How to Sell Your House with Little or No Equity
In real estate, most homeowners experience problems when it comes to selling their house. The market does not work in our favor as anything can happen. A lot of people have invested in real estate with the old notion that the selling price always goes up. In Alberta, it does not happen. Albertans have learned the lessons based on the experience. The good thing, real estate investors have been creative and provided value to help these homeowners in a down market. There are three common pitfalls to avoid and one possible solution to consider.
- Buying at the Highest price
- The average person when buying a house becomes emotional. Most people were not trained or not aware that everything is negotiable. They are willing to pay the highest price just to get what they wanted. There is nothing wrong with that. However, real estate is the biggest investment that most people have and losing thousands of dollars is depressing. Buying at the highest price is a bad idea in real estate. The rule in real estate even if you plan to live for a longer period of time is to make money on the buy. The equity will give you a little protection in any market in the long run.
- Not knowing the real estate market in the area
- Most people rely with the realtors advice. We all know that the typical realtors make money by doing transactions. It is really important to have an experienced realtor in any market and knows the trend in the area. Moreover, make sure the realtor understands real estate investing not just real estate transaction for a commission. You want a realtor that will provide you the education and the resources about the market analysis. Realtors are valuable as they are active in real estate but it is important to pick the right one. They should give you the sold comparables in the last 3-6 months so that you know if you are buying an overpriced or undervalued property. If you are buying lower than the market value, you are getting a good deal.
- Approving the high interest rate that the banks offer
- Because of the emotions when buying a house, we accept anything that is offered. Banks are happy with the interest rates they get every month plus the mortgage penalty if you want to sell the house before your term ends. With the high interest rate, it slows you down building equity with your investment. In real estate, the market takes years and years to recover. It is a long-term investment and with a high interest rate slows down to pay off the balance.
A Possible Solution – An Agreement for Sale
Most sophisticated investors know how to avoid and solve this problem. When there is no/low equity in the property, the solution that sophisticated investors offer is to do the agreement for sale. For instance, the mortgage balance is 350K and the fair market value of the house is at 350K. It means there is no room for profit, realtor commissions, holding costs, and legal fees to pay the closing costs. The seller must come up of about 25K to close the deal and not a lot of people have that money. The solution is called agreement for sale. Sophisticated real estate investors are the ones who understand this strategy. Moreover, there are realtors, lawyers, novice real estate investors, and pretending real estate investors would be confused. It is important to talk to the right people and professionals with regards to this strategy. Most of these deals are killed by lawyers. Inexperienced lawyers in real estate investing may not know how to conduct this strategy effectively. There will be times where traditional methods don’t work and we must consider thinking outside the box and taking risks.
To Learn More about Agreement for Sale.
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