Buying and selling real estate
When you buy property to sell in a volatile economic environment how do protect yourself buying the wrong property?
If you are a home owner and are just purchasing for yourself and or family lets say medium to long-term, being a 5 to 10 year hold, you should not be that affected in this economic environment. Values have dropped considerably so the equity some have lost, is your saving not necessarily your gain, as this is hypothetical until it is realised or sold.
The problems that could arise would change the security in the purchase where situations like employment, your business turnover dropping, a marriage split, health, accident of outside influences. Basically if your debt servicing ability changed and you had to sell that is the biggest issue.
Now lets look at the speculator or investor seeking quick gains in a quick flick situation. The real estate market has dropped and yes there are bargains out there but who is your target market. So you go to an auction and pick up some good buys way below market, in reality what you have just paid is true market value let’s be real.
You as a speculator still have to hold the property for a period until you resell, so do you cover your interest payments from rents you could receive. What do you pay as against what you could rent for or sell for? Even in these opportunities speculator are still being caught out.
Are the banks lending on these types of properties is there short-term funding allowing for the profit margins? Remember 90% of these types of lenders have crashed and burned, just ask the investors in those companies that lost their hard-earned money.
Look at a strategy if you can use the OPM method yes “Other Peoples Money” this could be the current owner on the title and perhaps you stick make an arrangement and take over debt servicing of their current mortgage and defer the settlemement. There are problems here if the original owner owes to much and can not settle with you, so do your home work. The other situation is the current lender will they roll the funding over to you? This will cost you so are your margins there? Or are you just ging to be a short term fix for the lender and end up down the toilet like the previous owner, this is common.
I would personally go in so hard with your offer that you can not lose any the rent will cover the holding cost or simply don’t do the purchase.
Investing is a punt and realising a profit is speculation, many have been burnt and many have built an empire only to crash and burn through greed. Between 2005 and 2007 the amount of finance that was pumped into real estate globally has taken a drastic thumping. Many speculators thought they had the answer I will buy these 3 here to make a margin to have my 4th one paid for, great deal job well done I’m a winner. Oh they were so wrong BANG the market dropped it was already over capitalised and nothing was driving it but greed. As finance went out the drop values had to go up as everyone was buying. Absolutely crazy debt servicing was beyond the realms of possibility and those that purchase with little or no equity in going have either crashed or are 120% geared on their property.
I was one of those greedy speculators and purchased by way of leveraging no money down just hypothetical equity on paper it was easy too easy, then BANG it crashed. Twenty years earlier you could do the same thing but the market did rise 10% per annum and the automatic rise in the market was predictable and we could sell on the bases that evet 7 – 10 years value would double and they did.
Well I am going to just keep up dating my views here as I have too let out all the frustration of having to build a property portfolio again. So watch this space.
Terry Cuthbert
June 2, 2010
Terry Cuthbert
