An old saying in the property business, as well as many other businesses for that matter, is that you make most money on a property when you buy it, not when you sell it.
In recent years the opposite has proved to be true: Fast appreciating property values mean it has almost always been possible to sell any property for more than you bought it for, simply due to a rise in prevailing property prices.
In an uncertain market – where it’s difficult to predict what the resale value or potential might me – the old adage should again prove true …. you make a profit when you buy, not when you sell.
To achieve this every property investor’s aim must be to buy at below market value. Normally this means buying it for less than it would fetch when offered on the open market in a normal open market ‘retail’ sale.
So how do you source below market value property?
Normally this won’t happen by dropping on an underpriced property by chance, nor through relying on your highly honed powers of negotiation.
The main method is this: You need to buy from what are known as motivated sellers.
Motivated sellers are, generally, people who need to sell more than you need to buy.
How do you identify motivated sellers?
To some extent it is about buying from people who have particular problems. (Although perhaps a better way to look at it is that they are, at least, benefitting from a quick sale.)
Here are some examples of motivated sellers:
* Sellers who have financial problems, eg. unable to afford mortgage repayments, need money for something else.
* Sellers who have personal problems, eg. going through a divorce.
* Sellers who need to move house urgently, eg. for a job, or perhaps to emigrate.
* Sellers who have inherited a property from a deceased relative that they do not want and wish to dispose of as soon as possible, eg. probate property.
* Sellers who have a property to sell which will prove difficult to offer on the open market, eg. it is a property of non standard construction and buyers will find it difficult to obtain a mortgage.
Once you have identified who motivated sellers might be the next step is to find properties that are available. Here are some ways of doing this:
* Contact estate agents. Ask about any properties on their books from sellers who have indicated a wish to sell quickly, at a good discount below market value.
Express-type estate agencies claim to feature property at below market value but do they? I’d be interested to hear your views on this.
* Auctions. Are often thought of as a prime source of below market value, although this is by no means guaranteed.
Tip. Also identify auction properties you are interested in and consider making a bid either before the auction or, if the property does not sell, after the auction.
This Property Insider article looks at some of the pitfalls of buying at auction.
This article looks at the prospects for ‘bagging a bargain’ at the property auctions.
* Buying direct from vendor. Advertise ‘Property Wanted’. Place ads. in your local press or online stating that you wish to buy property. When sellers contact you as a result you know that they positively want to sell their property.
Lastly, to benefit fully from below market value property it is preferable to have the finance for your purchase lined up before you make an offer to buy, and be able to proceed immediately. Being able to complete quickly is very often what unlocks a below market value price.