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Strategy Two: Buy Real Estate Below Market Value

 

SNAPSHOT: Buying Real Estate Below Market Value

How It Works:
Using the strategies in this chapter, you will be able to identify real estate sellers who are willing to accept less than their properties’ fair market price. Most often, this is because they need to sell the property quickly or conveniently. Buying real estate below market value gives you a wide range of options, from reselling the property immediately at a higher price to rehabbing it, renting it out, or even living in it yourself. Best of all, you’ve reduced your risk, because even if prices fall or you find unexpected problems that need repair, the difference between what you paid for the property and its market worth provides a financial cushion.

THE UPSIDE:

  • Huge Potential Profits: Buying real estate below market value is probably the quickest path to wealth.
  • It’s Countercyclical: In leaner times, more property owners run into trouble with debt and you can find more and better bargains.
  • You May Actually Be Helping Someone: In many cases, you’re buying from someone who needs to sell fast, either because they’ve fallen on hard times, have had a recent death in the family, or need to relocate on short notice. By crafting a win-win deal, you can profit and help someone who needs it at the same time.

THE DOWNSIDE:

  • It’s Labor-Intensive: You will have to work hard to find and put together the right deals for you.
  • Moderate Risk: Though you can reduce your risk through financial analysis before you make an offer, buying real estate always carries some risk, especially at foreclosure, when you cannot inspect the home first.
  • Cash or Financing Required: Many below-market-value deals require very quick turnaround. This means you will need cash on hand or access to financing to take advantage of these opportunities.

Who Should Invest:
Buying real estate below market value is a great choice for investors who want to dramatically change their financial picture, have the time and willingness to do the learning and the work required, and can tolerate moderate risk.

This is also a great field for you if you’re outgoing and like to work with people. Buying real estate below market value is one of the most collaborative strategies in this book. You will need help from a wide variety of experts, from real estate agents to attorneys to building inspectors, lenders, and contractors. You’ll also want to get to know the neighbors in the area where you’re buying, as well as the sellers themselves. The relationships you build with all these contacts will be your single biggest asset as a below-market-value real estate investor.



Strategy Three: Invest in Income Trusts and Master Limited Partnerships