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Mortgage Pre-Approvals & Motivated Sellers
Scott Picken
8 July 2005
In any market, the way to make money in property is to buy a property below market value. Many people think that the key to making money is to get a good selling price. However, it is very difficult to persuade someone to buy a house when you’re asking a lot more than the current market value. If this is how you expect to make a tidy profit, then you’ll find yourself holding the property until the market appreciates sufficiently.
The secret, then, is to make your money when you buy. Buying under market value means that you immediately have equity – or profit – locked into the deal. In addition, this gives you greater freedom to choose when to actually sell – you can even sell (or ‘flip’) straight away if you’ve found a really good deal.
So how does one buy a property below market value?
The answer to this question is that: (1) you need to do a lot of research, and (2) you need to buy from a motivated seller. There are always people who need to sell a property quickly and who are willing to accept a lower price if the transaction can go through quickly. For whatever reason, a motivated seller needs to convert his property back into cash, and avoid the possible repossession by the bank. When the banks repossess houses, they quickly auction off the properties at the minimum value needed to recoup the outstanding mortgage amount, regardless of how much the house is worth. Thus the seller is ‘motivated’ to make a quick sale for a price between the mortgage amount and the market value, to pocket the difference, and to avoid getting a bad credit rating. There are now websites available that list such properties up to 21 days before the ‘motivated seller’ is taken to court.
Another motivated seller might be a couple seeking a quick divorce settlement. In order to quickly get through the pain of the divorce process, they are happy to sell at a lower price and forget about the whole issue, rather than have the house on the market for months on end and be forced to deal with each other in the process.
Even developers can be motivated sellers. If a developer needs to make a few more sales before they can receive the construction finance, or if some of the previous buyers are unable to secure a mortgage, the developer will take a hit on the holding cost of the units.
In each case, you need to (a) find a motivated seller, and (b) offer them a quick transaction at an agreeable price, and the best way to do that is to have the finance pre-arranged, as this can take anywhere up to 3 months. In fact, even if you’re not buying from a ‘motivated seller’, having your finances pre-arranged is often enough on its own to get a slightly discounted purchase price, or at least to make your offer more attractive than another buyer’s offer at the same price.
The trick, then, is to get your finances set up before you start looking for a house. And the good news is that it’s now easier than you think! International Property Solutions (IPS) recently persuaded the South African banks to provide this service to their overseas clients, which now puts you at a major advantage considering mortgage pre-approvals have been unavailable for the past 18 months.
IPS is a London-based firm that offers a range of property investment services (including bond origination) and has a wealth of experience in helping South Africans in the U.K. secure mortgages for properties back home.
So if you’re going to buy while still in the UK or if you’re planning on returning home, it is highly recommended to arrange your finance before you start the time consuming process of finding your ideal property investment!
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