Any good property investor should not focus on just one method of sourcing below market value property. Employing clever marketing techniques to source property is the intelligent way of buying below market value property. Here, we discuss various sources of cheap property and how a property investor can use different techniques for quick profit.
Buying properties that will ultimately be repossessed can be a great way to harness quick profit from property. These are properties where the mortgagors are adjudged in default and are held liable to pay the mortgage debt. Hence, the property is already a subject of a repossession proceeding. The owners of these properties will often sell for below market value rather than face the consequences of repossession.
It is also profitable to buy properties that have already been repossessed. These properties are usually owned by banks and financial institutions after the repossession proceedings, but before they have been sold on.
Some property owners end up in financial trouble because they have secured debt on their property. Unable to pay their debts, their house faces imminent repossession. An investor can often come in at this stage, pay off the secured debt and buy the property from the current owner for a much reduced price.
Another source of good value property is to buy direct from the property developer. Here, it is always better to deal with the senior manager rather than the admin staff who sit in the office. Using clever negotiation techniques you can often secure property for over 20% discount of its true value.
A lot of property developers also purchase land with potential for development. There are various things you can do here. For example, you could obtain planning permission, subdivide the land and resell lots for profit. This is definitely a lucrative way to earn a living and definitely worth considering. Alternatively, you could obtain an option to purchase land and only exercise the option if you are able to secure planning permission. If you do purchase the land, it is then up to you whether you want to build on the land yourself, or resell at a heightened price, achieved as a result of the planning permission obtained.
Buying properties and not immediately disposing of them is another income generating strategy. Here, you could hold the property and allow its price to increase as a result of market conditions or you could obtain cash flow from rental income. Whichever strategy you do choose, you will need to be aware of any maintenance, taxes and financial factors which come into play. Alternatively, rather than holding the property, you could choose to dispose of it immediately for market value and pocket the difference in prices.
Owing a home is a big part of the American dream. But not everyone is fortunate enough to become a homeowner due to delimiting factors such as insufficient income, bankruptcy, bad or no credit, loss of employment, etc. For people with such troubles, owning a home is a distant dream and some of these people resign themselves to a lifetime of renting. But such people are not without options. Rent-to-own, which is also known as a lease-purchase option, can be an excellent alternative available to some people who are currently unable to buy a home.
A rent-to-own or lease-purchase option is an agreement between a prospective home buyer and a home seller. The agreement is basically a rental contract with a right to purchase the property after a period of time (usually 1 year). When a home seller offers a lease-purchase option, what they are really offering is the option to rent the house at some monthly rate, and to lock in the sales price of the home now, even though the prospective buyer would not actually purchase the house until a later time (if at all).
Here is a hypothetical example. Let’s say the monthly rent for a home is $1700. Under a lease-purchase option, a prospective buyer would rent the home for the $1700 a month, but would also pay an additional premium (e.g., $200-$300) every month for the option to buy the home after a period of time (usually 1 year). So in this example, the total monthly rent is actually $2000, but $200-$300 of the money will be applied toward buying the house at a later time. In other words, the home seller would apply the $200-$300 extra paid every month toward the prospective buyer’s down payment at the end of the year.
The good news for prospective home buyers is that it allows them to lock in the purchase price of the home now, even though they are not purchasing the home until a later time. The bad news is that if a buyer decides not to purchase the home at the end of lease term, the seller often keeps the premium amount paid over the year, although this is usually a point of negotiation.
Prospective home buyers should know that many of the terms described above are negotiable such as how much the monthly rent will be, how much extra has to be paid every month for the option fee (if any), the length of the lease term, etc. The other issue to consider is if it makes sense to lock in a home purchase price now in markets where real estate prices are still declining.
When compared to renting, a lease-purchase can be an attractive alternative because it gives prospective buyers an opportunity to own a home before they normally would be able to. There are some advantages to a lease-purchase option such as:
1) Low or No Initial Down Payment. Many lease-purchase options do not require an initial down payment.
2) Equity Advantage. At the end of the lease term, the value of a home may have appreciated over time, which benefits the purchaser.
3) Living Experience. Prospective home buyers have the opportunity to try out a home and neighborhood before purchasing the property.
4) Leverage Advantage. With just a small investment, a prospective buyer can control a property; yet still have the option of not buying the home if market conditions don’t warrant it.
Rent-to-own or lease-purchase option can be an effective strategy to home ownership. However, there are both positive and negative aspects to this type of approach (as described above). A good real estate agent can help you navigate the complex world of rent-to-own and lease-purchase option properties.
