Buying An Investment Property? Then Buy A Cheap One!

If you've decided to buy an investment property, you will really get your investment off to a flying start if you can find a cheap one. This doesn’t mean you should buy any property, just because it happens to be cheap. It means looking for opportunities to acquire a good property, in your target location, that for some reason, is being offered at a cheap price when compared to similar properties.

Buying at below market price does three, great things for your investment:
It improves the rental yield.
It provides a unrealised, capital profit once you have sorted out the property.
It reduces your risk of losing some of your investment capital, should there be a downturn in the market.

In my experience, it is perfectly possible to buy cheaply, once you have a clear idea of what you're looking for. Seek out a 10-15% discount to normal market value. Opportunities for bargains like this appear all the time, but you've got to look for them. Don’t just walk into your local estate agent, chequebook open, like a lamb to the slaughter, ready to buy the first property you're shown!

I've found three main opportunities for bargains:
Repossessions. These are properties where the borrower has fallen so far behind with the mortgage repayments, that the lender has evicted them and taken possession of the property. The lender then sells the property on the open market, usually through a selected group of estate agents or at auction.

From the point of view of the investor, repossessions are particularly good properties to look for, for three reasons. Firstly, repossessions are always vacant and sometimes cosmetically damaged. As a result, they usually sell at a discount to their true worth. Secondly, the seller is a financial institution and is unlikely to be indecisive and generally mess about in the way many private vendors do. Thirdly, being vacant, helps the transaction to go through quickly.

Properties requiring modernisation. It is surprising how many properties have been neglected for 30 – 40 years and allowed to fall into varying states of disrepair. This sort of property usually requires much more work than repossessions, to get them back into a good state.

However, modernisation can be very worthwhile, providing that the price reflects the necessary work.

Sometimes sellers just want a quick deal. This can be for all sorts of reasons. For example, when a house is being sold as part of a divorce settlement, when the seller is moving overseas or when the sale is being handled by solicitors as part of probate proceedings.

Whatever the reason, rushed sales often mean lower prices and you can take advantage of this.