Real Estate Investor Beware- Are You Still Buying Equity?

Author: James Orr

In our current real estate market there are still real estate investors that purchase houses based on equity. While this strategy can still be profitable there are some things you need to consider.
First, you need to realize what the true value of the property is. In some markets, real estate values have declined. In some markets, real estate values have gone up. An appraisal completed one month ago, could be vastly different than an appraisal completed today.
If the seller tells you they purchased their house for $200,000 six months ago, you cannot assume that the house is still worth $200,000 today. This is one of the challenges of buying based on equity.

Another thing that you need to realize if you’re buying property based on equity is the amount of time it will take you to sell the property. If you think you’re going to be able to buy a property and quickly sell it you need to make sure that your expectations are realistic.
You can check with your local real estate professional to determine the average number of days on market. This, combined with your marketing expertise, will help you determine what you can realistically expect to sell the property in.

In our current market situation I would also had a backup plan in case the property does not sell quickly. One option would be to offer the property for sale to a tenant buyer. Or, you could consider renting the property to a renter.

Another option in our current market would be to take an option on the property. Although it is extremely difficult to do this with a property that is listed in the MLS, this can be accomplished when you’re dealing directly with a motivated seller.