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How I Bought “Australia’s Cheapest House” (And what it Means For YOU)

by Engelo Rumora on June 14, 2014 · 10 comments

  
How I Bought

The most common response I receive from fellow investors when discussing my purchase of “Australia’s Cheapest House” is either #1- You must have been extremely lucky. or #2- The seller must have been extremely incompetent.

Most of those who know me well, can vouch that I’m a strong believer in making your own “luck”- through hard work, sacrifice, and persistence.

The Story

Many moons ago, while I was living in Australia and working as a property investment researcher, I came across a vacant and run down 3 bedroom 1 bathroom house, located in a small town of New South Whales called Moree.

The property was listed for $80,000 and only needed minor work. Although the numbers in the deal did not look as attractive at the time, they were tempting enough to add the property to my pipeline list (as I did with any other that met certain criteria’s).

A few months had past when I received an email notification from the listing agent informing me of a $20,000 price reduction. As you can imagine, this immediately peaked my interest.

Without hesitating I called the realtor who was representing the seller and promptly started negotiating. After a week had past involving a few figures being thrown back and forth, I received a call from the realtor stating that someone had broken into the property and completely vandalized it. Unfortunately the negotiating came to an immediate halt and the deal appeared to be dead at this stage.

Over the coming months, I continued to follow up with the realtor to get a progress update on the seller’s insurance claim and to see what his intentions were moving forward.

Another couple of months had passed when one morning I received a phone call from the realtor asking me what price I would be willing to pay if the property was renovated and tenanted.

Knowing that the seller will most likely be receiving a fat check from the insurance company and would not be renovating the property to my standard. I, without expecting much, decided to submit a low-ball offer of $37,000.

Related: 5 Secrets to Making Real Estate Offers that Stick

To my surprise, the offer was accepted, but the tug-of-war was not yet finalized.

While the insurance company was delaying the seller’s pay out, the property continued sitting vacant, making the seller, realtor, and myself increasingly impatient.

After almost a full year of trying to get this deal across the line my impatience finally got the better of me. I called the realtor and stressed “This transaction has been taking way to long to complete, and I’m sick of waiting.

Right now and today only I am willing to take this vandalized and vacant property off the seller’s hands for $15,000 cash. Otherwise I am out of the deal and will be investing elsewhere”. The realtor conveyed my message to the seller and called me back within the hour stating “The seller has accepted your offer.”

*** AMAZING ***

As soon as we closed, I started and completed renovations for $15,000 with a total sum of $30,000 in the deal. With a happy tenant in place and the property now in great condition, I decided to list it at a “walk-out-the-door” price of $80,000.

Before making the purchase I was aware of 2 recent comparable sales in the area of $80,000 and $110,000. The property successfully sold within two months of listing for $75,000, showing a very tidy $45,000 profit.

What You Can Take out of This

A key element that you can implement when building your own property portfolio here in the US, is to always have a pipeline list of deals of which at first glance the numbers might not add up but you can still keep track of any price movements and regularly touch base with the realtor/seller to see if a deal can be worked out in the future.

Related: Your Real Estate Pipeline is Full of Gold

In the end I have to disagree with the opinions of others, as I don’t believe luck played a factor, due to it taking almost one full year to secure this deal at such a huge discount and the last I heard is that the seller walked away with quite a decent chunk of money from the insurance pay out. (not so incompetent after all).

Do you have any similar stories?

Be sure to leave your comments below!

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{ 10 comments… read them below or add one }

Ben Leybovich June 14, 2014 at 8:16 am

Welcome to the blog Engelo – good luck!

Reply

Engelo Rumora June 14, 2014 at 10:13 am

Hi Ben,

Thanks for your comment.

Its a pleasure and privilege to be here.

Have a great day.

Reply

Darren Sager June 14, 2014 at 8:31 am

Congrats Engelo! Keep it up!

Reply

Engelo Rumora June 14, 2014 at 10:15 am

Thanks Darren.

Have a great day.

Reply

Matt June 14, 2014 at 8:01 pm

Leading the way Engelo! Love it! What was the yield to rent it out?

Reply

Engelo Rumora June 15, 2014 at 10:51 am

Hi Matt,

Thanks for your comment and kind words.

Are you Australian? I haven’t heard the word “Yield” in a while lol

Before selling the property we got it tenanted for $180 per week. After deducting water, council and property management it was showing around a 22% net yield on the $30,000 purchase and renovation cost.

Thanks for reading and have a great day.

Reply

Shaun June 16, 2014 at 10:30 pm

Guy kept jumping at your offers.
Clearly you were offering too much!
:)

Reply

Engelo Rumora June 17, 2014 at 5:36 am

lollol

Thanks for your comment Shaun. These days I ask the seller if they want to give me $5,000 to take the property of their hands lollol :)

Reply

Rick June 20, 2014 at 11:55 am

Great story there Lord Rumora. Not much negotiating in these parts. Lots of low ball offers and sellers telling the buyer to take a hike. Lots of inventory. Tons of houses that all need work. From total reno to merely replacing carpeting. Not many risk diverse investors around here. Many over-think the simple process. After they go over and over and over the deal, they low ball. Then after weeks of going back and forth, they lose the deal and are surprised. Well, duh. What did you think was going to happen? Can I have my 60+ hours of my life back please?

Keep up the great work you mongrel you. :)
Hot pepper.

Reply

Engelo Rumora July 23, 2014 at 5:35 am

Hi Rick,

Thanks for your comment and kind words.

If you know the market and product well, there is no need to procrastinate. As you mentioned the trigger needs to be pulled on the good deals straight away, otherwise someone else will smell the roses.

Thanks and have a great day.

Reply

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