important role in the property investment process. Whilst good negotiating in itself can shave thousands of dollars off the purchase price of a property, understanding the different clauses that can be used during property negotiations (and when to use them) can also be key in helping investors maximise profit and harness the full potential of market opportunities.

In our latest case study, we look at how our buyer’s agent helped an investor leverage improvements in Perth’s rental market and maximise the cash flow of his property through smart contractual clauses.

The Brief – Future development site with income-producing potential

Having previously purchased a number of properties in Sydney, a client approached Momentum Wealth looking for new investment opportunities in the Perth market. Being in the growth stage of his portfolio, the investor was seeking an investment-grade property with future development potential, with the aim of maximising the value of his portfolio through subdivision. With immediate plans to move overseas for work, an important part of the client’s brief revolved around the property’s rental prospects, with the investor seeking a property that would provide a stable income stream to cover holding costs until he was ready to develop. The buying criteria included:

  • Investment-grade property with long-term development potential
  • Budget of $800,000, with half to be used for a further investment purchase
  • High income-producing potential
  • Strong rental attributes, including close proximity to local activity centres and amenity

Identifying the right property

After extensive research and close analysis into the local property market, our buyer’s agent identified a key property of interest in South Lake. Whilst currently zoned R20, the property – a 4×2 single residential dwelling – had been targeted by the local council for a proposed rezoning to R80, a move that would significantly maximise its future development potential.

The scarcity of similar property types in the area and the strategic location of the property aligned strongly with the client’s immediate holding strategy, with the asset holding promising rental attributes due to its close proximity to a shopping centre, day care services and a local primary school. Future infrastructure changes surrounding the Metronet project were also identified as a key catalyst for future rental and capital growth in the surrounding area, which could in turn help to maximise the long-term prospects of the proposed development.

Maximising value through contractual clauses

Whilst initially listed for $445,000, the asking price of the property was later revised and reduced at the end of 2018. However, by determining the vendor’s motivation and entering into further discussions with the seller, our buyer’s agent was able to negotiate a further discount on purchase price, securing the property for a total of $390,000.

Knowing that competition in Perth’s rental market was picking up and understanding that cash flow was an important consideration for the investor, our buyer’s agent wanted to ensure the client could realise the income-producing potential of the property as soon as possible. With this in mind, the buyer’s agent negotiated a pre-settlement clause that would enable the client to advertise the property for rent prior to settlement date.

Following acceptance of the offer and the additional contractual clause, the property was passed to our leasing team to assess its rental value and provide maintenance recommendations. After advertising the property for rent under our marketing strategy, a total of eight groups attended the first home open. These high levels of interest resulted in three applications from aspiring tenants, with the final (and accepted) offer reaching $20 above asking price. Due to the efficiency of the negotiation and leasing process, the tenant was able to move in six days after settlement of the property, with the resulting rental income providing the client with immediate cash flow to cover holding costs.

The value of professional advice

Whilst buyer’s agents can play a crucial role in researching and selecting a property with strong long-term growth prospects, these additional clauses are one of many examples of how they can add further value throughout the investment process. Through effective negotiations alone, a good buyer’s agent could save you thousands, if not tens of thousands of dollars by helping you negotiate a better deal on a property and minimising potential risks during the purchase process, in turn setting you in a better stead to maximise your property’s potential.

If you are looking to take the next steps in your investment journey and would like to discuss your plans with an experienced Perth’s buyer’s agent, organise an obligation-free consultation with one of our property experts today.