Maximum bidding..............

For the past few days, I've been following some of the auctioneer's website and been looking at few properties that interests me. Well, obviously, by looking at those listings, you will be spoilt for choice. So many properties yet limited resources. I have to admit though, I do have limited resources and i stick with my budget whatever happens.

So it got me thinking to a certain extent, when I wanna buy a property especially via auction, how do I actually determine the maximum price that I can bid. For example, if the property's reserve price is at RM60k, what will be your maximum bidding price that you wanna bid....hrmmm......simple question but a wee bit complicated to answer in a single sentence ehh?

Of course, the reason for me getting a property via an auction is to make some money and hence, what would be the point of getting one if the price that I'll be paying for the property is almost if not, the same as the market value of the property? I'll be wasting my time and obviously my money isn't it?

In saying that, if the price is to low, I would assume that there would be a long list of bidders for the property. You wouldn't wanna enter into a bidding competition with 10 other bidders. Your chances of winning is pretty close to nil I would say as there will always be THAT someone else that have a higher budget than you....

Hence, I would like to think that it is quite important that you should be able to calculate your maximum price that you wanna bid for a property as well having a higher possibility of making money from your investment....

For example, let's say that a reserve price for a low cost flat somewhere in Pelangi Damansara is RM55k. After making few calls, you found out the rental there is about RM550 (I'm assuming the rate is RM550. It could be higher and it could be lower). So that will give you an annual rental of RM6600. Let's assume the maintenance fee is about RM60 per month (perhaps lower). Then estimate repair cost will be about RM4000 and you expect a yearly rental return about 8%. A simple calculation shows that you'll get RM5880 of net return (RM6600-RM720= RM5880). So perhaps the maximum price that you could bid would be Rm5880/8%= RM73500. Bear in mind that we have not taking into account the repair costs, stamp duty, legal fees, etc...Let's assume the other costs would be about RM7000. Hence, the maximum bid for the property would be RM73500-7000=RM66500. Errr....do I make myself clear here? Hehehehe

Another way of doing it is to calculate the expected ROI of the property. Taking the example from above, and let's assume that you would expect an ROI return of 9%. Hence, RM5880/9%=RM65300. Less RM7000 of other costs, the maximum bidding price would be RM58300. Again, I would like to emphasize these are all assumptions and it could be higher or lower depending on your luck and circumstances. Hehehehehe

If you are lazy to the maths (sometimes I'm just too lazy to calculate), you can always based your maximum bidding price on the market value of the property.To a certain extent, by comparing the market value of the property, you can have an idea of how much or how far you would want to bid for that property. For example, if you know the market value of the property is about RM65000 or RM66000, you wouldn't wanna bid higher than that. Would you? Certainly I won't as why would anyone buys a property via auction more than the market value. The reason for buying a property via auction is to get a property that is lower that its market value.... The best way of making some money is to get a property that is about 20% below its market prices.

I would like to emphasize here that, in theory, these are just assumptions and my own personal opinion. It could be different in the real world as most of know. So, like I always said and always do, seek more knowledge and talk to the experts before buying a property especially if you are buying one from auctions....