All Topics / General Property / Expert Bust #8 You lose money when you buy

Viewing 15 posts - 1 through 15 (of 15 total)
  • Profile photo of Jeremy SheppardJeremy Sheppard
    Participant
    @jeremydsrdata
    Join Date: 2015
    Post Count: 0

    You don’t make money when you buy, you lose it and lots of it…

    Most investors make money when they hold – assuming they’re holding the right asset.

    If the focus is on making money at the time of purchase, what’s the point of holding then? If the focus is on holding then, the purchase price will become irrelevant within a few years of decent growth.

    Topic #8 in full is here.

    • This topic was modified 9 months, 3 weeks ago by Profile photo of Benny Benny. Reason: remove link
    Profile photo of JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 284

    Sometimes.

    Jaxon | Jaxon Avery – Financial Adviser
    http://www.jpafinancialservices.com.au
    Email Me | Phone Me

    JPA Financial Services Pty Ltd

    Profile photo of Jeremy SheppardJeremy Sheppard
    Participant
    @jeremydsrdata
    Join Date: 2015
    Post Count: 0
    Profile photo of HomeBuyerLouisianaHomeBuyerLouisiana
    Participant
    @homebuyerlouisiana
    Join Date: 2020
    Post Count: 17

    That advice is right for lots of people but it is not a universal truth. I buy off market properties and create great deals by helping sellers solve their problems. I buy for cash and then did up the house and refinance out all my capital. The return I get going forward is infinite and this came from his I bought.

    HomeBuyerLouisiana | Home Buyer Louisiana
    https://homebuyerlouisiana.com

    Aussie entrepreneur investing in New Orleans houses

    Profile photo of Jeremy SheppardJeremy Sheppard
    Participant
    @jeremydsrdata
    Join Date: 2015
    Post Count: 0

    I buy for cash and then did up the house

    Sounds like you made money by adding value – “…did up the house…”

    Here in Australia, you lose money when you buy. Stamp duty is the big one.

    You make money when you add value or hold on and receive rental income and capital growth. But when you buy, you lose money..

    The full article explains it best…

    https://selectresidentialproperty.com.au/busting/you-dont-make-money-when-you-buy/

     

    Profile photo of HomeBuyerLouisianaHomeBuyerLouisiana
    Participant
    @homebuyerlouisiana
    Join Date: 2020
    Post Count: 17

    Hey Jeremy, I am from Australia originally and own 6 rentals across 3 states so understand how the Australian market works. I do make money when I buy. It is the way I buy specifically that makes the money. I pay cash and close fast with no contingencies and other terms that the sellers like. There are also no realtor fees for the seller. This means when I close a deal I have instant equity.

    This doesn’t make what you are saying wrong, only when you put the information forward as a universal truth. Like Robert Kiyosaki says there are 2 sides to every coin and the smart people sit on the edge of the coin and understand both sides.

    There is a story behind every house I buy of a seller I helped. If you want to understand more I gave been listing videos talking about it https://homebuyerlouisiana.com/we-buy-houses-new-orleans/

     

    HomeBuyerLouisiana | Home Buyer Louisiana
    https://homebuyerlouisiana.com

    Aussie entrepreneur investing in New Orleans houses

    Profile photo of Jeremy SheppardJeremy Sheppard
    Participant
    @jeremydsrdata
    Join Date: 2015
    Post Count: 0

    I checked out your website HomeBuyerLouisiana. As I thought, you don’t make money when you buy. The very 1st case study on your website says you put effort and money in.

    As I mentioned in the full article, investors make money when they hold OR ADD VALUE. You’re making money by adding value – not when you buy. The buying part may represent a FUTURE opportunity, but you don’t actually make money WHEN you buy. It sounds pedantic, but there’s an important point behind it…

    Investors sometimes think they’re locking in “instant equity” at the time they buy, if they buy under market value. But there’s no such strategy as the “discount flip” like there is for a “reno flip”.

    It sounds like you’re making money from adding value. Nothing wrong with that. But the point is, there’s no such thing as instant equity simply from buying cheap. In your case, effort has to go into “doing up” the property before a gain can be realised. In my case, I’m allowing time to pass to gain equity.

    You may have bought a great “opportunity” to apply a strategy and make a gain. But at the time of buying the property, you’re behind. Something has to happen “AFTER” the purchase to make the gain. In your case, it’s a reno. In my case it’s sitting on my hands and collecting equity. But none of it happens at the time of purchase. On the contrary, we lose money at the time of purchase.

    The focus for the investor should be on what happens after they purchase, what’s their plan? Is it to renovate, is it to subdivide, develop or hold for cash-flow or equity or a combination? The buying is not where the focus should be, but on what happens after buying. That’s where the money is made. But when you buy, you lose money.

    Profile photo of HomeBuyerLouisianaHomeBuyerLouisiana
    Participant
    @homebuyerlouisiana
    Join Date: 2020
    Post Count: 17

    Jeremy you assume incorrectly. I do often add value myself but I also assign a lot of my deals. This means that I contract them and then assign the contract to another investor at a higher price. They close the property and I receive the difference. I sometimes double close meaning I buy the property and sell it to another person on the same day. The value I added was putting the deal together and I made my money when I bought.

    HomeBuyerLouisiana | Home Buyer Louisiana
    https://homebuyerlouisiana.com

    Aussie entrepreneur investing in New Orleans houses

    Profile photo of Jeremy SheppardJeremy Sheppard
    Participant
    @jeremydsrdata
    Join Date: 2015
    Post Count: 0

    Ok, I didn’t see that case on your website. Admittedly I didn’t look far sorry.

    But technically you’re not buying, you don’t complete the purchase, you sign the contract but don’t settle.

    Real estate agents make money by being involved in the transaction, but they don’t buy. Solicitors too.

    Your case is a different role, “securing” the property and onselling the right to buy, much like a ‘call’ option.

    But technically you’re not buying the property. If you were to buy the property, you would pay stamp duty. That would put you behind.

    I guess if an investor bought off the plan and had a long delay to settlement and during that time they’re was some capital growth, then at the time of settlement (buy) they may have made some equity. But then you could argue they lost money at the time of signing the contract – legal fees, deposit bond, etc.

    Profile photo of StevenSteven
    Participant
    @steven1982
    Join Date: 2017
    Post Count: 189

    I think the issue with this thread is it is getting hung up on trying to debate the “definition” of something that is defined loosely when in reality, at the end of the day, what investors really care about is the practical strategies and the outcome it drives.

    Instead of buying at standard $250K market value, investors buy at $150K, spend $20-30K and result in property achieving $250K value even though they only spent $180K on that. And as far as from practical application’s point of view, investors considers this as an example of “make the money when you buy” strategy and as far as they are concerned, it works.

    Who cares if people think from a dictionary point of view, that “technically this is not the definition of make the money when you buy”. We are not here to discuss dictionary definition.

    Its like someone isholding an Ox-ford dictionary and insists on correcting every single person on a few words that are frequently used loosely in a loose verbal conversation and telling every single person “your English is crap”….. well, nobody really cares.

    Profile photo of Jeremy SheppardJeremy Sheppard
    Participant
    @jeremydsrdata
    Join Date: 2015
    Post Count: 0

    The whole point is the plan an investor has for the property. If an investor’s focus is on making money when they buy, they may not have a plan in place for the property after they buy it. They may simply be trying to buy a bargain. They think they’ve made money when they bought. But they haven’t.

    By instead focusing on what happens after the property is bought, you’re more likely to realise a profit. E.g. reno, subdiv, dev, cap growth, yield etc. All of those strategies require a plan prior to buying and an implementation of that plan after buying.

    In the case of cash-flow, the investor will focus on the income vs expenses and vacancy rate and landlords they’re competing with for tenants.

    In the case of capital growth, the attention is given to supply and demand.

    In the case of a reno, the investor estimates costs and new value.

    In the case of … etc.

    The focus is not on buying cheaply. The focus is not on making money when you buy. The focus in all these cases is on making money after you buy.

    It’s that focus I’m talking about. Buying cheaply isn’t a feasible strategy. There’s no such strategy as the discount flip because we lose money when we buy.

    Profile photo of StevenSteven
    Participant
    @steven1982
    Join Date: 2017
    Post Count: 189

    The whole point is the plan an investor has for the property. If an investor’s focus is on making money when they buy, they may not have a plan in place for the property after they buy it. They may simply be trying to buy a bargain. They think they’ve made money when they bought. But they haven’t. By instead focusing on what happens after the property is bought, you’re more likely to realise a profit. E.g. reno, subdiv, dev, cap growth, yield etc. All of those strategies require a plan prior to buying and an implementation of that plan after buying. In the case of cash-flow, the investor will focus on the income vs expenses and vacancy rate and landlords they’re competing with for tenants. In the case of capital growth, the attention is given to supply and demand. In the case of a reno, the investor estimates costs and new value. In the case of … etc. The focus is not on buying cheaply. The focus is not on making money when you buy. The focus in all these cases is on making money after you buy. It’s that focus I’m talking about. Buying cheaply isn’t a feasible strategy. There’s no such strategy as the discount flip because we lose money when we buy.

    In this case, then we are talking about the same thing.

    In my example:

     

    Instead of buying at standard $250K market value, investors buy at $150K, spend $20-30K adding value and result in property achieving $250K value even though they only spent $180K on that. And as far as from practical application’s point of view, investors considers this as an example of “make the money when you buy” strategy and as far as they are concerned, it works.

     

    Which part of this strategy gives you the impression that the focus is on “buying cheaply?”. None. The whole strategy is well planned and executed in a very logical manner. You are just focusing on the “buy at $150K instead of $250K” part of the strategy while ignoring the rest.

    As far as investors are concerned, this whole strategy starts from “buy at $150k”, and ends at “achieving $250k after 1 month”. The strategy over all is loosely described as a “make the money when you buy” strategy. It is not just the buying part, but the entirety of it, and investor just happens to give it a very loose name and the name happens to be called “make the money when you buy”.

    Make the money when you buy is not about “you make money now and that’s the end of it”, but rather, it is about “instead of buying a property at standard market value and wait for 2 years before the property makes money, I execute a well thought after plan to something below market value and add value to it, so it can make money for me after 1 month instead of after 2 years and keep making money for me from that point onwards”. The term “make the money when you buy” just happens to be a name or a label we use to describe this type of strategy. There is no point of getting so hung up on “by dictionary definition, this is the wrong term to use”, and this is starting to become a waste of time debate. Especially considering we are talking about exactly the same thing, we just happen to label it differently.

    Profile photo of Jeremy SheppardJeremy Sheppard
    Participant
    @jeremydsrdata
    Join Date: 2015
    Post Count: 0

    My point is that even if you invest wisely, it takes time for that wisdom to play out and recover the expense of buying. At the instant of buying, you have already lost money whether it was an astute decision or not.

    Profile photo of JaxonJaxon
    Participant
    @jaxona
    Join Date: 2014
    Post Count: 284

    Hey mate,

     

    as an example I made over $150k the day I bought

     

    1 Government Road, Labrador

     

    earlier this year.

     

    I bought for $560k & was worth around that 700k at time of purchase, once reno finisehd will rent for $1100 & be worth 850k+

    So

     

    “If the focus is on making money at the time of purchase, what’s the point of holding then? If the focus is on holding then, the purchase price will become irrelevant within a few years of decent growth.”

    -Point of holding is cashflow & not paying taxes

    -in relation to the purchase price isn’t important then your criteria properly isn’t looking at ROI/Yeild.

     

    disagree with almost everything you said & most properties I have go against your above philosphy.

     

    Jaxon | Jaxon Avery – Financial Adviser
    http://www.jpafinancialservices.com.au
    Email Me | Phone Me

    JPA Financial Services Pty Ltd

    Profile photo of Jeremy SheppardJeremy Sheppard
    Participant
    @jeremydsrdata
    Join Date: 2015
    Post Count: 0

    So you had $150k more in your bank account the day you bought? The same week then? Same month?

    The day after you bought, your property’s new value was precisely the amount you paid for it.

    But given time and other sales (hopefully higher valued comparable sales) then your property might have been valued $150k higher … later. But not when you bought. There’s no discount flip strategy.

    If you genuinely did buy way under value AND if nobody else did (so prices didn’t plummet), then given time for the market to consider your purchase as a one off anomaly, then you’ve made your $150k. But not when you bought.

    If you did make your money when you bought, then you could repeat it every weekend or at least every month.

    Imagine making $150k every week. Even every month is pretty good. I wouldn’t bother holding for a measley bit of rent, repeat the magic every week.

    If you really do make money when you buy, then repeat that buying process as  frequently as possible. The fact you can’t repeat it every week, not even every month, proves that you don’t make money when you buy.

Viewing 15 posts - 1 through 15 (of 15 total)

You must be logged in to reply to this topic. If you don't have an account, you can register here.