Buy under-priced properties

Properties are different from other asset classes. Each property is to some degree unique, each owner is property is different.

The property market does not fully obey the one price rule that is the norm in near-efficient markets. Thus it is possible to buy property at a lower price than its worth. it does not automatically mean buying low priced properties.

However, buying below value is easier said than done, but the following ideas can help.

Accept some defect that is a big problem to other people, but that you can rectify. Sometimes a small imperfection (such as old paint or an aged kitchen) can draw a large discount. Example: If the property is in poor condition, you can renovate. If the house faces a junction, you can move the entrance. It helps if you are a repair person or can find workers who can repair or renovate inexpensively.

Buy foreclosed properties. Here the borrower has not kept up with payments so the financial institution is selling off the property to recoup the loan. It works especially well when the market is going up – since most financial institutions are rather lethargic, they often set the reserve price that may be a few weeks or months out of date. However there are extra complications that buyers should be aware of.
Example: A friend bought a property at 30% below market value at a foreclosure sale.

Caveat: Avoid cheap if you can’t solve the inherent problem. Example: the neighborhood is susceptible to flooding, or is a high crime area, the property is near transmission lines, or next to a substation.

Caveat: Make sure you have stable income to support the mortgage gap. An acquaintance bought numerous properties using commercial mortgages after becoming obtaining a high-income job. Unfortunately, he bought them all about the same time in 1996 and early 1997. When the economic crisis of 1998 came, he lost his job. The property market fell by 50% and tenants were hard to get. Unable to service the monthly payments, he sought protection in bankruptcy.

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