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| Do you think this house would sell quickly? |
If you’re a normal homebuyer, the statement I’m about to make may shock you.
Price is of little importance when it comes to making a profit in real estate.
“Oh no he didn’t,” I’m sure you’re saying right about now.
Understand this, price is just a number. Price is not the deciding factor on whether you’re going to make a profit in real estate investing or not. Price is something every day homebuyers worry about. For them, it’s about spending the least amount of money, usually looking at monthly payments, and hoping to close the deal with a little equity under their belt.
For a seasoned investor, their only concern is making a profit – that’s it, plain and simple. It doesn’t matter if you spend more or less money as long as the endgame results in an increase of net worth.
Good Terms Rule In Real Estate
Personally, I prefer getting good terms in real estate over a lower price – as long as the price isn’t too high. They allow you to be flexible with your property which usually results in an easier sell or easier rent.
Example
Let’s say Johnny wants to buy a home. He doesn’t have a lot of cash on hand and with gas prices and food costs increasing faster than his paycheck, he’s worried about his monthly payments.
He finds two houses for sale. Both houses are the same model, are in the same basic condition with similar upgrades, and sit adjacent to one another. He immediately notices the houses are offered for sale in two different ways.
House A’s Offer – Lower Price
- 3 Bed, 2 Bath, 2000 sqft living space, 6000 sqft lot, great condition, etc.
- Price: $170,000
House B’s Offer – Better Terms
- 3 Bed, 2 Bath, 2000 sqft living space, 6000 sqft lot, great condition, etc.
- Price: $210,000
- Owner financing available for full purchase price with no down payment and no closing costs.
- APR to be set at 3%
While finding such a deal as house B is rare, it illustrates the benefits of getting good terms vs. low price. If Johnny where to buy House A, he’d spend about $17,000 for a 10% down payment, $4,250 for closing costs, and end up with a monthly interest payment of around $935/month.
However, if he chose to purchase House B, he would spend $0 for the down payment, $0 for closing costs, and only $525/month in interest payments.
In case you didn’t do the math, that equals a $21,250 in savings up front and $410/month in payments.
In my experience, most Realtors aren’t well versed in the many methods of getting good terms outside of seller financing or sellers paying closing costs for buyers. Remember, Realtors are not trained investors. Ask your Realtor for advice, but nothing works better than researching methods on your own, because no one looks out for your best interest better than you.
Investing-wise, if you purchase a property for investment and are able to get a “low price” but the seller doesn’t budge on the terms, try flipping that house for an immediate profit. If the seller gives you great terms but a higher price, that may be a good rental. If you get both, you choose.
Questions?
- Can you think of any other “good terms” ideas other than seller financing or seller paying the buyer’s closing costs?
- Refer to the picture at the top of this page. Would you rather purchase that house for $600,000 in the traditional way or receive the higher price with great terms?
Related posts:
- How To Buy A House Like A Real Estate Investor: Part 7 – Knowing The Right Method To Buy Under
- How To Buy A House Like A Real Estate Investor: Part 4 – Getting Your Closing Costs Covered
- How To Buy A House Like A Real Estate Investor: Part 2 – 7 Methods For Covering Your Down Payment
- How To Buy A House Like A Real Estate Investor: Part 3 – More On Dealing With Down Payments
- How Thinking Like A Real Estate Investor Can Help Business Owners Think Creatively and Profit
June 26th, 2008 at 4:24 pm
Hi John,
Good terms are often more important than the price. Let’s face it, often when people are buying homes, they want to spend the least amount of cash up front.
You’ve opened your readers eyes to other possibilities. I like that.
It was funny for me to see the phrase, “mortgage is assumable”. That certainly isn’t something we see too often. It makes me wonder if, with the current housing problems, if that will become a popular option again. What do you think? Or is that another post topic? hehe
Barbara Swafford’s last blog post..Bloggers Flunk The Reading Assignments
June 26th, 2008 at 4:42 pm
Hi Barbara.
True, most people want to spend the least amount of money up front; unfortunately, people who don’t know all their options tend to think that means “I need to get a lower price.”
This just isn’t so.
As for assumable mortgages becoming popular again, I think it would be nice – but who knows? If the lenders see a profit in it for them, they’ll do it. It just takes one or two of them to find and market the idea and when and if it became popular, all the others would follow.
For now, it never hurts to ask them to make it assumable during negotiations, it might make your house easier to sell down the road.
John Hoff’s last blog post..How To Buy A House Like A Real Estate Investor: Part 8 – Good Terms vs. Low Price
June 30th, 2008 at 12:19 pm
Hi John: I think a lot of people don’t think long term and don’t actually understand how all of the different factors that you mention here come into play. For some reason this post make me think of a speech by Rudy Giuliani where he explained that he was able to raise more money in New York by lowering taxes instead of raising them (because more people were employed and getting better salaries so in the end it amounted to more). People tend to just have a one-sided view about this sort of thing.
Marelisa’s last blog post..How Gratitude Can Change Your Life
June 30th, 2008 at 4:21 pm
Hi Marelisa – one other problem is the fact that many Realtors don’t fully understand the many ways in which you can buy a house and knowing all the options out there so as to better inform their clients and help them choose the best method to fit their needs.