Property Investors are often viewed in a negative light because of historical investors who lacked integrity. Property investors full a very important part of the real estate industry. We are addressing the top 4 advantages of dealing with property investors on Day 20 of the #21DayPropertyChallenge.
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When meeting with sellers, it is very important to understand the value that you are providing. Very often investors are not able to articulate their value, which turns sellers back to what they understand better – Estate Agents. This option, however, is not always the best solution to solve their problem.
These advantages present here should be studied and rehearsed until they form part of every investor’s vocabulary. Use these when talking to sellers to explain to them the value that you are bringing to the transaction.
It is almost a given, if an investor has been called to meet a seller, the house needs some work. Either it is in a very bad state due to major neglect or the seller just isn’t able to update the condition of the house.
Property Investors are always looking for properties where there are upgrades to be made. This is the value that you provide.
Real estate agents are not always able to sell “Fixer-Uppers” as generally, they sell features and benefits of the property. An investor has a vision of what they can achieve with the property, once work has been done to it.
Sellers do not have to spend any money or effort on upgrading their house and “making it ready to sell”. They can sell As-Is and the investor will do the upgrade.
It should go without saying that investors offer a net price. This is the value that the seller will receive (less their expenses of settling the bond, municipal rates, etc).
Generally, Estate Agents will charge 5% plus VAT (of 15%) which gives a total of 5.75%.
Thus, an investor will already be buying the property at 5.75% below market value, just by dealing directly with the seller.
Always Remember: If an agent introduces an investor to a seller, you will need to pay the agents commission. That is integrity.
There are no Estate Agent fees involved in a transaction when an Investor deals directly with an Agent.
Let’s just suppose that a seller plans to sell their house. They contact an Estate Agent who lists their property. This takes 3 months for the Agent to find a buyer, then a further 3 months for the title to be transferred. 6 Months in total.
For example, the seller has a R1 million bond registered on their property with an approximate R10,000 monthly repayment. Their municipal rates are R850 per month plus refuse removal of another R300 per month.
Don’t forget that there is also water, sewerage and connection charges, Electricity and network charges on top of all of this. Water and electricity are usage charges (based on consumption), but the connection and network charges are paid regardless of usage.
Take all of the above charges into account over 6 months, excluding the water and electricity and the connection charges, the total holding costs are R62,310. (There will be a portion of principal payments that will be made in the monthly bond repayment which would be difficult to estimate as this changes depending on how far the mortgage bond has been in effect).
An investor could make an offer before the seller lists the property and arrange for early occupation of 2 months (Seek legal advice before pursuing this type of transaction). This would save the seller R51,925.
On a million rand property that is an additional 5 % saving.
From number 2, take that 5.75% saving and this 5% saving, that is already a 10.75% below market value saving.
For the seller, holding costs can become quite substantial if they are unable to find a buyer quickly.
Creating a deal that is win-win for the seller and the investor is essential for both parties. With a good knowledge of the industry and the options that are available to them, Investors can help the seller with a solution that will work for them.
Let’s look at a few examples:
- The seller is not ready to move yet as their new house isn’t ready – The seller can remain in the house while the investor begins renovations on the property. Or perhaps they need to apply to the council for zoning changes to take place.
- If the seller is not able to maintain their monthly repayments – the investor can take early occupation and pay these instalments as part of an occupational rent.
- The house is vacant as the seller has immigrated already – Instead of a vacant house being vandalised, the investor can take responsibility for it.
- Under certain circumstances, investors can inherit an illegal tenant and perform the evictions.
- The advantages are endless
Presenting a solution that will work for all parties involved can be a massive benefit to working with an Investor.
Always remember what value you are adding to the real estate industry and the advantages that property investors bring. When you act with integrity, you will always make a success and provide a solution to the problem.
Can you think of other advantages that you can add to this? Help out the community with as many as you can think of, to remind everyone about the value that Investors being. Join us on the Forum to share your stories.