Buying a house is the best way you can create immediate equity. Gaining equity through buying a house is something which is very easy to do, as long as you follow these guidelines.
If you are seeking to buy a house under discount value you must have the right mindset:
"The deal of a decade comes along about once a week"
- Dolf De Roos, Real estate investor.
Houses being sold below market value are out there, its just a matter of knowing where to look and the buying strategies you use.
So where can I find houses being sold for a discount?
Find motivated sellers. Some examples of these sellers are people who have experienced death, divorce, bankruptcy, the less intelligent, people who have deadlines, and are developers.
Bankruptcy/Foreclosure:
When bankrupt an individual will have the option of selling their house to a third party, most likely at a cheaper price than market value because they need the money fast. If an Individual is bankrupt and the bank is the creditor, the bank will take the asset (the house) and have a foreclosure sale. You will often find a cheap price there as well.
Death:
Although this may seem like profiting of someone else's misery, its not really. If the house is not included in the persons will, it must be sold, someone has to buy it. If the deeds to the property are transferred to someone else there is often a good chance they will not want to hold onto it and want to sell it quickly.
Divorce:
When couple breaks up things often get nasty and they both want to be separated as soon as possible. They will often settle on selling their house for a lower price but quickly.
Less intelligent:
Sometimes people are selling properties with out the help of a real estate agent and will not know the exact value of their house. They will usually price their houses too high because of emotional attachment to it. On the flip side they might be ignorant of the real market value and sell it for less than its worth.
Deadlines:
Often the best place to find deals. People with deadlines need to sell their property quickly. They may be going overseas or need the money fast. Almost all people with deadlines will sell their houses at a discount.
Developers:
In some circumstances property developers may have over extended themselves on a project and need to cut their loses. You can pick up discount houses from their mistakes.
Always ask why the house is being sold so you can determine whether the seller is motivated or not.
Other sources
Great places to look are under the classified section in the newspaper, look for things like "Urgent" or "Heavily reduced". What I love about ads under the classified section is that real estate agents are not often involved. This is good because real estate agents will often try to push up the price of a property so it is above market value. People without real estate agents often do not know the true market value of their property.
Just because there isn't a "For Sale" sign on a house does not mean the home owner would not sell for the right offer. Although chances of finding someone to sell there house through this method aren't very high, you can find great deals by making offers that a home owner might just take.
If you've been to auctions or looked at properties which have not sold in a while and are being no longer advertised, follow up on them. After so much hassle of advertising the house and no sale, the vender may be tempted to sell at a discount.
Buying strategies:
Instead of looking for properties to purchase, let the properties come to you. Get your own add in your local Newspaper saying something like," Serious property buyer, wants to buy houses from motivated sellers quickly". You'll be surprised at the number of calls you'll receive.
Don't reveal all your cards, as in try not to say why you want the property or how quickly you want to buy. Never make the first offer, let the seller make it. Once the seller states their price tag, say you want twice the discount you want off their price. So for example, the seller says they will sell it for $100,000 and you want a 5% discount, (5% of 100,000 = 5,000. 5,000*2 =10,000) offer $90,000 and counter offer up from there.
Staple a check for the deposit payment to your next offer. If the seller countersigns the contract and banks the check they have accepted the deal. The psychological impact of this tactic is amazing. This tactic shows the seller that you are deadly serious about purchasing the property quickly. It is also very tempting to just bank the check right now even though they will be selling the property at a discount.
Don't put emotions into the picture. Even if you are purchasing a house that will be your home, just because you think a bathroom looks 'adorable' you must not be willing to pay any more than its worth! This especially applies at auctions where the atmosphere makes it very hard to not bid.
Can I loose the equity that I have created:
Yes, but not likely. If you are savvy about it you can time your purchased property to gain even more equity from appreciation of the housing market in addition to creating immediate equity.
Increase of real estate value by percentage in Australian Districts
As we can see from the graph, housing prices eventually all go up due to increasing demand.
The only time you can loose money is if you sell. If you never sell you will never loose money. You may loose equity when the market goes into recession, but eventually as population and demand for housing increases the property you have purchased will appreciate. If you are looking to continuously gain equity you must purchase in high capital gain areas.
When the market is booming try to purchase properties for a 5%-10% discount.
When the market is flat try to purchase properties for a 10%-15% discount.
When the market is in recession try to purchase properties for a 15%-30% discount.
Now that you've purchased your house or home for a discount and gained equity, you should consider using the equity you've created. After all its just sitting in your home doing nothing unless you use it!
About the author:
Owned by John Whiteside from www.use-your-equity.com, we can show you how to use and create equity in your home to make you money. Primarily through real estate investing.
