How to Know What is a Good Property Deal
How do you know whether a deal is a good deal or not? Well, today’s article will be answering this question in detail and in the simplest terms as possible.
There are three things that you want to do when buying a house and this is possibly the most technical part of the crash course.
I did fail in school but believe me, I learned these formulas and it has changed my life.
Buy Below Market Value
If you’re buying a property, you want to buy it below market value and never pay the full asking price on a house below market value.
When you ring up an estate agent, what most people do is they’ll go and view 100 houses and just offer on everything and that’s stupid as you don’t want to do that. When you ring up an estate agent, you want to tell them that you’re looking for properties that are below market value up front.
If you also find a property online, you can ring up the estate agent by saying, hey I’ve seen a property on the market for a hundred thousand pounds on church road and they’ll say, yes how can I help you?
You’ll go ahead and say, to be honest, I’m only likely going to be able to offer about 90 000 pounds and I don’t want to offend anybody but is it worth me booking your viewing or not?
If they say no, it’s not worth booking a viewing and they’ll never accept that offer, then don’t book a viewing and go looking for other deals.
Buy Property with Good ROI
ROI refers to the money that you’re putting into a deal and needs to give you a good cash return. If an investor asks you if you’d be able to find them a good BMV deal with a high ROI, you should be like, yes of course!
That shows that you’re speaking my language whereas previously, you would have been like, maybe.
I’m going to show you how to calculate and how to work out the return on investment the smart way because a lot of people do this the wrong way.
The average house price in the UK is around 240,000 pounds however, let’s just say that we find a house for 200,000 pounds, we are going to rent it out for an average rent of about 800 pounds per month.
And so, how do you work out what the return on investment is on that house? Well, you need to take the annual profit divided by the total investment times 100.
Unless you know exactly how to calculate the return on investment, no one will ever buy a deal from you because when the first thing you’re going to say to an investor is that you found a really good house and don’t know how to calculate the market value and the return on investment, you’re finished!
If you’re buying a house for 200,000 pounds, you’re not going to buy the house for cash as you’re going to get a mortgage on the house.
The deposit is going to be about 25 percent which is 50,000 pounds and that is part of your total investment. However, you are also going to need tax and legal fees such the stamp duty.
You’re also going to have to pay a solicitor about a thousand pounds plus you’re going to have to potentially pay a few hundred pounds to a mortgage broker if you’ve got a broker.
Nevertheless, stamp duty works on a sliding scale depending on the house and whether you’re a first time buyer, a second time buyer or buying through a company. It could be five percent or two percent but four percent is the average.
Therefore, the deposit is fifty grand and the stamp duty fees is four percent. That means you’re also going to need 8,000 pounds making your total investment to be 58,000 pounds to buy a 200,000-pound house.
Expected Capital Appreciation
The last thing you need is expected capital appreciation.
If you can find properties that tick all of these boxes such that they’re below market value, they’ve got a good return on investment and there’s expected capital appreciation in the area, you will succeed in this business.
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