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A Cheap Purchase Is Not Always a Bargain Buy

fixer-uppersThe really cheap properties are not necessarily bargain properties. A bargain buy (while there is no strict definition) is one that you purchase a lot below-market rate for the purpose of living or reselling. However, unless you can derive some real profit from the purchase, it won’t be called a bargain purchase and may remain only a “cheaply bought” property.

How to figure out a bargain buy?

As a buyer, you will always get your fair share of fixer-uppers. Each will present you an opportunity to make money either through reselling or renting. If renovated purposefully, they also offer you a moderately priced purchase in terms of your personal residence.

So how do you spot a bargain buy? How do you differentiate whether it is a bargain buy or just a cheap property which can’t fetch any kind of return on a later day?

Time-on-market

Bargain properties, without exceptions, lag well behind on the average time-on-market meter. For instance, if the properties in the neighbourhood are selling in 15 days’ time after being listed, you will find the bargain buys still in market after 4 weeks or more.

Tip- Just because they lie longer in the market does not mean they won’t sell for eternity so tie your shoelaces and run for them quick. After all, there are others looking for such properties just as well.

Vendor discounting

When you talk to the vendor and figure out that the vendor discounting is a lot higher than the running percentage in the market, you can assume that something is amiss. On probing further, you may get two reasons for it. Either the seller is opting for distress sale because he needs liquid cash pretty quickly or there is something disturbing about the property itself.

Why is the property selling below market value?

No I am not talking about ghosts in the hallway. Properties may suffer from several disadvantages. It can be a case of 1) easement or neighbours encroaching on the property. 2) Property falling in restricted zone 3) property showing structural faults (inspection can bring forth the underlying issues) 4) or may be the property is in an area where rental yields have declined drastically or capital growth has suffered for two cycles in a row.

Tip- in order to create a strong impression, sellers sometimes rent out properties to tenants at below-market price just before listing the property. It may be wise to talk to tenants beforehand.

Once you have ably spotted the reason why the property can be fetched for cheap and how you can make the purchase count, use your best abilities of negotiation to get a crack deal.

What methods do you employ to find if a property is a bargain buy?