I got a call from my realtor, she found a new property that I might be interested in. Here is what the property look like:
I told her, “I’m not too sure about this. I don’t want to spend money on renovation. How much does the owner want for this property? And why is he selling?”
The owner wants P300,000 for the property. The property has been abandoned for a couple of months. The owner has since migrated to other town. And I will have to spend to renovate it and have it rented out.
I am willing to back out on this deal. But I noticed that the realtor has been keen on pushing me this property. I know its not about the commission because the selling price is small. So it might be something else. I discovered that the realtor wanted this property for a long time. She knows she can rent it out and also build some commercial space in front of the house. She asked me if its possible that I buy the house, and then she will buy it from me for P400,000 once she get the money (in a month or two).
I didn’t answer. I just let it sink in for now. I surveyed the place and asked the nearest neighbour. He bought his property 5 years ago for 2,800 per square meter. Now, my property is being sold for 300,000 and it has 111 sqm. That’s 2,700 per sqm. It seems like I’m buying it for cheap. The house included.
Ok now let’s see different scenarios and the numbers.
Scenario 1: I sell to the realtor for P400,000
If I buy the property for 300,000 and sell it for 400,000. That’s 400,000 – 300,000 then divide by 300,000. I get 33% return on my investment. This is my worst case scenario.
Scenario 2: I buy the house and have it rented.
I know I can rent out the house for 3,500. That’s 14% rental yield. Its a pretty good yield. And imagine the land appreciation too.
Scenario 3: I don’t buy it
Kind of a waste if I let this pass.
After I run the numbers, I realized that whatever I decide on, this is a no-risk investment. The worst case scenario is 33% on my money. So the next thing I did, was to ask the owner if he is willing to give me a discount. He did gave me a discount and the house is now selling for P290,000. Talk about desperate to sell.
So rental yield becomes 14.5% and 37.9% if I decide to sell to the realtor.
I think this is a good deal. And it pays that I have cash on hand. I know that I buy properties that look ugly. What can I say? I’m a value investor. Ugly things are cheap. But its the numbers that tell us if we can make good money.
Dhandho.
Dhandho indeed.