Trading the ASP Way in Property

We have been taught through school, university and the marketplace, that we must get the best deal for us. A culture born out of maximising self- interest at the expense of someone else.

We have been educated, that when purchasing real estate, drive the price down and walk away with the best price for you. Whilst most of us think this is perfectly normal practice in todays culture, in many cases a vendor can be left financially distressed or even worse, kicked out on the street.

In 2005, I (Dave Leslie) had the opportunity to purchase a house from a motivated vendor. The house and land was in a zone that had the potential for future development. I was referred by an associate to the vendors. I was told the vendors were very keen to sell and I could purchase the property at a huge discount.  I decided to visit the vendors to learn more about their situation.

At this meeting I discovered the vendors were in financial difficulty. They owned a small business and where struggling to make ends meet. The business was unprofitable, hence they were motivated to sell their property.

I knew at this point I could purchase the property for far less than it was worth.  Whilst, for most purchasers this would be enticing, I knew it wasn’t right. It would leave them in a far worse situation. After some quick calculations, we estimated the property was worth approximately $500k, but with negotiation could be purchased as low as $400k.  Whilst this would give us instant equity and strong upside, this was NOT the way to trade the deal. It would give us more money in the bank, but leave them in a potentially distressed situation.

Instead, I decided to trade the ASP way, where all parties would prosper from the deal. As I examined the deal I realised it would be beneficial if we had an extended settlement of 18 months. This would enable us to get the necessary development approvals in place without the funding cost of holding the property.

I asked the vendors if this was possible and how we could help them in this transaction? The vendors needed immediate capital and monthly cashflow.  We offered them $20k up front, monthly cashflow of $1500 a month, with a future price of $550k at settlement. They were very pleased with this offer. This would give them the opportunity to restore their business, remove the monthly financial burden and give them plenty of upside. They agreed to sign all the development applications, give us an extended settlement and the flexibility to visit the site at any time.

Over the next 18 months we sought the necessary development approvals. This was a difficult process and there was no guarantee of approval. During this time, we honoured the agreement and made all monthly payments.  We received development approval and at the end of 18 months we informed the vendors we would settle. They were very happy. By this time, the monthly cashflow had helped them re-establish their business and they were now prospering again. We settled with the vendor and on sold the property with the development approval. This generated $1.2m in profit, much more than we had originally anticipated.

On reflection, we could of taken the greedy self-centred approach. Hustled, negotiated and purchased the property for $400k. We may have gained a little more in equity, but the family would be left in a financially dire situation, struggling to make ends meet. Instead we sought to Trade the ASP Way. The vendor prospered, making nearly $200k more than what they could have made and the family was restored.

By Trading the ASP Way, no-one was left distressed, socially dis-advantaged or economically ruined. When we trade this way, we create a platform for all parties to prosper, social distress is systematically reduced and a new culture is formed for others to follow.

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