Hero Or Zero? (Here’s How To Know If A Property’s A Winner Or A Loser)

Cebelle Chan at GoodPlace HQ

I rarely watch TV, but if there’s one show that I am completely nutters for is Shark Tank. If you’re not familiar, it’s a reality TV show where aspiring entrepreneurs (i.e. professional beggars… like me) make pitches to potential investors (or “sharks”) to get money. There’s a couple of similar shows elsewhere like Dragon’s Den (UK and Canada – the original) and Make The Pitch (buatan Malaysia), but IMHO Shark Tank trumps them all in terms of both business content AND entertainment value.

Of the five sharks, Lori Grenier’s my favourite because she’s got really sharp business sense and she’s not afraid to take on Mr Big Bad Billionaire Mark Cuban on the show. She’s also quite pleasing to the eye which doesn’t hurt a wee bit. 😉

Source: Dan Greiner

Source: Dan Greiner

In one of the episodes, Lori claimed that whenever she would see a product, she would immediately know that it would be “a hero or a zero“. I remembered something similar that my friend Roger had said during our bi-monthly mastermind meetings with the Mentor

If you’re somewhat successful, you don’t have to go look for deals; they will come knocking on your door. When I get pitched, I get our bullshit detector up one notch, and because of this most deals fall through even before the expensive due diligence later on. I’ll know a good deal from a bad one in the first few minutes. It saves me time, money and energy.
Roger

Indeed, if you’ve been reading GoodPlace for some time now and applying what you have learned so far, then there’s absolutely no reason why you still need to go out there scouring for deals (get them to come to you). But when you’ve reached this stage, given the avalanche of pitches, deals and (“insider”) information that you’ll get, having  a “hero or zero” filter or a fully functional bullshit detector is absolutely essential if you want to stay sane. Trust me on this. 🙂

GoodPlace.my Bullshit Detector

Having A “Black List” Helps

One of the “filters” that I personally use is the GoodPlace Black List which I have published earlier (click here). You’ll learn that I will never consider certain properties for investment purposes (e.g. SoHo, SoVo, SoWhatever, student rentals, rental guarantee properties), and as such, these “opportunities” get blanked out whenever they come to me. Not everybody agrees with this list of course, and I don’t claim that my Black List works for everyone. Don’t just take everything I say at face value, and more importantly, make up your own investment strategy. 😉

Just a couple of days ago I received this comment for the Black List blog post –

Kenichi T's comment at GoodPlace.my

The savvier investors indeed have their own criteria which extend way beyond the obvious factors like property type, location, price, etc, and this may vary for each investor according to his or her style, risk appetite, etc. Below are a list of “intermediate” factors that may make or break a deal according to the collective wisdom of me, my investor friends and the grumpy sage of Nilai.

If you have not done the Property Workout exercise yet, do it now! Click here for a guide and a free PDF template.

As with other guides you find here at GoodPlace, you may or may not agree with what we think, and that’s fine – use what you like, and discard the rest!

“Incentivized” Properties

A giant red flag, this one. There’s something about “developer goodies” that irks me, and I’m not alone. Fellow investor Munirah once was in a developer meeting (can’t tell you who) where goodies were bandied about in order to make up for the “defects” in the product (ex-mining land, next to a dirty river, impossibly narrow access roads). “Here’s a rule of thumb – the more goodies they throw at you, the more closely you’ll have to SCRUTINIZE the product for defects!” she quipped.

I still get some hate mail over this, but I’ll say this over and over again because I don’t care: The banning of DIBS is a blessing.

Properties Under Market Value

This one is as obvious as the nose on Jackie Chan’s face, but what most people don’t get is that it’s HARD WORK to find properties under fair market value (FMV). There are methods on how to find these hidden gems (divorce proceedings, cough), and if you don’t mind putting in the work, here’s a guide to help you do just that. Now if you’re looking for a lazy shortcut and want me to just straight-up TELL you where these properties are, I’ve got a $2,997 guru course that I want to sell ya. 😉

Scumbag Steve @GoodPlace

Don’t be like Scumbag Steve

Of course, before you can start looking for sub-FMV properties, you’ll first need to know how to calculate FMV. Repeat this GoodPlace mantra: only clueless noobies take asking prices seriously. You gotta look at transacted prices to properly value a property (available from your friendly JPPH officer), and there’s examples in our popular How To Value A Property guide which is downloadable once you sign up for the GoodPlace Digest here.

Properties With Upside Potential

Once you’ve spent some time in this market, you’ll realize that sub-FMV properties are as rare as used Proton cars with working power windows. This is why: properties which are sold below market value don’t remain in the market for long, and quite frankly, if you’re just a regular dude with limited deal flow, you really don’t stand too much of a chance in getting a sub-FMV goodie. Sorry to disappoint you.

And precisely for this reason, many of the investors I know do NOT have sub-FMV properties as their “core” modus operandi; instead, they look for homes priced at FMV, fix them up and then go for the upside when they flip them over for a profit.

I’ve also known some super aggressive folks who would pay +5-10% above FMV, work their magic and then sell for +10% more. However, the downside is significantly bigger especially when they had to unload at FMV price eventually, which means that they will stand to lose up to 20% of the property price after factoring in the “fix it up” costs and transaction fees. Risky? You bet!

hustle

RELATED: How To Invest In Upmarket Properties. Scroll down to the section under “Why It Makes Sense To Overpay (Sometimes)”.

In short: if you wanna swim with the sharks, you gotta put on your big boy pants. 😉

Extensions Without Permission

Extensions need permit from the local authorities, period. Some think that as long as the renovation is not visible from the outside then they won’t get the dreaded “surprise” visit from the local enforcers. That’s simply not true.

When you view a property remember to ask if the house has been extended, and if a permit has been obtained for that purpose. Apparently fines are up to 1,000% the permit submission fee (check this with your local authorities if you must), so this is a question worth asking the seller.

Overlooked Properties

By definition, everybody flocks to a hot market, and that means that getting a good deal is nay impossible since the sellers have all the advantage. When a market is picking (read: heating) up, irrational exuberance takes over and property prices stray far from their fair value. Our recommendation: stay away until there’s some indication of price correction (which may take months or even years).

Everybody seems to think that Iskandar is the next big thing. That’s why I am going elsewhere for now… until the hype has died off at least. Then I’ll take a second look.
The Mentor

Of course, you can still make bank as long as you can unload a property you bought at a bloated price in a hot market (i.e. the greater fool theory), but why risk it when you can probably make the same (or even more) money with overlooked properties in “cold” markets?

It doesn’t take a genius to know a hot market from a cold one, but the ability to find opportunities away from the herd is what separates the ballers from the wannabes in this game. Of course, there’s a lot of super hard work (and sometimes, luck) involved (don’t believe anyone who tells you otherwise), and if you’re just starting out then read these guides below to get yourself up to speed:-

 

About Khai Yin

When I am not writing for GoodPlace.my and helping my readers find properties though the DealMatcher service, I spend time doting on my three kids: Wenyi, Qinyi and Eian. My personal stuff, some published essays and contact details can be found at khaiyin.com

Comments

  1. Hi Khai , I have booked a unit in KL trillion @ jlan Tun Razak, I wanted to know what is your outlook for this project specially it is in advanced stage however take-up rate is not v. good?.
    Thanks.

  2. lee lian foo says:

    hi kk
    keep up the good work.
    your materials have been made for easy understanding

    kind regards

    lian foo

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