Buy Properties Below Market Value

If you are thinking about starting a career in real estate investing, then you may looking at “quick turn” sales as part of your overall investment strategy. Quick turn sales are attractive to many investors, because they offer the potential to make a large profit in a relatively short period of time. However, it’s important to understand the risks of quick turn sales, as well as the rewards.
Quick turns can provide substantial profits if you take the time to properly research the homes you are interested in buying. You will want to look at comparable homes for sale in the area, to determine the best price for your property. If you exercise patience and persistence, you can purchase properties below market value, so you can sell them for a profit.
There are several risks involved with a quick turn real estate investing strategy as well. First, you may incur unexpected repair and renovation expenses after purchasing the property. You can make a reasonable estimate of these expenses by walking through the home and looking for the cosmetic items as well as purchasing a home inspection. Yet, even with these reports, often times you find that there are items that go above and beyond your initial budget once you start the project. We recommend that you build in a financial cushion for surprise expenses when determining if an investment will likely be profitable. Typically, we suggest 10 -15% of the overall initial cost just to be on the safe side. If not needed, you have only enhanced your overall profit.
Another risk is that you may be unable to sell the home quickly after repairs and renovations have been completed. Even the perfect home can sit on the market for months, and you will be responsible for mortgage payments, taxes, insurance, and other expenses until the property is sold. You should have an alternate plan, such as renting the home to tenants, in case the home does not sell as quickly as you had hoped. So you might want to establish a relationship with a property management company or be prepared to become a landlord.
You might also want to consider the tax implications of this investment strategy. When you purchase and sell the property in less than 12 month’s, the IRS looks at the profit you make from the sale as ordinary income. This will mean that all the profit from the sale will be taxed as your normal tax bracket. So if you make $50,000 profit, your tax will most likely eat almost 40 to 50% of that, but the time you calculate your federal & state tax rate.
It may be possible to accurately assess these risks yourself when evaluating and purchasing investment properties. However, you can save yourself quite a bit of time and expense by hiring a REALTOR® to help you navigate the quick turn process. An experienced REALTOR® who is a seasoned investor themselves, will help you find properties that will make profitable investments, and help you sell the home as quickly as possible once your repairs and updates have been completed. Not all real estate agents understand investing, so we highly recommend that you interview thoroughly to make sure the agent you have selected can provide you with accurate information and assistance.

Right now in the U.S. there hundreds of thousands of home owners who want to sell their property, but can find no buyers.
If you are a qualified buyer you are currently more valuable that an NFL first round draft pick. Yes, you are king and every home seller is your subject to do with as you will – almost!
The point is, this is one of those rare periods in time when you can get the best possible deals simply for the asking. The trick is to know what to ask for.
Financing
You will find that in most cases you have the least amount of maneuvering room in the area of financing. Most highly motivated sellers have little or no equity in their homes. They either bought near the top of the real estate bubble or they have refinanced every penny of wealth out of their home.
If you are lucky enough to find there is some equity in a home there’s a good chance you can do a no money down deal by asking the owner to carry-back that equity in the form of a note and second mortgage. That’s called a “seller carry-back”.
The seller carry-back was very popular in the early 1980’s. That was during a period when it was near impossible to sell property without some form of seller financing like the carry-back. That was possible in those years because mortgages were assumable by the new buyers. Investors learned how to use an All Inclusive Deed of Trust (AITD), sometimes called a “wrap around mortgage” to buy with no money down.
Since mortgages are no longer assumable it is rare that you will find a deal that works with a wrap around. You may find a mortgage that allows a buyer to assume the financing after qualifying. That seldom works in an investor’s favor, but it is worth investigating if all else fails.
To use the seller carry-back today you have to buy ’subject to’ the existing financing. That means that after you sign a promissory note secured by a trust deed for the owner’s equity, you take title to the property and just continue making payments on the first mortgage. Investors should learn the details of how to buy ’subject to’, because it can be very powerful in this real estate market.
Among the other methods of buying, you might consider a lease-option or a ’short sale’.
Inspection and Repairs
Homeowners are desperate to sell, so they will be open to performing any repairs or improvements that you ask for in your purchase offer. That means you should require is through pre-inspection of the property. That inspection should include:
Heating and air-conditioning system
Plumbing and electrical systems
Roof and attic, including insulation
Walls, ceiling, floors, windows, doors
Foundation, basement
Any built-in appliances
Septic, wells
Swimming pool
Landscaping irrigation
Those are the things you should check before writing the purchase offer. Then you can include any repairs or replacements required in your offer. Don’t stop there. In the purchase offer you state that the offer is contingent upon your approval of a report by a qualified home inspector.
A-S-K
Finally, you should ask for at least a few things that are not vital to the deal. If they have two cars, ask for one of them. Ask that they leave the lawnmower, child’s swing set, exercise equipment, dining room set, etc.
If you don’t A-S-K you will never G-E-T. If the home sellers are really motivated they may want to move as quickly as possible and be willing to give you anything that will make packing and moving easier.
Compensate for Falling Values
When you consider making a purchase offer on real estate, keep in mind that values continue to fall in many areas of the U.S. You must buy at a deep discount to compensate for the fact that the property’s market value will be less in 12 months than it is today.
Whether you are buying for personal use or as an investment, there has seldom been a better time to be in a position to buy homes. Use your power with compassion. Be a wise and benevolent king!

One of the biggest differences between single family and commercial real estate, other than the obvious number of units, is the way in which the properties are valued. Residential real estate, including most single family homes, is valued almost always as a function of recent sales, or “comps”. Commercial real estate, by contrast, is valued based upon income. The reasons for this are primarily three in number.

First, residential homes are usually in a lot of company. When there are plenty of similar properties in a given area to compare to, the ability to use comparable and recent sales is enhanced. It also makes the valuation of residential real estate much easier because sales trends are pretty easy to track with modern technology. By contrast, commercial properties have fewer properties out there to compare to, making a comparable sale model far less effective.

Second, residential real estate is primarily owned by homeowners, making the income production of property rather in irrelevant feature, from the standpoint of assigning property value. Sure, some neighborhoods have more rental homes, but there are still usually enough comparable sales to determine a value that way.

Commercial properties are less often owned by someone who also lives in the property. This is more common among income properties that have 2-4 units but these are also typically valued similar to single family homes. Larger commercial properties are primarily purchased as investments so the income model works most effectively when valuing them.

That leads us to the last reason for different valuation, and that is the type of buyer the properties most appeal to. Residential properties appeal most to owner occupants, who place the greatest value upon what other homes in their area have sold for recently. Commercial properties (especially larger ones) are almost always purchased by investors, who appreciate the importance of numbers (or at least should) and want values to be based upon the property’s value as an investment.

This last point is a big plus for investor purchasers of commercial real estate. We can often find bargains because properties that are expense heavy, under rented (value wise), or both are going to be valued accordingly. Motivated owners who don’t manage their expenses well or who do not perform updates that will command higher rents are often left with undervalued property.

A new owner who gets expenses under control and who brings rents up to market levels can often dramatically increase the value of a property in a short period of time. This ability is due to the income based value model for commercial real estate and is one you simply need to be aware of when looking for good deals.