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Investors need equity to keep growing their property portfolios – but how can you speed up the process? Here are some more tips for manufacturing your own equity.
Blogger: Nick Burke, director, Property 4 Profit
So far in this Instant Equity blog series we have looked at three of the most popular ways of creating instant equity, those being Renovation, Motivated Sellers, and Building.
Today we examine three more ways you can achieve instant equity when you invest in property.
4. Ugly ducklings
I am currently considering a property for around $700,000, which is ugly as ugly can be. I mean it fell out of the ugly tree and hit every branch on the way down. But the value is in its potential. With a $500,000 renovation it would be worth about $2 million. You do the math.
In the local market, most people won’t see such potential, most people just see the ugliness, which is why the opportunity is available.
Generating instant equity through ugly ducklings is really a renovation strategy, and we have covered renovation before. But the numbers don’t need to be big and the renovations don’t need to arduous. Sometimes ripping out all the overgrown trees in the front yard and a lick of paint will be all it takes to de-uglify a property from the outside. And new floor coverings and paint on the inside can work wonders. It is very possible to generate 10 per cent equity merely by these sorts of cosmetic renovations which can be as little as a week’s work.
5. Buyer’s agents
A good buyer’s agent can be worth their weight in gold. Just as a good selling agent can, in many cases, negotiate you a higher price that more than covers their fee. Similarly a very good buyer’s agent can do the reverse. They can negotiate for you a discount that not only covers their fee, but also leaves equity in the deal for you. Of course each case is different so ask for evidence of the instant equity they have created for other clients they have previously worked with from any buyer’s agent before taking them on.
This can take many forms, and generally involves being super-active in a targeted area.
Being super-active can involve a huge range of strategies including:
• Befriending and networking with real estate agents so they know you, know what you’re looking for and come to you first when the right properties come up.
• Going door-to-door in your area asking targeted homeowners if they want to sell. This is what the agents do (or used to do more) and it works if you do it enough. If you find someone who is happy to negotiate without the intervention of an agent you may find that your experience and expertise in the area will work to your advantage in the negotiation process. I was once involved with a development site where the consortium of buyers made an extra five per cent equity simply by one of us knocking on doors and finding the opportunity.
• Friends, family, social and community groups all contain people who will want to sell their houses at some stage. Roughly six per cent of all properties are sold every year (according to the RBA). That’s 1 in 17. So being known as the property person amongst your friends and acquaintances means that you are likely to know about the opportunities before the agents do. People are generally much more comfortable to ask a friend with a keen interest what they think than taking the plunge and talking to a local agent, who may not be as well trusted.
This style of networking suits passionate people. People who live and breathe property investment, and are happy for all their friends to know it.
There are numerous ways of creating instant equity. None are particularly easy or common. If it was that easy, everyone would be doing it, and if everyone was doing it, the opportunities would not be there anymore.
In the next blog in our series on instant equity we will look at the least common and least understood method, but one that has the most potential, for the most investors.