More fortunes
have been made in property than any other area. This is the case for most
countries in the world, and certainly for all the economically highly developed
countries. The great majority of people fail to make fortunes in property
dealing because they imagine that it takes a great deal of expert knowledge and
experience and a lot of capital.
Naturally, having
capital of your own for any business venture, whether it be property,
manufacturing or the provision of a service, would be a good thing. But you may
be surprised to know that the vast majority of people who have created vast
wealth for themselves through property buying and selling, have done so with
money which is not theirs.
Borrowing money
is one way of getting the capital needed to finance property deals. But an even
more attractive method, and one which is particularly appealing to those who
are not in a position to borrow enough money to finance the initial property
purchase, is to buy the property for a third party, using their money. And
taking a commission on the sale.
The way you make
your profit here is to ensure that you can source properties, such as
repossessions, which can be obtained at a significantly lower price than their
true valuation. You find one or more clients who are looking for a particular
type of property at in a specific price range. Finding these clients is not
difficult. The reason they will come to you and be prepared to allow you to buy
on their behalf is that you can inform them that you will obtain the property
they are looking for at a substantial discount on the true market price.
As an example;
you find a repossessed property which you can buy for £40,000. You can find out
from the general price of properties of a similar type in the same area what
the true market value of this property is worth. Once you are fairly certain
that the property is worth considerably more than you are able to acquire it
for you can have this confirmed by a professional valuer. The valuation fee,
around £120 including a survey, is well worth paying as this gives you a true
professional's written valuation. The survey is also very important in case
there is some structural problem of which you were not aware. This will
eliminate the danger of becoming involved in offers for properties which have
'hidden' problems, such as expensive structural repairs.
You find from
your valuation that the property which can be obtained for £40,000 has a true
market value of £55,000. You negotiate a contract with the mortgagee to sell
you the property for £40,000. You find a buyer who is willing to pay £52,000
for the property, a discount of £3,000 on the true market value. You then offer
your buyer a further incentive of paying his 5% deposit. This makes your offer
doubly attractive. Not only has the buyer already got access to a property at a
saving of £3,000 off the true open market value, but also has no deposit to
make (a cash saving of £2,600!).
Since the true
saving to the buyer is an overall £7,600, he is very pleased with the whole
deal. And, even after paying legal fees your profit is still in excess of
£6,000. This method of making money on property transactions is very popular
and employed by a great many people who make substantial sums without the need
for capital.
Of course, the
£2,600 deposit is actually paid to yourself. Because the buyer's lending bank
or building society will require this amount to be paid to them in order to
release the full £52,000 to you, you have to pay this amount, on behalf of the
buyer, directly to his the lender. In exceptional circumstances you may be able
to persuade the lender that the buyer has paid you directly, but this is not
normally allowed.
If you do not
have £2,600 of your own you can borrow it using the methods described in
chapter one. Remember, at the end of the day this money is paid from the
£52,000 which the lender ultimately pays you. So borrowing from credit cards or
a short term, high interest loan is a perfectly good way of realising this
amount for the cash deposit.
This type of deal
is called a 'back to back' transaction and the selling and buying from the
original mortgagee is performed on the same day. This means that you do not
actually own the property, the deeds are transferred from the original owner to
the new buyer and you, as the original owner's agent simply collect the profit.
An alternative to
this method is to raise the finance through personal loans and credit cards and
perhaps a second mortgage on your home and purchase the property for cash. This
method is particularly suitable if you wish to buy at auction. Property
auctions are a very good way to buy properties, usually repossessions, at a
price well below their true market value. The hazard of using this method is
that, by not finding a buyer in advance of arranging the purchase, you may take
some months to sell the property.
Of course you can
use auctions to obtain property on behalf of a buyer who will commit himself to
purchasing from you once you have secured a property. The auction method
normally allows you to secure a property for a deposit of 10% of the sale
price. You need only find this 10%, instead of the whole amount. After having
paid your 10% you usually have between six and eight weeks to complete the
deal. This gives you ample time to arrange a 'sub-sale' transaction, where the
final buyer obtains a mortgage for 90% of the price which you sell to him for.
Since your selling price is likely to be between 20% and 30% greater than the
price you have secured the property at, the final buyer's mortgage is enough to
pay for the property and give you a handsome profit. The final buyer's
incentive is great in that he has purchased a property at 10% lower than the
market price, and has no deposit to make.
Tips to help
increase your profits and ease sales :
When you obtain a
property have it cleaned and do any minor repairs which make the property more
attractive.
It can often be
worth your while to completely redecorate a property. The cost of a few thousands
pounds to do this can enhance the resale value and make the property much more
attractive to the buyer.
Make yourself
known to local estate agents and have them inform you of any repossessions
which are about to go onto the market.
Always act in a
professional manner when dealing with all parties concerned in selling and
buying. Project a smart, professional image and act like an experienced
property buyer, even before you get experience. If you feel there are points
you need to learn about, pick the brains of estate agents and surveyors.
Read all you can
about property valuation and the property market. Keep up to date by studying
all the estate agents' magazines and advertising newspapers.
Get onto friendly
terms with a surveyor and valuer, explain that you will give him regular work
in exchange for a discount. I normally get 20% off the usual valuation fee by
going to the same surveyor/valuer that I have used dozens of times over the
past few years.
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