I would like to share another experience in property investment.
This happened right after I bought my first property in 2007 at Grandeur Tower. Out of excitement, I visited my very first apartment almost everyday. One day, while I was there, feeling so happy, I noticed something at the unit opposite mine. As I locked the doors and walked towards the lift, there was a notice I saw, stuck at the front door of the opposite unit. I walked towards the unit and saw an advertisement for “Bank Auction 01x-xxxxxxx”. That property too, was for auction.
I called the agent and he mentioned that the property was on auction, depending on the price offered by willing buyer. He further reminded me that the property was worth RM120,000 at that time, hoping I will offer a price near that number. As a student of Robert Kiyosaki, I wanted to offer a price but at a very ridiculous number, a number way below that value.
Look, I just bought the first apartment. Almost all my savings were already invested in the first apartment – downpayment, lawyer, repairs, paint and some outstanding fees. At that time, I really cannot afford the second property. My parents were not too supportive of my new “business venture” in property investment, my family members poured cold water on me and I just started working for a year. Yet, something tell me that I need to do something or just perhaps offer a price!
I told the bank auction agent, I said, “Look, what’s the loan amount? Perhaps I could settle at the loan amount.”
“No… no no… the market value is RM120,000, Ms Chew. You give an offer.”
Recalling Azizi Ali’s book, he says property agents also need to make money and for sure they will expect my price to be as high as market value.
So I told the agent, “Sir, I am going to give an offer. But whatever my offer is, please convey to the bank because I am going to pay the difference in commissions at RM120,000.” This means that if I offered RM50,000 and the bank only willingly pays him commissions for RM50,000, I will pay him agent commissions of the rest of the RM70,000.
In your mind, perhaps you will ask, “What? 50k? Market value is RM120k!!” Yes, I am trying to expand your mind a bit that we can give an offer at that price. What’s the problem with offering RM50,000 even when the market value is at RM120,000? What’s the worst that could happen? You may get rejected and you don’t get to buy that property, so I start looking out for the next property! Who says that we must offer a value near market value?
The bank only wants to recover the loan amount due. I was calculating in my head. The apartment was there perhaps 10-12 years ago, with developer price at around RM100,000. If the borrower gets a 90% finance at RM90,000 and serviced the loan for 10 years, he may only owe the bank RM80,000 RM85,000 only.
I told the agent, “Sir, I just bought a unit right opposite this unit for slightly over RM80,000 only.” For those who have read my first property blog will know I paid more than that la…
“So I am going to offer RM80,000 for this unit.”
The agent, sound shocked, “What? RM80,000? Cannot la… RM120,000 is the market value. At least offer RM100,000 you still make RM20,000”
For those who read about my first property will also know that I cannot afford to pay more than RM95,900 for this unit at the rental rate and monthly expenses that I needed to bear.
“Yes, RM80,000 and please remember I will give you the difference in commissions. You can calculate your commissions now and treat as if the sale price is RM120,000.”
He said, “OK. I will call the bank. Perhaps have an appointment to meet the bank manager.”
Remember, I was cash tight at that time and cannot buy the property so if I were to offer a price, RM80,000 or even RM70,000 is not ridiculous. It is not a matter of market value. It is a matter of whether I can make passive income with the property.
In the past, I have made similar offers. Pandan Heights condominium at that time was auctioned at RM76,000 – RM110,000 although the market value was RM115,000. So when there was an ad to sell a unit at Pandan Heights, I remember offering price like RM70,000 and RM65,000. All these numbers shocked the real estate agents and all of them thought I was crazy. Of course, I never got the property but what have I got to lose?
Two weeks passed and I thought, there goes another case of a manager thinking I am crazy. Good experience.
The phone rang one day and the bank manager was on the other line.
“Ms Chew ar, market value is RM120,000 you know. RM80,000 is too low la, you can consider higher or not?”
“What’s your price then?”
“NO! Definitely not! I just bought one unit right opposite at slightly over RM80,000..” (grin…!)
“Ok ok… RM85,000..”
I counter offered, “RM81,000” He wouldn’t have called me if there were better offers, right?
He said, “Aiyo Ms Chew…. RM85,000 very good already. Hmmmmm RM84,000”
“No.. RM82,000 la…”
“OK la… RM83,000 la… final… OK?”
“Alright… when will you pass me the papers to sign?”
Since I was out of cash, I definitely did not buy the property but who would not want a property which was RM37,000 below market value and fetch a rental returns of RM700/month? That’s 10.1% ROI! I gave that offer to my friend who was kind enough to give me kopi money of RM2,000.
Hope this experience could be a good one for you to ponder upon.
By the way, even until now, I still offer ridiculous numbers. Sometimes agents call me to ask if they could be of help, so I tell them what I am looking for. I said, I am looking for properties below RM100,000 with rental returns say at least RM500. I have agents hung up on me as soon as I said that, I have agents telling me “Crazy ar? Where got properties at RM100,000 now?” My turn to hang up on them.. 🙂