Okay, so that was a trick question. The real answer is it's as simple as DDD....
You may have already heard people talk about the 3 Ds of discount property - death, divorce and debt.
Personally, I've used up to 7 Ds when talking about the possible reasons why you might be able to buy a property at a discount.
Maybe it's inflation kicking in, but I reckon I can get a few more on that list nowadays. Let's see how I go - and hopefully you'll learn some useful tips along the way!
Death
I might as well start at the beginning (or is it the end?). When someone dies, particularly someone elderly, their house frequently ends up on the market.
In that situation, there are 2 potential scenarios. One is that their will is being administered by a public trustee, the other is it's administered by a relative or trusted professional.
If it's a public trustee in charge of the sale, then they really don't care much about the dollar outcome. They just want it sold so they can finalise the estate and move on.
If beneficiaries are in charge, it can go one of two ways. Either they want to squeeze every last cent they can out of the property, in which case they'll want a high sales figure, or they'll just want it gone, in which case they'll take what they can get and move on.
Divorce
There are amicable divorces, and in that scenario there's unlikely to be a lot of scope for a discounted sale.
But then there's the nasty ones - and that's when a discount might be possible. One or both partners just want to have as little to do with each other as possible and move on with their lives, and selling the property quickly is the best way to achieve that.
Or one of them has control over the sale, and figures the best way to get revenge on their ex is to sell at a low price. Nasty for them, but nice for you if it delivers a lower price for your development site.
Debt
In this situation, the property owner has reached a point where they can't service the mortgage any longer, and the mortgagee is now in possession of the property.
The lender is only concerned with getting back their own funds in the property, which in most situations is less than the property is worth.
While this is often a good chance for a discount, in some states a mortgagee in possession is obliged to put the property up for auction. You might still be able to pick it up cheaply at auction, but there's also a chance it will sell well. Still, it's potentially a chance to save some money on the purchase of your development site.
Distance
This is another one that has two categories. First up, the owner lives at a distance, for example interstate. In that case, it's possible they won't be up to date with current market conditions and so might not realise how much their property is currently worth.
The other scenario is when the agent is situated at a distance from the property. While that doesn't stop them doing most of the things required in terms of marketing, what it does mean is that attending the house for inspections is a headache for them, chewing up lots of time.
Running the traditional Saturday open house may mean half their day is gone, which then restricts their ability for open homes in their own area. The sooner they sell the better, from a time perspective, so they're more likely to push for a quick sale. Which means there's potential for a discount!
Disaster
When you have a large-scale disaster, like floods, there's often a lot of houses available at discount prices. Perhaps the owners weren't insured, or they just don't have the funds to carry out the necessary repairs or fixes required to get the house back up to a good standard.
This can also apply on a smaller scale, such as a house fire. Again, not every owner is in a position to restore the house back to its former glory, and there's also not many people willing to take on the challenge, either.
While it's an opportunity for a discount, if an area is flood prone, or it's a bushfire hazard area, just be aware that events like that don't usually happen just once. So be prepared and check for overlays that might negatively impact your property development feasibility.
Derelict
This one speaks for itself. If the house is derelict, it's not going to appeal to many buyers. But if you're keen to renovate or develop the property, it might be a great opportunity for a price reduction.
Deadline
If the vendor has a deadline, then they're under pressure to sell. The most obvious version of this is when the vendor has already bought their next property, so needs the funds from the one they've put up for sale.
But the deadline can also include things like a vendor who needs to sell prior to the end of the financial year for tax purposes, or to sell in time to avoid the property being included in their land tax calculation for the year. Selling at a discount might be less of a financial loss for them than copping lots of extra tax. Understanding vendor motivation is a huge part of learning how to find profitable development sites.
Distress
Although this could encompass a few of the Ds I've already talked about (divorce, debt) there's a whole range of other circumstances that occur in people's lives that result in selling up for a discount being preferable to the property not selling.
They might need the funds for a business that's failing, or need to move interstate in a hurry because someone's had a health issue and needs full-time care... Feel free to use your imagination to create as many dire scenarios as you like.
Dud
This one is mostly applicable to Property Developers, so it deserves a place on this list! Essentially, someone bought the property with a view to doing something with it, only to find out their idea just isn't viable.
Now they're stuck with a big debt and a property they can't develop. While this is a scenario where I encourage you to be VERY careful and do as much due diligence as possible, the fact is that if you put your creative hat on, you might come up with a way to develop the property where the numbers stack up. The vendor is likely to be so relieved to ditch it that a discount is possible.
Disgusting
This one's a bit of a weird one, but hear me out! Have you ever walked into a house and all you can smell is cat pee? Trust me, things like that send buyers running back out the door.
With the amount of houses I've inspected, I could give you lots of similar examples, but I don't want to put you off your food. Believe me, you'd be surprised and completely grossed out.
But if you're planning to knock the place down for development purposes, or even renovate, what do you care?
Disease
Okay, so I'm pushing the line, but I couldn't find a truly appropriate D word here!! I'm talking about termites and other infestations.
If you're developing, again, who cares if it has termites if you're going to demolish it? If you're renovating as part of your strategy, anything can be fixed with money. You just have to work out how much needs to be done, and if your strategy still stacks up.
Direct
Homeowners selling their own property can often find it tougher than they expected. Sometimes they're willing to drop the price a bit just to put an end to the hassles. Or they're just not up to speed with current market conditions.
Either way, if you like snuffling around obscure websites or online marketplaces, this is another opportunity to buy a development property at a discount. Some of the best off market property deals are found in places most buyers never bother searching.
Downsizing
At least this one's a little more positive than Death! In this scenario the current owner/s may simply have decided they're getting too old to look after their current property, or health considerations have made it necessary for them to move into assisted care.
Although that might not result in a price discount, I do find this type of situation is great for delayed settlement deals. You give the owners time to get their affairs in order, and in the meantime you can be getting Development Approval with the Council. So the discount may be in the overall project costs, thanks to having no holding costs during the extended settlement period.
Dispute
This is a close relative of divorce, except that this time the owners aren't married. A joint venture that's gone bad might be the scenario, or perhaps a business partnership which has gone into liquidation. There's stacks of reasons why a property with two or more owners might need to be sold - and many of them can result in a discount.
If you want to better understand how experienced developers uncover opportunities others miss, our free 7 Step Development FORMULA course is a great starting point.
Wow! I made it to 14 Ds as reasons why you may be able to buy a property at a discount. I hope you're excited about the possibilities!
One final word of caution. In many of these scenarios, people are hurting or in distress. You should ALWAYS be aware of that, and act with compassion. The line between helping someone exit a bad situation and acting like a greedy developer by using their situation to rip them off is very thin.
You may have already heard people talk about the 3 Ds of discount property - death, divorce and debt.
Personally, I've used up to 7 Ds when talking about the possible reasons why you might be able to buy a property at a discount.
Maybe it's inflation kicking in, but I reckon I can get a few more on that list nowadays. Let's see how I go - and hopefully you'll learn some useful tips along the way!
Death
I might as well start at the beginning (or is it the end?). When someone dies, particularly someone elderly, their house frequently ends up on the market.
In that situation, there are 2 potential scenarios. One is that their will is being administered by a public trustee, the other is it's administered by a relative or trusted professional.
If it's a public trustee in charge of the sale, then they really don't care much about the dollar outcome. They just want it sold so they can finalise the estate and move on.
If beneficiaries are in charge, it can go one of two ways. Either they want to squeeze every last cent they can out of the property, in which case they'll want a high sales figure, or they'll just want it gone, in which case they'll take what they can get and move on.
Divorce
There are amicable divorces, and in that scenario there's unlikely to be a lot of scope for a discounted sale.
But then there's the nasty ones - and that's when a discount might be possible. One or both partners just want to have as little to do with each other as possible and move on with their lives, and selling the property quickly is the best way to achieve that.
Or one of them has control over the sale, and figures the best way to get revenge on their ex is to sell at a low price. Nasty for them, but nice for you if it delivers a lower price for your development site.
Debt
In this situation, the property owner has reached a point where they can't service the mortgage any longer, and the mortgagee is now in possession of the property.
The lender is only concerned with getting back their own funds in the property, which in most situations is less than the property is worth.
While this is often a good chance for a discount, in some states a mortgagee in possession is obliged to put the property up for auction. You might still be able to pick it up cheaply at auction, but there's also a chance it will sell well. Still, it's potentially a chance to save some money on the purchase of your development site.
Distance
This is another one that has two categories. First up, the owner lives at a distance, for example interstate. In that case, it's possible they won't be up to date with current market conditions and so might not realise how much their property is currently worth.
The other scenario is when the agent is situated at a distance from the property. While that doesn't stop them doing most of the things required in terms of marketing, what it does mean is that attending the house for inspections is a headache for them, chewing up lots of time.
Running the traditional Saturday open house may mean half their day is gone, which then restricts their ability for open homes in their own area. The sooner they sell the better, from a time perspective, so they're more likely to push for a quick sale. Which means there's potential for a discount!
Disaster
When you have a large-scale disaster, like floods, there's often a lot of houses available at discount prices. Perhaps the owners weren't insured, or they just don't have the funds to carry out the necessary repairs or fixes required to get the house back up to a good standard.
This can also apply on a smaller scale, such as a house fire. Again, not every owner is in a position to restore the house back to its former glory, and there's also not many people willing to take on the challenge, either.
While it's an opportunity for a discount, if an area is flood prone, or it's a bushfire hazard area, just be aware that events like that don't usually happen just once. So be prepared and check for overlays that might negatively impact your property development feasibility.
Derelict
This one speaks for itself. If the house is derelict, it's not going to appeal to many buyers. But if you're keen to renovate or develop the property, it might be a great opportunity for a price reduction.
Deadline
If the vendor has a deadline, then they're under pressure to sell. The most obvious version of this is when the vendor has already bought their next property, so needs the funds from the one they've put up for sale.
But the deadline can also include things like a vendor who needs to sell prior to the end of the financial year for tax purposes, or to sell in time to avoid the property being included in their land tax calculation for the year. Selling at a discount might be less of a financial loss for them than copping lots of extra tax. Understanding vendor motivation is a huge part of learning how to find profitable development sites.
Distress
Although this could encompass a few of the Ds I've already talked about (divorce, debt) there's a whole range of other circumstances that occur in people's lives that result in selling up for a discount being preferable to the property not selling.
They might need the funds for a business that's failing, or need to move interstate in a hurry because someone's had a health issue and needs full-time care... Feel free to use your imagination to create as many dire scenarios as you like.
Dud
This one is mostly applicable to Property Developers, so it deserves a place on this list! Essentially, someone bought the property with a view to doing something with it, only to find out their idea just isn't viable.
Now they're stuck with a big debt and a property they can't develop. While this is a scenario where I encourage you to be VERY careful and do as much due diligence as possible, the fact is that if you put your creative hat on, you might come up with a way to develop the property where the numbers stack up. The vendor is likely to be so relieved to ditch it that a discount is possible.
Disgusting
This one's a bit of a weird one, but hear me out! Have you ever walked into a house and all you can smell is cat pee? Trust me, things like that send buyers running back out the door.
With the amount of houses I've inspected, I could give you lots of similar examples, but I don't want to put you off your food. Believe me, you'd be surprised and completely grossed out.
But if you're planning to knock the place down for development purposes, or even renovate, what do you care?
Disease
Okay, so I'm pushing the line, but I couldn't find a truly appropriate D word here!! I'm talking about termites and other infestations.
If you're developing, again, who cares if it has termites if you're going to demolish it? If you're renovating as part of your strategy, anything can be fixed with money. You just have to work out how much needs to be done, and if your strategy still stacks up.
Direct
Homeowners selling their own property can often find it tougher than they expected. Sometimes they're willing to drop the price a bit just to put an end to the hassles. Or they're just not up to speed with current market conditions.
Either way, if you like snuffling around obscure websites or online marketplaces, this is another opportunity to buy a development property at a discount. Some of the best off market property deals are found in places most buyers never bother searching.
Downsizing
At least this one's a little more positive than Death! In this scenario the current owner/s may simply have decided they're getting too old to look after their current property, or health considerations have made it necessary for them to move into assisted care.
Although that might not result in a price discount, I do find this type of situation is great for delayed settlement deals. You give the owners time to get their affairs in order, and in the meantime you can be getting Development Approval with the Council. So the discount may be in the overall project costs, thanks to having no holding costs during the extended settlement period.
Dispute
This is a close relative of divorce, except that this time the owners aren't married. A joint venture that's gone bad might be the scenario, or perhaps a business partnership which has gone into liquidation. There's stacks of reasons why a property with two or more owners might need to be sold - and many of them can result in a discount.
If you want to better understand how experienced developers uncover opportunities others miss, our free 7 Step Development FORMULA course is a great starting point.
Wow! I made it to 14 Ds as reasons why you may be able to buy a property at a discount. I hope you're excited about the possibilities!
One final word of caution. In many of these scenarios, people are hurting or in distress. You should ALWAYS be aware of that, and act with compassion. The line between helping someone exit a bad situation and acting like a greedy developer by using their situation to rip them off is very thin.
