“I was too weak to defend, so I attacked!” General Robert E. Lee talking about the battle of Chancellorsville.
Setting:
This project is still in progress. I write this article while in the middle of the deal. I can hardly wait to see how it turns out! And, it will be a good chance for me to build my character further; see how I respond when things don’t go according to plan – or contract. This is the fun part of the “blogging” because I’ll be writing while in the “thick of it.” You can get a glimpse of my thinking process as I work my way through issues as they arise. And, they will arise. They already have. But, I believe in a particular saying as follows, “It’s not what happens to you in life that counts, it’s how you handle it!”You Don’t Want to Buy that Block!
“Marieta wants to get that vacant block on Zeil Street.” I said to the agent.
“Naw, you don’t want that block. Come on, let’s take a walk. I’ll show you the block you should get.” The agent replied knocking back my statement.
I was a bit surprised. Why would he steer me away from the block at Zeil Street. The sign had been up for a while now and it just seemed to be sitting there with no serious interest. Marieta and I had taken a look and it seemed perfect.
I also talked to Jeff about it and he had a look. Remember Jeff is the house and land package agent I introduced in the last article. He said it would be easy to put a home up on this block. Marieta and I thought about it. Why wait for title issue at the new Rydges Estate when we could buy this block right now and start the building process immediately? So, we went to see the selling agent.
The sale price was $155,000. Not bad considering we just agreed to pay $159,000 for the Rydges block. Granted, the block at Rydges is slightly bigger; 858 square meters, Zeil only 800. But, the Rydges block is further from town and has an unwanted feature as well.
Zeil Looks Better
Marieta wasn’t keen on the Rydges block because of the unwanted feature. She never felt comfortable with it. I didn’t either.
The unwanted feature is the neighborhood prior to getting to the estate. It’s not attractive and comes across as unfriendly and maybe even unsafe. There may be no issues at all with the neighborhood but it just doesn’t give off that impression. It looks like an area where driving home late at night could be more exciting than what you’d like. This was a concern for us. Would prospective tenants want to live in this estate? Would they want to drive through this unattractive, rough looking area everyday? Would there be issues?
But, we had none of these concerns with the Zeil Street block. The Zeil Street area is very sought after by buyers and renters. It’s considered a very good area of town. Also, the block has a beautiful unobstructed view across Larapinta Drive and the ridge beyond. It has a sloping rise and Jeff said this wouldn’t be an issue for building. It seemed to tick all the boxes. Our plan was to buy it and put one of Jeff’s simple 3 bedroom design homes on it. Very simple.
Agent Not Interested
“All you got to do is fix up the old house in front and then sub-divide the block. In the back put in a couple of units. Maybe three. Depends on what planning says.” The agent explained.
The minute he started talking about planning my eyes started to glaze over. This is probably an area I’d like to eventually get good at, but it all seemed too hard. Marieta and I just wanted to get the block at Zeil and start building.
We went back to the office. The agent talked some more about the dilapidated house and then I left.
Price Change
A few days later I called the agent again. “Marieta still wants that block at Zeil.” I said.
Later on I received an email from the agent letting me now the price was no longer $155,000 but had gone up to $160,000. I sent a reply simply saying, “No deal on Zeil.”
“When I told Marieta the price went up to $160,000 she said no. Forget it.” I replied.
“We’ll if I sell it to you at $155,000 I lose my commission. But, I tell you what, you can have it for $155,000. I won’t get a commission but I’ll get more business from you down the road. So, it’s not a problem for me.”
I felt a little concerned about him not getting a commission, but the advertised price was $155,000 and the lot had been sitting – not selling – for what seemed like a long time. Time enough for us to waiver back and forth and get distracted looking at other deals. So, there were plenty of opportunities for someone else to come along and buy it if there was such a keen demand. And, of course, he didn’t have to sell it to us. He could have held out for his commission and gotten the $160,000 from some other buyer. And, really, his commission is not my business. In the end, I don’t get to see what commission is paid so I really have no idea if he got zero or $20,000. I’m not sure why he told me about the commission. It probably wasn’t appropriate for the negotiation.
In the end we paid the asking price for the land. Something, I don’t like to do. I like to pay something less than asking price. But, knowing what we paid at Rydges and comparing to this lot, it seemed like a reasonable deal. Besides, I could argue the price was originally $160,000 and we got $5,000 of the asking price. Right? I’m not sure why this block was not picked up by someone else as it appeared to be priced correctly and offered an excellent position – with a view – in a nice area.
Overcoming Doubts
It’s times like this where you can have doubts. I had a little voice asking me, “Is there something wrong with the block? If it’s such a good buy, then why was it sitting unsold for so long? Does everyone else know something I don’t know?” The same questions your broke brother-in-law would ask you if you let him. Or, the same questions your broke co-worker – the know-it-all – would ask.
Over the years, through lots of reading and listening to people who are achievers, I’m learning to ask the right questions. By asking the right questions, I can focus on how to achieve my goals.
I used to ask the wrong questions. So, therefore, I used to focus on how to avoid failure. Is avoiding failure a success strategy? Isn’t it more like a failure strategy? Guess why? Because I was focusing on failure. Show me your focus and I’ll show you where you’re going. If you focus on avoiding failure guess where you’re heading? But, if you focus on building a wealth producing residential property portfolio, I know you’ll get there. Because that’s your focus. You ask, “How long will it take?” And I reply, “How focused are you?” How difficult will it be? Again, how focused are you? In other words, how bad do you want it?
Wrong (No so Good) Questions?
- What if it doesn’t work?
- What will people say if I fall flat on my face?
- What if I paid too much?
- What if my builder goes broke?
- What if the bank won’t lend me the money?
- What if it the project is delayed?
Did these questions move me forward? Did they give me confidence? Absolutely not. They planted fear in my mind. And, you show me someone who’s afraid, and I’ll show you someone who’s ineffective. Isn’t it difficult to think and respond rationally when you’re afraid? It is for me.
So, to counteract the doubting voice, I needed to come up with new questions. Not the same old negative ones.
- What if it works?
- What’s the profit potential?
- Where can I get as good a deal as this in the current market?
- The builder has already built homes like the one we want. Why couldn’t he build us one too?
- There’s a house just like the one we’re building, that’s on a high rent. Why wouldn’t ours rent for just as high or higher?
- Upon project completion, do you think prices will have dropped or do you think they will be higher?
- If I don’t do this, then what? Will I be kicking myself later on at the missed opportunity?
These are the questions I asked and focused on. They directed my thinking toward going forward with the project. The overriding question being, “How can I make this thing happen?” If I keep asking that question, then I’m looking for ways to move forward.
Now, comes the fun part (what’s your definition of fun?) I had to answer these questions. Here’s a summary of my answers and my thinking.
- First, how hard could it be? The builder has already built a number of homes just like the one he’s building for us. He’s already demonstrated he can do it.
- Next, the land price seems pretty reasonable. Yes, I paid asking price, but it seemed a better buy than the block at Rydges. This block has a view. It’s in a nicer area. It’s closer to town. It’s ready to build on now.
- I think we got a good buy. That’s my feeling. Now, I’m not going to go around to all my neighbors and friends and ask them what they think. That’s something I used to do. Look for consensus. What a waste of time. What if they came back and outvoted me? What if they came back and every one of them advised me not to buy? “It’s too much.” Or, “Wait for a better deal.” Nope. This is not up for a vote. I’ll give these “other people” a vote as soon as they start paying my bills. So far these “other people” have never offered to pay my bills.
- Profit potential seems high. Where can I get a brand new 3 bedroom house on 800 square meters of land for $400,000? Not in Alice Springs – No way. So, once it’s completed I should be sitting on maybe $50,000 of equity. On day one, the house should be worth at least $450,000 in the current market. If the market rises in the next six months, then it could be worth more. A lot more.
- What about rents? The market said this house would easily fetch $450 per week. This rent – along with the current interest rates – makes the property cash flow positive from day one. Of course there’s the risk of rising interest rates.
- What if interest rates rise? If so, there’s always the option to sell. If the property becomes negative cash flow then we can sell and take a quick profit. But, rates would have to rise substantially for negative cash flow. And, if interest rates rise then maybe rents will rise accordingly. So, the equation may balance. If interest rates rise, folks may be less inclined to buy and may prefer to rent. They may be willing to pay higher rents. It’s a risk I was willing to take.
Buy the Land; Start Building
Project Update
As of this writing, the project is still on-going. Some good news and bad news.
Good news is the building is 95% completed. We’re in the home stretch for the build. And, it looks like the workmanship is good and it should be a nice property when completed. Also, land prices have skyrocketed since our purchase. And, guess what? So, have house prices. Oh, and so have rent prices.
Bad news is the project is delayed. House was supposed to be completed in mid December 2009. I had the builder write a letter explaining why it’s delayed. Letter stated difficulty in getting tradesman in Alice Springs. I submitted this letter to the Buildstart folks. I owed them an explanation otherwise they could ask for the $14,000 grant back. Also, I wanted the builder to explain why we’re delayed. Letter says project should be done by end of January 2010. He’s already told me he won’t meet this target date either. Each delay costs me more money.
But, my builder assures me he’ll get the project completed as soon as he can. He’s got tradesman coming in at the end of January 2010 (notice I put the year down!) and the kitchen and toilets have been ordered.
The Story Continues … Go to Part 9