To be successful in Real Estate you have to know how to buy real estate below market value, and buy properties that make sense from the day you buy them. You need to have an exit strategy and ideally alternate exit strategies for your home purchase. Finding a great deal on your next investment property is only the beginning of your investing journey. Check out our other Blog posts to learn more.
First we will discuss what market value is and then we will discuss 6 ways to pick up your next property at a discount. These include buying; Listed Properties from agents, off market properties, HUD Homes, Auctions, and REOs.
What is Fair Market Value?
Market value is the price at which a particular house will sell in its current condition in 30-90 days. The price is determined by the market or the interaction of a buyer and seller, thus it is not fixed like the price of an item at a retail store. This makes real estate investing and buying property at a discount a very profitable opportunity. Remember that if you are looking at a property that needs repairs you can’t just subtract the repairs from the estimated market value. You need to get an even lower price otherwise you aren’t buying below market value. Check out our Post on How to Determine Market Value
The 5 Ways : How to Buy Real Estate Below Market Value
- Buy Listed Properties from Agents – Learning to work with agents can be a good way to acquire discount property. I work with several agents in St. Louis and build relationships with them as an investor buyer. They know when they bring me a property I will make an all cash offer and can close on the property when I make the offer. They also know my offer will not be at full price and that is okay with them. It may help them sell the listing that has been sitting either to you or to someone else.
- Buy off Market Property – Finding off market deals from Homeowners or from Other Investment Companies like Discount Property Investor (Current Inventory Here) is probably the easiest way to buy real estate at a discount. If you buy from a company like Discount Property Investor they do all of the leg work for you and find the best deals on Real Estate and provide them to you. Subscribe to this blog and view our latest inventory. Or if you are interested beginning to search for wholesale deals on your own check out our Free Wholesale Course. Here I discuss several marketing methods to get directly in touch with motivated sellers.
- Buy HUD Homes – HUD is the U.S. Government Department of Housing and Urban Development and their initial aim was to provide affordable housing (loans through Fannie May and Freddie Mac). If an owner defaults on the FHA (insured) mortgage, control of the property reverts back to HUD. Anyone can buy a HUD home but they typically offer properties to owner occupants for at least the first 10 days they are listed. If you are looking to move into the home for a few years this can be a huge advantage over other investor buyers. This is how I purchased a home at 55% of the retail value. Sold it 3 years later after doing only deferred and routine maintenance while living there. (Article with all Details Publishing Next week). To find HUD Homes you should contact a real estate agent and ask them to only send you HUD Homes in the areas you are looking to purchase. For all the details visit the HUD Portal they explain the entire process in detail or to view the properties visit the Homes for Sale Section.
- Buying at Auctions – When a property is foreclosed on by a lender the lender has to go through certain steps to try and recoup its losses before immediately taking possession of the property. This is one reason many homes are auctioned at the courthouse steps. You will need to determine when your local courthouse holds its auctions and be ready to do some research ahead of the auction. In St. Louis County we are required to have 10% of the funds as a deposit and to fully fund the purchase by the end of the day. Another type of Auction is on delinquent property taxes. In St. Louis City this auction is held annually. In many areas the owner has a redemption period to pay the taxes and interest. In St. Louis the tax auction can be converted to property ownership rather quickly with the help of an attorney. Contact your local municipality and ask about the real estate auctions to find out the specifics in your area.
- Buy REO’s – An REO is a Lender owned property or ‘Real Estate Owned’ by a bank, not all foreclosures become REOs as foreclosures are auctioned as mentioned above. Unfortunately for Real Estate Investors the banks often will try to recover their losses fully and may start the reserve or their bid on the home at a price that is above what you would be willing to pay. There are several ways to find REO’s. Contact the lenders directly and ask them to add you to their REO list, contact the attorney’s office that is in charge of the auctions and ask them for details, or contact a real estate agent in your area that is familiar with the process.
You will notice I didn’t mention short sales above. This was intentional, as I believe the short sale bubble has burst for investors and personally I don’t like buying short sales as the seller and the bank believe the property is worth less than what is owed…in order to negotiate a real discount on the value can be extremely difficult and time consuming as you need the seller and the lender to agree to your offer.
Overall, to learn how to buy real estate below market value can be a lot of work but can be extremely profitable. Remember the old adage, ‘you make money when you buy, you get paid when you sell’, well that means you have to buy right. If you have the time to invest in learning one of the techniques above, you will have no problem buying below market value. If you don’t want to invest that much of your time you can always find local wholesalers or discount property sourcing companies like Discount Property Investor. Check out our current inventory here.
Discount Property Investor is focused on providing bargain priced investment property to Real Estate Investors. As well as top notch advice on managing rental property and rehab or fix and flip projects. If you're looking to buy rental property deals below market value. Or income property for sale at a discount check out our current selection in the properties tab. Buy property the Discount Property Investor way!
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