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Real Estate Buying Tips | 5 Techniques To Buy Cheaper Than The Listing Price

Ever wondered how you could buy cheaper real estate? 

I have good news for you: Sales are all year round in real estate and you don’t need to wait for Black Friday!

Here are 5 techniques that will allow you to buy cheaper than the listing price

1 / Buy cheaper by negotiating

2 / Get a good deal by investing in a property that nobody wants

3 / Buy cheaper with a tenant in place

4 / Get a good deal by buying real estate at auction

5 / Buy where no one has thought to go

Setting the scene

The first thing you need to keep in mind is that a good deal in real estate comes from buying

Yes – doing work to add value to a property will allow you to rent higher.

Yes – It is also true that depending on the operating mode you choose (e.g. bare, furnished, seasonal rental, etc.), you will be able to optimize your cash flow.

BUT the listing price remains the first adjustment variable that can make your investment profitable… or not.

An operation that starts off badly is very difficult to catch up.

Hence the need to do the job well from the start.

But how do you know the right price?

The right price is above all the price that allows you to make your investment profitable.

Real estate listing prices are very often (if not always) set higher than the market value.

Buying at the listing price often leads to a gross rate of return of 5% to 6%, sometimes a little more.

In other words, if you buy at the listing price, as the rent will not be able to cover all the expenses related to the property, you will have to pay charges and taxes from your own pocket.

Here lies the whole point of buying at a price below the market value.

Getting the best price is therefore your main task.

Especially since you don’t know the price at which the seller bought its property.

5 ways to buy cheaper

There are 5 ways you can take advantage of buying your investment property for less than the listing price.

1 / Buy cheaper by negotiating

When you’re new to the real estate world, you tend to focus on the listing price of an investment property. 

If you start from this price to calculate the rest. It’s a mistake.

You need to list the costs of your project and estimate the rent you can earn.

From there, you will be able to figure out the price that will make your investment profitable.

You can then target properties in that range of price or negotiate to lower the listing price of potentially interesting properties to the price you set for yourself.

Everything else is irrelevant because the operation will not be good for you.

Negotiation is key, but negotiating is not always possible, especially if the seller is not willing to or if it has 50 offers in addition to yours.

So what are the criteria for successfully negotiating an investment property?

Criteria n°1: Avoid overheating markets

The hotter the market, the more difficult it is to buy below the market value.

For example, buying below the listing price will be tougher in big or medium cities.

Criteria no.2: Find a seller willing to negotiate

When a seller sells its property, it usually takes into account the negotiation margins and discloses a price that is significantly higher than the one at which it is willing to sell its property.

So don’t be apprehensive about setting a target price of 10%, 15%, 20%, or even 40% lower than the listing price.

However, the main question is – Can the seller lower its price?

There are many factors that can give the seller the opportunity to lower his price.

But the first thing I try to figure out from the negotiation is the number of years the seller has to repay its mortgage.

The seller will be less willing to sell its property if the capital to repay its mortgage is significant.

The more years it has to repay, the less negotiating room it will have.

Criteria n °3: Find a motivated seller

Sometimes the seller absolutely needs to sell (e.g. transfer, unemployment, divorce) or wants the transaction to happen quickly (e.g. as part of a succession).

When the seller is in a hurry, you will have room for a proper discussion.

Criteria nº4: Justify your negotiation with factual elements

If the property requires work, bring in a real estate expert for a quote.

Show the seller how bad the property is, and how high the cost of your renovation work will be.

Show the seller that if you have to add the renovation costs to the listing price, the price will be too high.

By doing this, you will be able to negotiate a price well below the original listing price of the property.

Keep in mind than saying “Yes, but there is work to be done” will in no way be the same as saying “According to a professional quote, the work to be done costs this“.

2 / Get a good deal by investing in a property that nobody wants

Buying a new property below the listing price is almost impossible

On the other hand, you can opt for a property:

  • in a deplorable state, or
  • which has become a burden on the owner,
  • located in a strategic location,
  • below the market price.

Buy something cheaper that you can restore or have repaired easily:

These include, in particular, properties with design flaws, poor decoration or maintenance.

Here you can redesign the interior, improve the living comfort through insulation or add certain equipment.

Buy something that has become a burden on the owner:

In certain cases, the owner is very keen to sell and get rid of a complex relationship with its co-owner(s) (e.g. possible conflict).

There’s nothing better to save and make money on a real estate investment than choosing an asset that no one wants.

The quality of the location will remain key, both for rental and for possible resale.

So by adding the cost of the property to the cost of the renovation and/or extra work, you will always be at a lower threshold compared to the market price.

Use your imagination and, above all, have the amount of work correctly estimated.

3 / Buy cheaper with a tenant in place

Another way that will allow you to buy cheaper is to choose a property with a tenant in place. 

Acquiring an already leased property usually comes with a discount in the purchase price of up to 10-20%.

Note, however, that with this type of real estate investment, the rent of the existing tenant may be lower than the market price.

Nonetheless, you will have the possibility to increase the price of the rent at the end of the lease.

4 / Get a good deal by buying real estate at auction

Buying at auction is only for people who do not need bank financing, so this approach does not allow you to get rich by investing with bank money

But it is still an interesting option that real estate investors do not necessarily think about.

Properties sold at auction are usually offerer at a price below market value.

However, it is your job to ensure that the auction price is well below the market value.

5 / Buy where no one has thought to go

The last option is to look for a property where no one has thought of investing

I am not saying to go and conquer uncharted territory.

But rather to be imaginative about the use of the property.

What do an office and a short-term rental property have in common? Both are commercial activities.

You can therefore buy an unused commercial space and transform it into an apartment for short-term rental.

Buying an office will be cheaper than a regular property and from there you will be able to increase the yield by renting it out at a seasonal rental price.

This way of investing in real estate can easily generate cash flow, but requires some precautions.

You must ensure the feasibility of your rental project.

Check the local urban plan and the condominium regulations among others.

Make sure you know in advance what operations are required for such a change.

Conclusion

To be able to buy cheaper in the real estate market, you have to be creative

Going off the beaten track gives you access to incredible returns.

Cash Tips and Tricks 2020 - 2021