- Posted 04 Dec
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How to buy a cheaper property and when to negotiate on your purchase
Seeing the word “discount” can really get you excited about buying the property you want. You’ll think you’re getting a great deal. But, before you get too excited, it’s best to know if what you are actually purchasing is really a winner in terms of market value. Understanding how discounts, bargains or buying at below market value works in the world of real estate, can unlock instant equity in your new home.
What does buying at below market value truly mean (buying at a discount)?
In simple terms, you get your discount when a property’s asking or negotiated selling price is lower than the property’s actual market value. But it’s not always as easy as that, because oftentimes a discount in real estate has a lot more to do with a seller’s reasons or market conditions, rather than the value of the property itself.
The process of establishing a sale price of a property will often include seller costs. At times when a property’s price seems discounted, it could just mean they didn’t inflate the selling price to cover their expenses in selling it. Discounts and bargains do occur in real estate, as sometimes the market slows due to the cyclical nature of the property industry. This means that there are instances when supply of properties in the market outweighs demand, and the real estate market eases, forcing sellers to lower their property prices below the projected market value, creating a great bargain for would be home-buyers.
How does instant equity happen when you purchase at a discount?
You will need to fully understand equity first before you begin to see how buying at a discount can unlock instant equity for you. Equity, in its simple definition, is a house’s value minus how much a person owes on their mortgage, also known as Loan to Value Ratio (LVR). This can be achieved instantly by purchasing a house below it’s market value, creating a positive difference between the amount you paid for it and it’s actual market value/worth. In both instances, you can have instant access to equity.
What should you do to unlock instant equity?
The idea is to ensure that when you buy at a discount, you make sure you are really buying a property at a price lesser than its market worth. Sellers, who are eager to sell their property to move somewhere else, will most often sell at a discount so that they can sell their property quickly and move to their new location.
Using this strategy can bring wealth if you plan to invest in property for the long term. This is most advantageous if you engage in ongoing property investing.
Having instant equity means you can enjoy it in a lot of ways; such as renovating the property to unlock more equity, using the equity as a deposit to buy another property or purchasing a new car, just to name a few. As long as you know how to identify where the real discounts are, you will be able to achieve this.
Keep in mind that opportunities don’t come as often as you think they would; so when they do, be ready to act on them immediately to unlock instant equity.