Foreign Buyers

In real estate there is a euphemism “this property would be ideal for a foreign buyer” which means that it’s overpriced and they need a buyer who is ignorant of local market value to pay that much for it. In smaller communities in Ontario a variant on this is “I’m going to try to find a Toronto buyer” which means the same thing.

A friend of one of my relatives played the part of the ignorant Toronto buyer. His father-in-law passed away and left his wife about $1 million. They started looking at property outside of the GTA (greater Toronto area), got excited about how cheap everything was, and started buying real estate like it was going out of style.  I’ve lost touch with them but the last I heard they had gotten themselves in over their head (they hadn’t been able to rent out or resell what they’d bought).

Apparently in the 80’s Japanese developers played the role of ignorant buyers in New York. After coming to town and finding everything cheap compared to Tokyo, they started overpaying for properties. They’ve since learned their lesson and are paying market rate.

Some times it isn’t just regional variations. A while back I saw a saw a 5 bedroom property being offered for $140k in my home town, which looked like a killer deal. I’ve been watching it for the last 6 months, and it’s still available. Finally I mentioned it to my brother and said it didn’t make sense that it was sitting on the market unsold for so long. My brother had heard through the grapevine that the condo complex it is in had gotten tired of all the rentals and had gotten new rental restrictions put in place. There was a good reason why it’s selling cheap:  it’s ideally suited to a student style of rental, which is no longer allowed.   Someone who didn’t do their due diligence and jumped on the deal might be sitting on a property that is difficult to rent out (and couldn’t be easily resold for the purchase price).

One of my brother’s friends was involved in the sale of a fly-in fish camp.  Apparently the lake that the lodge was on was dead (no fish), but the buyers didn’t know to check this.  They were babes-in-the-woods moving into a new industry they didn’t understand, thought they’d found a good deal and got taken.  I was surprised my brother’s friend talked about this, as I’d find it VERY questionable to be involved in such a transaction, and I find it shocking that he’d brag about being involved in taking advantage of people (it said a lot to me about what kind of guy he is).

Market rate is market rate. Very few people will foolishly give away a property for a fraction of its value, so if a property seems to have an abnormally low price, the first question we need to ask ourselves is why? Many “get rich quick” schemes sell the idea that you have to move fast and seize opportunities. If we don’t have a compelling reason *WHY* something is cheap (and a way to inexpensively remove this roadblock and make it worth far more), then chances are we don’t understand something about the property. It’s probably not a killer deal we need to jump on.

Nancy Zimmerman (check out her blog if you haven’t read it yet, it’s good stuff) was recently considering buying a place she found at a good price (especially compared to the Vancouver market she was used to).  Myself, and a number of other commenters were concerned about jumping on a “great deal that needs to be finalized quickly”.  I think she made the right decision not buying, and look forward to hearing if she gets any more information about if it was as good a deal as she thought (or if there was some problem lurking in the background).