Revealed: How Opes Negotiates To Get Good Property Investment Deals

LM b W

Laine Moger

Journalist and Property Educator for 6 Years
Introduction

Buying an investment property will be one of the largest purchases you’ll ever make in your life.

So, smart investors want to make sure they’re getting the absolute best deal possible.

Here at Opes, all the properties we recommend come pre-negotiated with fixed prices.

The haggling’s been done for you.

With so much at stake, it’s a common – and fair – question to ask: “What’s already been negotiated?” and “what else can I negotiate to get the best deal possible?”


In this article, you’ll learn exactly what’s been negotiated in a contract before you – as an investor – see it, how the negotiations work, and what (if anything) is left for you to have a go on.

What's Been Negotiated?

What’s Already Been Negotiated?

Let’s say you’re sitting down with a Property Partner, and you’re considering 2-3 property options.

What might not be obvious is what’s already been negotiated with each of the options.

Here’s what the team always negotiates –


Negotiation #1 – Price

The most important thing when considering an investment is the price.

This is negotiated by Opes Partners Managing Director, Andrew Nicol. There are two things we typically look at.

Firstly, the gross yield. Typically, we won’t accept a property unless it has a minimum 4% gross yield.

If a property has a lower gross yield than this, then the price is too high – it won’t cut the mustard. Andrew will typically negotiate the price down so that it meets this minimum threshold.

On top of this, the properties need to be similarly priced to other properties within the market.

This is where our Development Consultant Lochie McKellar comes in.

He has a background in property valuation, and conducts an assessment of what other properties are selling for. This is then used to ensure the properties that are recommended to investors are well-priced.

Now, some investors think that through this process they’ll get a property at the cheapest price. However, Opes properties are not always the cheapest, but we do negotiate to get the best deal. Here’s what we mean.


Negotiation #2 – Truly Turnkey

A turnkey contract should translate to move-in ready. It’s where the name comes from, you simply “turn the key” and rent out your new property.

However, often contracts will not have everything required to be fully turnkey despite the fact that it can technically be a ‘turnkey contract’ (confusing we know).

For instance, things like blinds and curtains (which are essential) are often missed off the final chattels list.

So sometimes you’ll see a property listed on Trade Me that is cheaper than an Opes-recommended property. But, it will often miss out on some of these essentials e.g. curtains and blinds, landscaping, letterboxes, and heat pumps strong enough to meet Healthy Homes standards.

So, we make sure they are always in there, to avoid any surprises later. It also cuts out any barrier to getting tenants straight away.

All of this can be a $10k - $15k value. And on top of this, we’ll often ensure a Healthy Homes clause is added into your contract so you know it’s ready to rent straight away without additional cost.

One final thing. Often when you see a New Build property listed cheaply on Trade Me, it’s a progressive payments build.

So instead of paying a small deposit up front and then the rest once the property is complete, you’re paying money to the developer as they gradually build the house.

This is cheaper for the developer, since you then pay the interest to the bank (rather than them). While this can mean the price the developer charges you is lower, it does present other costs and risks.

That’s why all the properties you’ll see through Opes are fully turnkey, rather than progressive payments. To get a full understanding of turnkey vs progressive payments, read our complete guide.

 


Negotiation #3 – Legal Clauses To Protect You

Opes tends to negotiate the clauses in a contract to be favourable towards investors.

There are 5 clauses we will always include:

  • Due Diligence – the right to not buy the property if you decide it’s not right for you after doing your research within a 10-day period
  • Right to Cancel – the same as a Due Diligence clause, but explained in plain English and included for the absence of doubt
  • Finance – the right to not proceed with the contract if the bank won’t lend you the money for the property
  • Solicitor Approval – the right to cancel the contract if your lawyer is unhappy with the contract, LIM or title
  • Additional ltems – ensuring the property is turnkey-ready. This means including drapes/blinds etc. are included. (more on this above)

Opes’ Contracts Manager Brittany White says the clauses can be leaning almost “overboard” in the direction of an investor.

For instance, most contracts usually come with a Due Diligence and Finance Clause, but we also like to include a Right to Cancel clause. It means exactly the same, but it’s added for the absence of doubt and for investor comfort.

Despite all contracts being different, Opes likes to keep contracts relatively consistent across all projects.

These clauses are included to help the investor feel more confident in his or her decision to sign a contract before they’ve completed all their due diligence.

But in practice, once the contract is signed by an investor, it’s then the job of the lawyer and the mortgage broker to properly tear it apart.

Who's Negotiated The Deal?

Who Has Negotiated The Deal? And How?

Opes’ Managing Partner Andrew Nicol negotiates all deals with developers before they are added to our stock list.

Usually, these come about from talking with the 58 developers we work with at any one time.

Andrew has a lot of market insight that investors would not have, because he works at the coalface and knows what developers are willing to accept at any one time. This is important, especially in a market that can move quickly.

For the investors working with Opes Partners, we negotiate hard on their behalf to get these deals. Some developers are currently dropping prices by up to $50,000.

Andrew says: “I know what investors are looking for, so will 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.”

Here’s what else has been negotiated.

 


Contracts

Let’s backtrack a bit, to talk about how contracts are negotiated.

This means that even before Opes says, “Yes, I like this developer and would like to recommend their product’s (properties)” the contract has been reviewed and negotiated.

This is where our manager reads up to 100 pages of a contract, which is drafted by the developer’s lawyer. She’ll then highlight any areas of concern before you even see it.

It’s her job to make sure all the heavy lifting is done, so there aren’t any surprises hidden in the fine print.

Sometimes it can be just a matter of time frames or wording.

For instance, there is usually a due diligence and finance clause already in there, but the developer’s lawyer may have only set this for 3 – 5 days. Too short. We’ll then negotiate to extend this to 10 days.

In one example, Brittany says: “I read a contract where at the end of the due diligence period the contract would automatically confirm if the purchaser didn’t get in touch. Outrageous! That would mean investors could accidentally purchase a property that got negotiated out.”

In another example, “the contract said that the purchaser had to pay the 10% deposit when they signed the contract, rather than when they confirm. That wasn’t going to cut it. That got negotiated out too.”


These changes can ebb and flow with the market. For instance, 6 months ago we only needed 10 days for a finance clause, but now we need 15 days as mortgages are getting harder to secure.

But this just shows that not all contracts are created equally with the developers. This pre-negotiation can give investors the confidence to sign a contract and start investigating the deal.


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.

 
What Else Can I Negotiate?

So … What Else Can I Negotiate?

There are 2 main things you can still negotiate when you look at a property through Opes:


#1 – The Developer Deposit

The amount of your deposit is still a discussion you can sometimes have.

Typically, when you buy a New Build investment property, you’ll pay a 10% deposit once you confirm.

Once you have the property under contract this can sometimes be negotiated down to 7.5% or even 5%. This means you have less money at risk during construction and don’t have to access as much equity straight away.

This isn’t always possible to negotiate. For example, sometimes the developer’s bank/funders will require them to achieve a certain number of deposits. So you may get push back. But, it is sometimes possible.


#2 – Other Contractual Terms

Earlier in this article we said that most contracts have already negotiated the main clauses of interest (e.g. sunset and escalation clauses) to be more favourable to the investor.

And we do that.

But every contract is slightly different, and you may find there are other contractual terms you would like to challenge – in order to make you feel more comfortable.

For example, let’s say there is a two-way sunset clause in your contract. You might decide to accept the 2-way sunset clause, but ask for there to be an extra clause that says something like:

“The vendor (developer) won’t use the sunset clause for the purpose of cancelling the contract and selling the property to a 3rd party for a higher price.”

This might give you comfort that the developer’s desire for the sunset clause is legitimate.

Brittany says you can negotiate “anything you want, really” but remember, everything is subject to vendor approval.

How?

How Do I Negotiate?

The first thing you must do, before starting any negotiations, is to get the property under contract.

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

This is for two reasons.

  • Firstly, a developer is far more likely to negotiate with you if the deal is live and they know you are serious.
  • If you spend too long faffing about making contractual demands (before you sign), another investor can pip you to the post and you miss out on the property altogether.

It’s really important to note that all negotiations to any clauses, including the sunset clause, are done through your lawyer. They are the ones who are going to negotiate with your developer (through their lawyers), rather than doing so directly.

You can’t call up the developer's lawyer and start demanding changes to your sunset clause. It doesn’t work like that.

 
No Contract Is Perfect

The Perfect Contract Doesn’t Exist

It’s important to know from the outset, you’ll never end up with a contract worded exactly how you want it to be.

The contract has to be fair for both parties (you and the developer), which means you both share in the risks.

But it also means if you ask for a lot of changes that will benefit you, the developer will sometimes say “no”.

It’s important for people not to get too fixed on the “perfect” contract, or to get despondent (or suspicious) when your developer returns a “no” to one of your requests.

Just because you ask, doesn’t mean they have to agree. Sometimes deposit requests will be refused because the developer requires a certain amount to get the project off the ground.

Sometimes a developer will say “no” to a sunset clause change because they cannot afford to shoulder the entire risk.

So, if you get a “no”, don’t feel disheartened.

As the saying goes: Don’t let the perfect, be the enemy of the good.

Conclusion

Your Next Step

A lot of groundwork has already been done before you see a property through Opes.

The price, what’s included for that price, and the legal clauses have all been negotiated.

This means you can have the confidence to look at a property, put it under contract, and start your due diligence and negotiation process through your lawyer.

Who are Opes Partners?
Opes Partners

What is the 3-Step Opes Coaching Programme?

1. Plan out your property investment portfolio

The first step in the programme is to co-create a plan using our MyWealth Plan software. We built this software specifically to help Kiwis create a financial plan in under an hour.

You'll leave this 1-hour session with a written down plan. Pen to paper.

2. Pick properties that fit with your plan

Once you've created your plan in step #1 – your property partner will go out and find properties that fit your plan. They'll search through projects from up to 58 developers to find the best ones for you.

When you meet again, you'll review the top picks, go through the analysis, crunch the numbers together, and then decide which ones to hold with the developer.

3. Dig into the details – Confirm it's the right property for you

Once you've selected a property, you'll work for 10 days to make sure it's the right property for you. So you'll work with your Property Partner and Client Relationship Manager to dig into the details of the property.

You'll go and look at the development and be introduced to mortgage brokers, solicitors, accountants, and property managers. Their sole job is to help you figure out if this property works for you.

And you’ll have access to all the resources, tools, and data … so when confirmation day comes, you have confidence you know you’re making the right decision.

Who is the Opes Coaching Programme the right fit for?

  • You understand the concept of property investment, but who wants help putting it into practice.
  • You want a “Done for you” property investment service, so you can be a hands-off investor.
  • You are someone who has at least a 10 year investment time horizon.
  • And finally, you’re ready to become a property investor.

Who is the Opes Coaching Programme is NOT the right fit for?

  • You’re more into the smell of paint or the colour of a wall than the numbers that stand behind an investment property.
  • You only want investments that are hands-on, so you can save a few dollars here and there.
  • You have plenty of time on your hands and want to do the property investment process yourselves.
  • You’re looking for an overnight success and want to get rich quickly.

What does it cost to work with Opes Partners and go through the programme?

It’s free. Complimentary. No Cost.

Why?

The developer pays us a marketing fee when you confirm that the property is the right fit for you. Very similar to the way a mortgage broker gets paid by the bank.

Now it's important to note that we are paid the same fixed rate no matter what property you invest in.

If it’s a $500k apartment in Christchurch or a $1.3 mil 3-bedroom townhouse in Ponsonby – we get paid the same rate.

That's important because then we can recommend the right property for you, and there's no incentive to recommend you invest in a more expensive property, just so we get paid more.

I want learn more about how Opes can help me

Learn more about the Opes Coaching Programme Here

LM b W

Laine Moger

Laine Moger has been a journalist and reporter for the last 6 years. She previously worked for Stuff, The North Shore Times and Radio NZ. She has a Bachelor of Communications (Honours) from Massey University and a Diploma of Journalism from the London School of Journalism.