Bulk buying

What are the advantages and disadvantages of group buying?

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Have you heard of group buying, a strategy used to buy under market value? While first home buyers find it hard to break into the property market, some of them find many advantages to group buying. However, buyers should be aware of some potential traps that may come with group buying as well.

Bulk buying is when people group together to buy a property and present themselves as a group to an agent to be able to negotiate on the price better. Some work with companies, which offer these services. It’s easier to go to a buyer’s agent who has numerous relationships with developers and agents. Bulk buying is a proven strategy that has worked for many years now but the deals can also be hefty. Some are charged from $10,000 to $15,000 per deal.

You may want to buy older apartments or work with developers who need pre-sales so the bank will finance them. When there’s a significant number of buyers, you remove a good amount of stress from the developer. Thus, you may be able to secure the property below market value.

However, you should be wary of buying an inferior property in a low growth area. It may seem like a good deal but make sure it won’t be a dud property. Ask why the property developer is willing to bulk sell and sell cheap. Are they struggling to sell or does the property have no growth potential?

Make sure you are not buying into a poor development as well so research about the area. Remember that you’ll also be competing with the investors you’re group buying with. If there are many investors, competition may be stiff, possibly resulting to long vacancy periods and lower rents.

You may also find it difficult to secure a mortgage to settle the property. If one buyer fails on finance, it could compromise all the other investors. You have to be sure that everyone is pre-approved and vet through a finance strategist before you decide. Make sure that you will also get the value for the agent’s fee. Double check if the agent is getting income from third parties, from builders to advertise them, kickbacks from selling agents, and more.

Don’t forget that the discounted price becomes the property’s new value, making it hard to onsell it. There’s also the risk that the development may not proceed so the developer should have a solid track record of delivering quality products on time. Make sure that you are not buying an overvalued property disguised as a bargain or a property that may not be suitable to your own investment strategy.

Group buying, bulk buying or buying a discounted property may come with advantages but you also have to examine the deal thoroughly and do your own due diligence.

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Chan & Naylor Group has nationwide offices in Brisbane and Capalaba in Queensland, Melbourne and Moonee Ponds in Victoria, East Perth in Western Australia, and Bankstown, Parramatta, Pymble, North Sydney, and Sydney in New South Wales.

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