Private property issue #28 - Negotiating a deal

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How do you negotiate with a developer to get the best deal?

Every single day I negotiate with property developers. Here are the exact phrases that work for me, so you can start using them too.

Like you, developers are currently reading headlines like: “Investor fails to sell property even after dropping price $100,000” and “Auckland prices down $200k from peak.”

So they are primed to accept lower prices. But, what do you actually say?

When a developer approaches me, I look at the rent and figure out what price will work for an investor.

To do this, I use a standard 4% gross yield (for a growth property).

According to the 2022 NZ Property Investor mag survey, this is the minimum yield most investors accept.

One developer recently wanted to sell a 4-bedroom townhouse in Auckland for $1.15 million. This property was expected to rent for $800 a week.

That means a gross yield of 3.61%, below the 4% baseline.

So, I said to him: “For an investor, this property will work at $1.04 million.”

That’s how far the price needs to fall to make the gross yield 4%. A $110,000 price reduction.

Let’s say the developer balked at the idea they should lower the price by $110k. (They probably will).

In fact, they’ll usually talk about how their margins need to be maintained.

My typical response is –

“I appreciate that you need to make a profit … but this is not a market for big profits. It’s a market to make sales.”

You see, the construction industry is struggling.

According to Centrix, a data firm, 168 companies went into liquidation in August. The highest count for any month this year.

28% of these companies (44, to be exact) are from the construction industry.

Because prices are falling and fewer properties are being sold, sensible developers are focussed on making enough sales to keep the lights on.

They’re not focussed on holding out for high prices to make large profits.

You can use this to your advantage.

Let’s say the developer is still sticky, dreaming about the price they’d ideally like to sell at.

That’s where you can say something like: “Your properties are worth more to you sold, rather than sitting there waiting for someone to buy.”

And that’s true. Until the developer has sold a property, it’s just a dream. It’s not worth anything.

These phrases are simple, but they work.

For instance, there is currently a 2-bed townhouse development advertised on TradeMe by another property firm for $649k.

Using these phrases, I’ve got the price for Opes investors down to $599k. Plus, they’ll also get a complimentary $10k furniture pack.

How’d I do it?

To be fair, I have some bargaining power that you don’t.

For instance, because we work with over 1,150 property investors a year at Opes, a developer can sell out a project within weeks if they offer the right price to investors like you.

But if you’re doing this on your own, you can still use these key phrases:

#1 – “This is the price it needs to be for me to work with you.”

#2 – “It works as an investment at $X.”

#3 – “This is not a market for big profits. It’s a market to make sales.”

#4 – “Your properties are worth more to you sold, rather than sitting there waiting for someone to buy.”

So if you’re negotiating on your own, give these a try. And if you’re working with us, this is what I do to get you the best deal possible.

P.S. if you’re not currently working with Opes to start or grow your portfolio, your next step is to book a complimentary portfolio planning session. Sign up here.

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