How does Opes Partners come up with the price?

Buying an investment property will be one of the most significant decisions you’ll ever make.

So, smart investors want to ensure they get the best deal possible.

Here at Opes all the properties we recommend come pre-negotiated. That means fixed prices. Our team has already haggled the price down for you.

But with so much at stake, investors often ask:

- Is this the best price possible?

- How do I know you've got me the best price?

- What can I negotiate to get a better deal?

In this article, you'll learn exactly how Opes negotiates prices before you see them. This includes how the negotiations work and what you can negotiate.

How does Opes Partners negotiate the deal?

Opes scours the market to find the best deals available. At the time of writing we are working with about 97 developers.

We have to. Since investors use our Return on Investment spreadsheet, they can tell what the best deal is.

So, any would-be investor can run the numbers on any property across the country.

In other words, we’ve got to be better than our own spreadsheet.

So here is what our team negotiates with the developer before you see the property:

Negotiation #1 – Price

Many developers will approach us here at Opes. They try and get us to recommend their properties to investors.

The number 1 reason we say “no” is because the price is too high.

Two people negotiate the price. The first is our Managing Director, Andrew Nicol. He is often supported by Micky Limmer, our in-house real estate agent.

Andrew says: “I know what investors are looking for. So I often say to developers, ‘It will work for our investors at this price’.

“If they don’t want to meet the market, they’re not the right developers for our investors. I’m always happy to move on to the next one.”

Some developers are currently dropping prices by up to $50,000.

When Andrew and Micky negotiate the price, they look at two things –

1. The gross yield. Most of the time, we won’t accept a property that has less than a 4% gross yield.

If a property has a gross yield lower than this, the price is too high, so we negotiate the price down.

2. Price compared to other properties. The properties also need to be better priced (or have a similar price to) other properties on the market.

This is where our Development Consultant, Lochie McKellar, comes in.

He has a background in property valuation, so he conducts an assessment of what other properties are selling for. We use this assessment to make sure the properties our investors look at are well-priced.

Now, some investors think that if they work with Opes they’ll get a property at the cheapest price. This isn’t always true.

While the property might not always be the cheapest, we aim to make it the best deal.

Negotiation #2 – No hidden costs

Sometimes you’ll see a property listed on Trade Me that appears cheap. It might even be more affordable than a property we recommended here at Opes.

But that property might have hidden costs. It might not come with essentials like curtains and blinds.

It might not come with landscaping, a boundary fence, a letterbox or a heat pump. It might not even come with a driveway!

All our properties are turnkey. That means they are Healthy Homes Compliant and ready for tenants to move in.

That means the price is the price. There are no hidden costs.

All these extras can be an extra $10k-$70k.

To see what we mean, watch this video about a property on Trade Me that had $70,000 of extra costs.

To learn more, read this article that compares progressive payments vs turnkey builds.

That's why the price can sometimes look higher than what you see on Trade Me.

Negotiation #3 – Legal clauses to lower the risk (and protect you)

Opes tends to negotiate legal clauses that decrease the risk and protect you.

There are 5 clauses we always negotiate:

1. Due Diligence – If you sign a contract, you can cancel it if the property isn’t the right fit for you.

2. Right to Cancel – So if you sign a contract, you can pull out of the contract. That’s the same as the above, but in plainer English to avoid doubt.

3. Finance – If you can’t get money from the bank, you can cancel the contract before you go unconditional.

4. Solicitor Approval – If your lawyer is unhappy, you can cancel the contract.

5. No hidden costs – Ensuring the property is turnkey and tenant-ready. This means the property includes everything needed to be a legally compliant rental.

Our Contracts Manager Brittany White negotiates these. She reads the 100-plus page contract and makes sure Opes investors have protection.

For instance, sometimes the developer’s lawyer may have only set the due diligence period for 3-5 days. That’s too short. We’ll negotiate to extend this to 10 days.

Brittany says: “I read a contract where the agreement would automatically confirm at the end of the due diligence period.

“If the purchaser didn’t get in touch, they legally bought the property. Outrageous! That got negotiated out.”

In another example, “the contract said that the investor had to pay a 10% deposit. That’s normal, but in this contract they had to pay when they signed the contract! That got negotiated out too.”

This shows that not all contracts are equal. This pre-negotiation is technical, but it’s valuable. It could save you from making a bad financial decision.

Case studies – Are Opes properties good deals?

To give you a sense of how we negotiate our properties, here are 2 examples.

Cross Street, Christchurch

This is a development of 8 townhouses – 2 bedrooms, 1 bathroom and off-street car parking. This was being developed by Aventus Projects.

When we negotiated the price we looked at other properties on the market. The properties were almost finished, so the developer was keen to find buyers.

We looked at similar properties on the market and negotiated a price of $559,000.

This table shows the price was sharp compared to other properties at the time.

When it comes to cashflow, this property beats other properties.

When you run the numbers – we negotiated the price so the return-on-investment stacked up.

Barrington Street, Christchurch

This second example is on Barrington Street, also in Christchurch.

When we negotiated the price we also spent time looking at this one and 2 other developments.

All three were being built by well-known developers (names redacted so we don’t get angry phone calls).

All have 3 bedrooms, 2 bathrooms and are within a couple of kilometres of each other.

We negotiated the price to make the property the cheapest of the three. That’s even though it had the largest floor plan and was the only one with a garage.

Because the property had extra features, it also got a good amount of rent. This meant the property had the highest gross yield of the three.

Sunset clauses

The sunset clause is something we always push back on … sometimes we win, sometimes we don’t.

A sunset clause is part of a sale and purchase agreement (your contract) that allows the contract to be cancelled if the property isn’t completed by a certain date.

Generally speaking, the sunset clause will be worded in a way so that both parties can use it.

But the gold standard is to negotiate it so that only you (the purchaser) can execute it. This means you can cancel the contract if construction runs over the sunset clause, but your developer can’t.

Sometimes we get our way.

For instance, one development in Warmsley Street, Auckland had a 2-way sunset clause in the contract.

Brittany asked to change this to just a 1-way (only the investor could execute the sunset clause) and the developer agreed.

However, not every developer will be as obliging. Some will say “no”.

Depending on circumstances, this may not be a deal-breaker or red flag. Just because your developer doesn’t agree doesn’t automatically mean they have plans to cancel on you.

Rather, it’s because they want to have some protection in case things turn unexpectedly, or the bank has stipulated it.

Brittany acknowledges: “Yes, some people have been burned by the sunset clause”. But, there are other ways to protect you too.

In every instance any and all negotiations to contracts that are not accepted are passed to Andrew. If he isn’t comfortable with the refusal, we go back and push more.

How do we negotiate the contract?

Before negotiating, you must get the property under contract first.

This is very important. Do not try and negotiate anything before you’ve signed.

This is for two reasons.

1) a developer is more likely to negotiate if the deal is “live”. That way, they know you are serious.

If you spend too long faffing about (and not signing), another investor can pip you to the post. They could sign the contract, and then you miss out on the property altogether.

2) negotiate through your lawyer. They’re the ones who will negotiate with the developer’s lawyers. You can’t negotiate direct.

And you can’t call up the developer’s lawyer to negotiate. It doesn’t work like that.

Your next step

By the time you look at a property through Opes my team has already laid a lot of the groundwork.

They’ve haggled the price. They’ve negotiated what’s included in that price. They will also have checked the legal clauses are sound.

So you can have confidence that the property you’re looking at is ready to put under contract. Now, you can start your due diligence and potentially negotiate through your lawyer.