Of course, one of the best ways to get a good deal as a real estate investor is to find a property that you can buy for under market. And, most of the time, when you find a property that you can buy for a price that is lower than it’s market value, you’ve found a motivated seller.
Keeping with the theme of last week’s blog post and website article on buying rental property from motivated sellers, I thought I would make a quick list of possible reasons why someone would be willing to take a lower than market price and whether this is a property to buy or not:
- The property is condemned and the seller has to get rid of it. The Globe and Mail had an article in it yesterday about how the City of Calgary wants grow ups cleaned up or destroyed. There are almost 100 properties that will have very motivated sellers if you were willing to buy those properties – but unless you are looking to develop the land those properties are on, that is a property you can buy for under market value that you probably don’t want!
- The house is priced under market because it needs a new roof and new wiring and the cost of making those repairs exceeds the difference between the price you’ll pay and the market value. In other words, you can buy the house that is worth $200,000 for $180,000 but you have to spend $35,000 to make it actually worth $200,000. That kind of motivated seller is not the kind you want to buy from. If, however, the house required $35,000 in work, and you can buy the property for $160,000 AND you happen to be friendly with an electrician that can do the wiring for a lower cost, then you have found an opportunity.
- The seller is desperate to sell because of divorce, job loss, another home purchase, or some other personal reason. We’ve already mentioned that this type of motivated seller is a good one to find. You are helping them out by buying their property from them and solving their problem – and you get a good deal on the property for coming to their rescue.
- The resale market is terrible, and houses just aren’t moving (sound familiar to you?). The house is really worth $350,000 but the seller doesn’t want to wait until 2010 to sell it, so they will sell it to you for $320,000.
Remember, when you are looking for properties that are being sold by motivated sellers, always find out why the seller is willing to take a lower price. If you find a property that you can pick up for less than a market price, DO NOT buy it unless you are sure you know why it is priced below market! If you need a reminder about why you should do that – just look at the pictures of the property we bought in Toronto from a motivated seller that was motivated to sell their property before it totally fell apart!