Make Money When You Buy
We often think of buying a home as a complex transaction that involves many institutions and is hard to manipulate in our favor. But this doesn’t have to be the case, as long as you know the average property price in the area you are looking to buy and act quick. You can get a good below market value deal and a head start on your property equity.
Houses below market value are not as rare as you might think and come on the market every day. You have to always keep an eye on your local market and most importantly understand how properties are valued and priced. You can grasp the market value of properties in your area by comparing a few similar deals. When you know the average market value you will be able to spot when a property is undervalued.
Keep in mind that appraised value does not always equal the market value, as it is often coined by an institution like an insurer, bank, or the tax collector. Appraised value and tax appraisal, in particular, is usually never above market value, so it can serve as another indicator of a good deal. If the property is being sold below tax appraisal, that can point you to an undervalued house.
35% of home buyers in 2016 were first-time buyers with a median age of 32 and a household income of $72,000’, according to Mashvisor.
Now that you know how to spot a deal, let’s talk about how and why you should always be looking to make money when you buy, not just when you sell a house.
How Do You Make Money When You Buy
The quick answer is to look for deals. When you buy an undervalued property you get instant equity - the difference between the price you pay and the market value. Let’s say a house is worth $250,000, but the owner is selling it for $220,000 because they want a quick sale. The $30,000 difference is your instant equity gain that you can turn into cash when and if you decide to sell your home.
You can often find similarly discounted properties in any real estate market. You can get a head start by getting bulk below market value listings with our County Reports that include tax value, our eQuickValue based on location, market, age, and neighborhood, with estimated potential instant equity. You can use the reports to compare a range of recent properties and pick houses based on equity size.
Most home buyers start their search on MLS sites and ‘44% of homeowners purchased a house they found online’, according to NAR. If you are looking for a great deal start your search on BelowMarketValue.com where we only list properties that are undervalued.
Properties are often discounted because the seller may need the cash to cover debt, or to transfer funds to the next generation for education or other investments. The house may have multiple owners that are in conflict and want a quick resolution of their ties to the property. People also sometimes have to relocate on a month’s notice, say because of a job opportunity. They may be interested in another house and need to sell in order to make the down payment.
Owners discount properties in every real estate market and we are offering you the easiest way to find them. Now, let’s take a look at a few reasons on why you should always aim to make money when you buy.
Increase the Chances of Getting a Return
‘89% of Americans are non-investors’, according to Landlord Station.
When we are looking to buy a home, we often think in terms of expenses defined by the sale price. In particular, how much you need for a down payment and how much your mortgage payments will cost. But it is very useful to look at the transaction from the opposite perspective, even if you are going to live in the house and not rent it or sell it. In other words, it is always better to have a positive potential return. Your goal should be for your mortgage payments to be less than the potential rental value and the price you paid for the house to be less than the potential sale value.
You should always aim for positive potential cash flow. That means you are actually saving money each month because your mortgage payments are less than what they would be if you paid market value for the house. Subsequently, if you rent the house, you will be able to cover the mortgage while making money in the process. And the yearly value appreciation of your home also adds onto the positive side of that equation.
The same logic works if you decide to sell the house, even if you have only owned it for a short time. If the house was worth $250,000, and you bought it for $220,000, because you purchased below market value, when you sell at the regular price you stand to gain the difference of $30,000.
Furthermore, if you decide to refinance or get another type of loan, you can negotiate much better terms with the bank because the market value will dictate higher valuation, which offers more security to the lender. So when you refinance, you can actually get that built up $30,000 of equity out of your house in cash. All this benefits your balance sheet and increases your net worth.
Build Wealth From the Start
Building up your net worth (or wealth), is another thing that we don’t often think about when buying a house, but getting instant equity in a new home always feels good. Real estate appreciates in value over time, but if you buy at market value, you often have to wait as long as five years in order to see any significant boost in your property’s value. When you buy below market value you get instant equity, which counts towards your net worth.
For example, if you are looking to buy a 4-bedroom house that costs $250,000 on a property, but the owner is in a rush and is selling for $220,000. When you close the deal, you immediately make $30,000. You don’t get that in cash but it gets added to your wealth in the form of equity towards the house. In other words, if you sell the property right after you buy it at the average market price of $250,000, you can transform that equity into cash. But even if you decide to live in the home, that equity will always be there and more than likely, appreciate with time.
Reduce Market Risk
Even though buying a home is one of the safest investments you can make, it is still a risk, and in times of recession, your house can actually depreciate in value. This only happens in times of great economic turmoil when demand dramatically decreases and the market comes to a standstill. When you buy a home below market value, the instant equity you gain by getting a bargain serves as a buffer against rare market conditions, such as a recession.
Also, by acquiring equity when you purchase a home, you are reducing the risk of losing money if you have to sell the property for any reason. When you buy below market value, you gain flexibility, so if your financial situation changes and you need to sell your home, you can at least recoup the money you put in and even possibly make a profit.
When buying a home, it is important to think of it as an investment, and you want negotiate the best deal possible for your money. Buying a home is one of the largest purchases of our lifetime, and being able to use it to get a financial head start adds to the value and comfort of that home. Making money when you buy can be easy, especially with BelowMarketValue.com on your side. You can reap the benefits with increased chances of returns, an equity boost, and risk reduction.