How to Buy Real Estate Below Market Value

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It patently requires time, work and ability to get an incredible deal for land. Obviously getting profitable deal is one of the tasks of entire business. But here we will let you know how to make a profit on purchasing a property. Doing this obviously requires research, skilled transaction and complete dedication – still if one follows the given underneath techniques you can yield stunning achievement.

To be effective in Real Estate you need to know how to purchase land below the market value, and purchase properties that bode well. For this we will first let you know why individuals offer property below market value, what its real market worth is and afterward how you can purchase land below market value.

Why do individuals offer property below market value?

Nobody wishes to offer their property less than its value. If one is doing so then undoubtedly there must be some reason for that. In majority of the cases reason is time pressure. Choices can frequently be irrational and emotional in these circumstances. For Example:

– Facing budgetary issues.

– To share funds with legatee.

– Facing Foreclosure Problems

– Personal issues.

– Interested in another property.

– Migrating because of work issues.

Whenever you discover a dealer who is keen on Short Sale, it’s nothing less than a golden opportunity for you to confer the deal with the cost and contract terms in your favor.

In such cases, never be reluctant to make inquiries like: “What is the reason of sale?”; “For how long has the property been available in market?”; Knowing these details will give you a clear idea of how much room is there for negotiation due to which your deal will turn out to be simple.

What is its real market worth?

Market worth is the original cost at which a specific property will be sold in its present condition. The cost is determined by the business sector or at times it also relies on the interaction of a purchaser and dealer. Remember that it is not settled like the cost of an item at a retail shop. This makes land bargains at an exceptionally productive open door. There is only one way of finding the definite business sector estimation of a property if you are not an agent and that is by observing practically identical deals. You have to discover recent offers of comparative properties in surrounding areas for this. It is the most accurate way to do this on your own. Likewise the least demanding way to know the market value for this is to go for such service suppliers. They will take complete liability to provide you a beneficial deal.

Remember that if you are looking at a property that necessitates repairs then you need to get it in even lower cost else you aren’t purchasing underneath real market worth.

Approaches to purchase real estate below market value:

To purchase real estate most importantly get this clear that there are short sales below market value, there are Fair market deals, auctioned property and the off market properties that can be sold below market value. With a specific end goal to use benefits of purchasing real estate less than its market value, go for these properties.

Short Sales are a phenomenal hotspot for financial specialists. Short sales are possessed by private vender; however the vender has a commitment to pay the bank more than for the amount they are attempting to offer the home. With a specific end goal to sell the home, the bank needs to take consent to take less cash than they are owed. Truly, short sales take up to 6 months or even a year to close since sellers here don’t effectively hop onto a conclusion. They take their requisite time to settle on choice.

Fair market deals are homes claimed by a private vender who have reasonable play in the home selling decisions. They can offer it without including the bank in the basic leadership. It is harder to discover fair market deals in light of the fact that the merchant is generally not in a gigantic hurry to offer their home underneath market value. There are fewer situations where you can find a great deal on a fair market sale.

Numerous service providers go for a property that is never listed for sale since they expect that it might cost them not exactly genuine market worth and they could easily gain the benefit. These are off market properties, since they are not available to be purchased. It requires cash and investment to have the capacity to buy these sorts of speculation properties.

At the point when a property is dispossessed by a seller, so it’s obligatory for him to attempt and reclaim its misfortunes before promptly assuming responsibility of the property. That property is termed as auctioned property. This is the reason numerous homes are unloaded at the courthouse steps. So you should simply, determine when your local courthouse holds its auctions and grapple the most profitable deal from it as soon as possible.

In addition never let go the deals in which such terms are being used by the vender:

#Desperate Merchant

#Divorce

#Decreased Estate

#Distressed Property

#Induced Seller

Generally speaking, to figure out how to purchase real estate underneath market value all you need to do is a lot of work and sparing time in research, hence after adapting these techniques your deal can be extremely profitable.

Keep in mind the old expression, ‘you profit when you purchase, you get paid when you offer’. If you are having any trouble finding a great deal on a house, check out our site http://www.stopforeclosure.co.

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Source by Matthew Merenoff

Important Things To Know About Commercial Real Estate Loans

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Commercial real estate loans are considerably different when compared to residential loans. They actually are much more complicated as they carry terms and conditions that are very different when compared to that of residential loans. This is one of the reasons that most of the investors fear to venture in the commercial real estate market.

Smaller investors of residential real estate are typically limited to somewhere around four to ten properties that are valued in between hundreds and thousands of dollars before the lenders conclude that it’s the sufficient risk level and no further loans will be made. The loan requirements for commercial properties can significantly vary between the private lenders and banks. Also, the loans that are held in the portfolio of a single lender may vary based on the risks perceived by the lenders.

Commercial Bank Loans

Normally, the banks want you and you and your partners to come up with a minimum of about 20 – 25% of the property value as the down payment. For instance, if the property value is about RS 4 Cr, you’ll have to contribute about RS 80 Lakh- 1 Cr as the down payment. Also, the recent researches have shown us that, most of the businesses have failed because of the lack of adequate capital to meet the needs.

For that reason, banks often require the business maintain a significant cash reserve that can be drawn on if cash flow is not adequate to make the loan payments. This financial requirement is in addition to the hefty down payment. One strategy that some commercial investors use is borrowing as much money as they can (even at a higher interest rate) to provide ample capital to build out the business and thereby increase cash flow.

Private Commercial Loans

Private lenders or the non-bank lenders typically offer less rigorous requirements for commercial loans. There are a few lenders who require lower down payment (range of 10-15%). These lenders often agree to carry to the loan amount up to 20 or 30 years until it’s paid completely (in most of the cases). However, they charge the slightly higher interest rate when compared to banks (1% or 2% higher than bank rates).

But when you do all the maths, the higher interest rate might not look very expensive as it appears the first time. Calculate the cost of higher interest over the period of loan and compare it with the cost you pay to open a new loan (2 or 3 times as the balloon payments come due).

The emergence of private or non-banking lenders is challenging the banks on their traditional terms of loans. While the banks are continuing to tighten the requirements to sanction the loan, these private lenders are moving towards a larger share as it is making it easier to qualify. So, if you are looking for a smaller commercial loan (less than 15 Cr) or a medium loan amount (less than 35 Cr), consider taking your time so that you can find the lenders who can offer you the acceptable time and term constraints.

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Source by Pamlea Role

Six Economic Principles of Real Estate Valuation

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Real estate valuation is the process of estimating a single price one would realistically pay to own a particular property. The method for residential property valuation that is most familiar to brokers and agents, of course, is the comparative market analysis (or, CMA). This property valuation process involves an estimate of value based upon the sale prices for other similar properties (or comparables) within the local market area, and/or other similar markets.

When preparing a CMA, a minimum of three recently sold comparable properties and three comparable properties currently for sale, are typically chosen to infer the price of the subject property. Differences between the comparable properties and the subject property are evaluated to add or reduce value in the analysis, and to estimate a fair market value of the subject property by using a comparison approach.

Valuation of commercial properties (i.e. office buildings, apartment buildings, single family communities, and plots of land) is largely influenced by various principles of economics. These principles are not usually factored into the typical CMA report for residential properties. The objective of this article is to shed some light on these principles in because they can be applied to any property valuation effort. They are the basis of our focus in this discussion as we look at and summarize six applied economic principles that can help give you an idea of the impact they can have on the value of a property.

1) Anticipation

This is the expectation of future benefits. In other words, real estate investors measure the value of real estate investment based on the anticipated future income stream generated by the property. They are more likely to value a property on the income it generates rather than the perceived market value inferred by a comparative analysis, or the construction and land costs required to replace the property. The expected, or anticipated, income generation capabilities of the asset is the primary focus.

This approach is not a surprise to those that have some understanding of commercial real estate investing; However, it is not common knowledge to the average property owner or buyer. The focus on purchasing anticipated cash flows can help expand the understanding of value in residential properties as well. For example, instead of thinking “how much is the property worth now”, also think, “how much return would I purchased the property and rented it later”. In a competitive environment, this approach and knowledge can make all the difference.

2) Conformity

This is defined as the need for reasonable similarity and compatibility in a given location. Compatible land uses, for instance, may generate higher values than those with limitations imposed upon the property due to location.

For example, an apartment complex located in a primarily residential area will most likely have more value than one located in a highly industrial area. Savvy commercial real estate investors are keen to this concept, while many residential home buyers may not pay close attention to adjacent or nearby land uses. Taking a broader view of surrounding uses can provide a deeper understanding of value, or perceived value, from an investment perspective.

3) Supply and Demand

This principal encompasses both the scarcity, and the demand for the subject property. Although investment real estate with similar physical and economic characteristics can sell for similar prices, real estate valuation can be greatly affected (higher or lower) within a market that lacks reasonable balance between supply and demand.

For example, land in a metropolitan area where undeveloped land is scarce, would demand greater value than land in a rural area with large parcels of vacant land. Likewise, an apartment complex selling at a time when there is more than enough supply to meet the rental demand, would have less value to a real estate investor than the same complex during a time when the supply of apartments in the area is lower and does not appropriately meet the demand.

4) Highest and Best Use

This is an important concept that relates to the highest possible use, and the best possible use of a property, as opposed to its current use. In other words, when it is legally possible, appropriately compatible, physically possible and financially viable to modify the use of a property, the value of the same property can be significantly increased.

For example, an office building can be enlarged to add more rentable office space or a retail on the first floor; or, an apartment complex can add more units or add mixed use features to the community enhancing its value.

Commercial real estate investors and developers use this principle to create value and to enhance cash flow. The principle can also be used in residential real estate when a buyer or owner of a residential property evaluates the highest and best use of the land per the municipal zoning and building codes, and considers adding or expanding the property’s features and characteristics to enhance its value.

5) Contribution

This, essentially, means that the value of an income property can be impacted when it is physically, legally, and economically feasible to contribute more space to the property at a cost equal to, or less than, the marginal revenue that it generates. In other words, when value added offsets the cost of making the contribution or investment. In contrast to the principle of Highest and Best Use, this principle compares revenues or value to the benefits that the investment or contribution may produce. The question to ask after you’ve identified the highest and best use of your property is, does the investment or contribution required to achieve the highest and best use for the property make financial sense, or is it justifiable. You can add features to a home such as a pool and a deck, and you can add units to a multifamily building; The contribution question is, “will you be able to sell the home for the added value that you perceive you are creating, or will the new apartment units rent?”

6) Substitution

This is an opportunity cost concept. In other words, a rational real estate investor will not pay mor for an investment property than what the next best substitute with similar levels of risk will yield in financial benefit. For the residential buyer, owner or investor this means, examine all other options well. Often, residential home buyers fall in love with the first or second home they see, and can easily forego better opportunities as a result. This principle suggests evaluating and comparing numerous opportunities in the market before making a decision.

The six principles mentioned in this article are intended as an overview, to give you an idea of how other economic factors can affect the valuation of properties. While these principles are demonstrated in commercial real estate valuation, they also affect residential properties and should be observed when analyzing the value of any real estate property.

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Source by Ricky Trinidad

How Can a Good Real Estate Agent Help?

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Consider the option of going ahead with a real estate agent because he helps the buyer or the seller of the property in more ways than one. Key responsibilities of a good agent make the entire process smooth, transparent, and easy for clients. However, this proposition is fraught with risk because finding a good agent is often a momentous task. This should not discourage home buyers and property sellers from hiring a good real estate agent as he alone can make things hassle-free for you. Therefore, your focus should be to look for an agent instead of searching for properties listed on various sites. Once you have roped in a verified and accredited agent to work on your behalf, the process of buying or renting or selling a home becomes much easier for you.

Local market knowledge

Equipped with local real estate market knowledge, he provides information of relevant properties available in the area. He studies the options that suit your budget and forwards the shortlisted options to you. This saves your valuable time and money. If you are interested, he shows you the properties. He is familiar with the area you would like to live in and offers accurate information about local infrastructure, school systems, water and sewer charges, public transportation and other concerns that impact your decision to rent or buy a home.

Negotiation

He takes care of the tedious process of negotiating the best deal for you. With skill and expertise, he knows the trends prevailing within the local property market and the competitive prices for various properties. You can bank on him to ensure the best deal and save your hard-money. His commission is also negotiable in most of the cases, depending on the level of involvement and effort put in.

Representation

He acts as your representative throughout the entire buying or selling process and therefore you need a reliable person you can fully trust in matters of right price and the suitable property features you need. He follows your instructions, works tirelessly to minimise your daily involvement in the matter of sale or purchase and seeks your presence only when it is unavoidable – to screen the best options for closing the deal.

Legal assistance

His knowledge about local laws related to the buying and selling of property helps you avoid legal issues. It ensures a smooth deal without any potential conflicts. A legally binding contract is drawn up and he helps you with all the paperwork, referring you to the appropriate professionals for dealing with all the legal matters.

Network

As his up to date with current trends, he nurtures contacts and the professional network to flourish his business. This enables him to be aware of a wide range of available property in the area and suggest options to clients with the help of fellow professionals. Not having an intermediary will deprive you of this big advantage. There is a limit to searching properties online or seeking references through your contacts, but if you have an agent, then there is no limit to the options he can suggest with ease. Most of his suggestions come pretty close to what you look for.

Exposure

Having him on board ensures maximum exposure for your property. Years of experience built an exhaustive database of potential customers and he refers your listing or requirement to generate leads. Gives sound advice on the market value component to price it realistically so that it is sold faster. He provides a visual presentation of your property and suggestions to enhance its marketability and coordinates marketing and advertising of your property on various platforms. Besides, the previews and arranges a walk through each potential home, to show properties that match your requirements and answers all your queries at various stages of the engagement to keep you updated of the progress achieved and ensure your satisfaction.

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Source by Sanjiv Roy

How to Market Your Commercial Real Estate Loan Business

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All too often I see small business owners missing the mark with their marketing. Sure, it’s easy to do when you specialize in a specific industry niche and you spend your time engulfed in industry sector jargon. However, it’s best to put yourself in your potential customer’s shoes and think your marketing through from their perspective, addressing their most important questions. Your customers want to be able to trust you, to know you are looking out for their interests and that you don’t just see them with Dollar Signs in your sunglasses.

Below is a sample page, perhaps good for a website, brochure, email, or letter. Why not look this over and consider how you might form your own message. Use your own voice, your own style and remember you are talking to your customer across the table for the first time. You know what questions they will ask. Show that you care, that you are working for them, and will go out of your way to get them the best rates, and great service. Here is the sample:

Commercial Real Estate Loans

Are you looking to purchase an income property such as an apartment building, small office building, or retail center? Would you like to put several rental properties in your real estate portfolio into one commercial mortgage? Wish to find a suitable piece of land and develop that property? Do you need a loan for acquisition and construction?

Do you want to buy a business property with a business on it; a restaurant, carwash, service station, laundry mat, hotel, etc.? Are you looking for a commercially zoned property with a warehouse or industrial building on it? Are you expanding an existing business and/or want to own the property under your business rather than paying the monthly lease?

Are you in the agricultural sector, looking for specifically zoned farming property; land for a vineyard, orchard, or crop such as berries, vegetables, or flowers? We have significant experience to make this happen. Our area in Southern CA has one of the best climates in the world, and incredible top soil for growing almost anything.

We can assist with all types of commercial real estate loans including government-guaranteed loans such as FHA, USDA, and HUD. If you are looking for an SBA 7(a) loan or a CDC/SBA 504 loan for commercial real estate we can get it done.

We can assist you with traditional commercial mortgages, commercial bridge loans, or commercial hard money loans. We also have lines on non-traditional sources for hard money commercial real estate loans, which are custom tailored to you needs for complicated projects outside the normal scope of typical commercial real estate loans and mortgage offerings.

— — — —

Why not try something like this? Just because the Federal Reserve has raised rates doesn’t mean you have to let new deals and new clients move to your competitors. I hope you will please consider all this and think on it.

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Source by Lance Winslow

Selling Property without A Real Estate Agent

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I am going to sell my property without an agent. This refrain is being heard more and more these days as the Internet and real estate market evolves beyond the realtor-based transaction.

FSBO is an acronym meaning for sale by owner. The advantages of selling as a FSBO are numerous. With real estate commissions of six percent, you are looking at immediately saving tens of thousands of dollars in commissions. If for some reason this does not entice you, keep in mind you can use the savings to undercut the prices of similar homes in your area. This will move your house quickly off the market and let you get on with your life.

The key to selling your property is to be prepared. First, you need to find out the value of the property by looking at comparables in your area or trying an online valuation service. Once you have the value in mind, you need to determine whether this is acceptable. You also need to determine what you are really willing to accept as a sales price once haggling is completed. Always make sure you know your bottom line and stick to it.

The next step is list the property online on a FSBO site. Over 70 percent of homebuyers now find their properties online as the realize there is no need to endlessly drive around looking at homes that they may or may not be interested in. By going online, they can see what each home offers and then visit the appropriate property.

Given the use of the Internet by buyers, it is vital that you spend the time to upload pictures with your listings. You are only going to generate interest if the buyers can actually see the property. Every site allows you to upload digital photos and you should do so. Take care to show as much of the property as possible so that you can generate leads that are truly interested in buying.

Sellers wonder if they are correct to think they can sell their property without a realtor. With the Internet revolution, it is easy to do so and save tons of money on commissions.

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Source by Raynor James

Important Things You Need to Know About Real Estate

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Real estate property consisting of land as well as any physical property or improvements affixed to the land, including houses, buildings, landscaping, fencing etc. Tenants and Leaseholders may have the right to occupy or make use of anything within rented area depending on the terms and conditions told by the landlord.

There are Four categories of Real Estate market-

• Residential- Residential Property is used for living purpose. It includes new construction and resale homes. It can be a single-family house, condominium, townhouse, duplex, triple-decker quadplexes, high-value homes etc.

• Commercial- Commercial property is used for business/investment purposes. It includes shopping centers, strip malls, medical building, educational buildings, hotels, and offices.

• Industrial- Industrial property is used for manufacture or production of goods. These properties can be used for production, storage, and distribution of goods. It can be a warehouse, manufacturing building, Refrigeration/Cold Storage Buildings, Telecom/Data Hosting Centers etc.

• Land- Land is the physical surface with everything growing on or underneath that surface, anything permanently affixed to the surface. There are basically three types of land I.e leasehold land, freehold land, and agricultural land.

Real Estate Investing-

Real estate industry is the best for investment purpose. Nowadays, everyone engages in real estate investing by selling or buying homes. There are several factors you should consider like the location of a property if there would be the rise in property value while living in it or how the interest rate and taxes are going to affect you in near future? Location plays an important role if you have a prime location, obviously your revenue will increase. But first of all, you have to see the money in your pocket, whether you can afford or have to manage cash from elsewhere.

Some people do the buying and selling of property as a business, either they rent out their homes or sell it when the market price goes high. People have several homes and they rent them out to earn from that property. To do either of the action of renting out or selling, one should keep in mind about the current market scenario. Otherwise, it will be risky for your investment.

You can generate great revenue by investing in the right property at the right time. You should keep an eye on the market trends and the current rate of property for that. For this purpose, there are many options available online as well as offline. Many websites and dealer are there to help you out. You can contact directly to any broker or agent to take the deal up because only from the online medium you can get mislead. Agents are helping hand to them who are struggling for the property of their own interest. You should check the property physically before you take any decision.

The things you have to keep in mind before buying any property is what is your need, what is your purpose and the last but not the least is your budget.

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Source by Neelanshi Srivastava

Florida Homestead Real Estate Tax Portability Explained

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For those who have made a home in Florida and are considering a move to a new Florida home, one of the most important things to be aware of is the newly enacted Property Tax Portability Amendment which impacts Homestead property.

So just what is Florida Property Tax Portability?

A new Florida law allows residents that are moving from one primary residence to another to bring the built-up property tax benefits on the assessed value of their existing home along with them to their new home. This can mean up to a $500,000 decrease in the taxable value of the new home, and a huge annual property tax savings.

Florida primary residences are protected to a maximum percent increase in the assessed value each year by homestead legislation known as “Save Our Homes”.

Without the portability provision, if you moved you lost all of the assessed value savings created by Save Our Homes and your new home was assessed at current market value. The Portability Amendment literally made that tax savings “portable” so you can now transfer up to $500,000 of your accrued Save Our Homes benefit to your new home.

EXAMPLE: You sell your current Florida Homestead that has an Assessed Value of $200,000 and a Just (Market) Value of $350,000. $350,000 – $200,000 = $150,000 in Tax Benefit. You buy a new home for $400,000. The $150,000 SOH tax benefit is applied to the new homes Just (Market) Value to creates a lower Assessed Value.

So if you own a home in Florida and are looking into downsizing to a condo or if you have been living inland and want to take advantage of the great waterfront property prices on the coast, a dramatic change in property taxes may not be something to worry about. Those homeowners who sell one home in order to move into another full time, will find that the taxes on their new property are adjusted to reflect the savings from their old home.

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Source by Andrew Howe

“Wholesaling” Real Estate – What Is It?

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If you’re a real estate investor, you’ve either wholesaled properties or heard about others doing it.

In real estate, what exactly is a “wholesale”? Here are the basics:

  1. a property is purchased at a deeply discounted price
  2. no repairs or rehabs are done to the property
  3. it is resold to an investor who plans to rehab it and sell again for their own profit

Let’s break this down:

To purchase a property at a deeply discounted price, expect it to be in bad condition. The properties that need a lot of repair and have been neglected for years are the ones that are typically sold for very low prices.

How do you find properties that can be wholesaled?

  • Direct mail marketing gets sellers who call before they talk to anyone else. No competition deals are always the best.
  • Marketing also lets sellers know before they call you that you’re not an end user and won’t be paying retail.
  • To buy a lot of properties, you must talk to a lot of sellers. The nationwide average is that you must talk to 20 sellers before you buy a property. If you’re not finding these deals, you’re not talking to enough sellers. How many properties you want to buy will tell you how many sellers you need to meet with.

Why do sellers sell that deeply discounted? Many reasons, including:

  • Lived in it for years and never did anything to it (no updates and/or minimal repairs)
  • Moving to retirement home
  • Inheritance
  • Live out of state
  • Distressed and can’t afford to fix it
  • Burned out landlord
  • Hard for them to sell in this condition
  • Hoarders

What do you need to evaluate when making the purchase?

  • After Repair Value (ARV) – What will retail be? You need good comping sources to determine what the value will be after repairs.
  • What will it cost to rehab it to retail value?
  • How much can you pay to buy it?
  • Your purchase price must be low enough to allow both you and the next buyer to make profit.

What do you do to a wholesale property before selling it?

  • Typically nothing!

Why do wholesalers often get a bad name?

I think most people who have a bad taste about wholesaling either haven’t done it or have run into some who do it wrong.

I was a full time investor for 8 years before we began wholesaling. In 2013, my husband and I purchase a HomeVestors franchise – the We Buy Ugly Houses people – and we have been primarily wholesaling since.

To do it right, we spend money every month on marketing to the right people to get the phone to ring. Then we spend a lot of time with the seller crafting a solution to their problem. And we negotiate a price that allows us to resell to an investor who will rehab and still be able to make profit on the deal we sell to them.

Do all these steps, and people will respect you and come to you for deals. There is nothing wrong with wholesaling so don’t be afraid of it.

Is wholesaling legal?

Wholesaling is not a buying technique, but a selling technique. With wholesaling, you purchase the property for a low price. There is a closing with either a title company or attorney and you go on title as owner. You then mark it up a minimal amount and sell it to someone who plans to rehab and make their own profit.

It is not illegal as it is a normal purchase and sale – you buy it, own it, then you sell it. The only thing different between wholesale and a regular purchase is the low price and no work is done to the property before resell.

With wholesaling:

  • we are doing a service
  • we are a solution
  • we are helping people out
  • we are taking a terrible situation and making it better for these sellers

What can you add? Do you wholesale?

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Source by Karen Rittenhouse

Some Financial Aspects of Property and Real Estate Investments

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Property or real estates are not considered to be really liquid investment instruments since individual properties or real estates are not interchangeable. Therefore identifying land or real estate in which to invest can take a pretty high amount of time and efforts and much depends on how familiar the investors might become with the particular segment of the market corresponding to their interests. Real estate or land investors often use a variety of appraisal methods to make their lives a bit easier, by means of price comparison. The sources of information relative to prices may include: public auctions, private sales, public agencies, market listings or real estate agents.

Real estate or land assets are much more expensive than bonds or stocks. Therefore investors most often avail themselves of a mortgage loan that can be collateralized by the land or real estate itself. Accordingly we usually use the terms *equity* or *leverage* with reference to the money paid by the investor as opposed to the amount lent by the bank. Their ratio is called Loan-to-Value (LTV) which is considered to represent the risk taken by the investor. Most banks regard 20% of the appraised value as a minimum equity requirement. Quite a number of pension funds and REITs, or Real Estate Investment Trusts, regularly purchase land or real estate with *zero* leverage thereby minimizing their risks, but capping their Return-On-Investment (ROI) as well.

If the purchase of the land or real estate is leveraged, the necessary monthly instalments or “carry costs” might create a negative cash flow for the investor right away after purchase. In addition to possible positive cash flow elements such as those generated by depreciation, equity buildup and capital appreciation, investors might also partially or entirely offset the “carry costs” by means of the so-called Net Operating Income, or NOI. This technical term typically means *rents less expenses* and in countries other than the US it is often referred to as Net Cash Flow. The ratio *NOI/purchase price* is called the Capitalization Rate. It indirectly indicates in how many years the property or real estate will pay for itself in an interest-free financial environment.

E.g. if an investor has purchased a piece of land or real estate for $ 800,000 which generates a positive Net Operating Income of $ 40,000 annually, then the Capitalization Rate of the property is 5%. It shows the investor that the land property or real estate will pay for itself in 20 years in terms of net cash flows.

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Source by B Lakatos