Many people realise that investing money in a repossessed house is a good way to make money and, what with the financial downturn predicted to continue through 2011, there will be plenty of opportunities around. And, when it comes down to it, buying and selling property is no different to buying and selling any other commodity – buy low, sell high. One word of warning, though, don’t believe everything you read! Companies promising you properties at, say, 70% below market value (BMV) are ‘having a laugh!’
Just in case you hadn’t noticed, we are currently in a depressed property market, which should be good for repossessions, shouldn’t it? Well, yes and no. There will be more ‘distressed’ sales around, that is folk that find themselves in financial difficulties are more likely to ‘hand in the keys’ and walk away from their mortgage, thus putting another repossessed house on the market. But, there will be a slimmer chance of you selling-on your bargain buy, no matter how well you have refurbished it. At the end of the day, a property is only worth what the buyer is prepared to pay – and in a property market loaded with repossessed properties, the buyer is king.
Nevertheless, there is still money to be made, certainly as the market picks up from 2012 onwards (that’s the forecast, anyway) you will be in a better position to sell any bargain-basement repossessed property you buy this year.
The Buy-to-Let Market
All the latest figures show a growth in the buy-to-let market, which, according to the Council of Mortgage Lenders, grew by 7% last year (2010). And given the continuing financial pressures it is likely that the figure will rise once again in 2011. That’s the upside.
The Downside is that, as with any burgeoning market, prices are being forced down. In this context you should place the word ‘prices’ with the word ‘rent.’ Average rents have fallen by 0.3% from the beginning of this year – the average rent, by the way, is £682 per calendar month. However, monthly rents are still 4% higher than they were at this time last year.
Having said that, it’s as well to remember that the buy-to-let sector is a legal minefield – which might explain why loans for buy-to-let aren’t so easy to come by. There are some sector-specific lenders but they are quite thinly spread. This doesn’t mean that buying a repossessed property to let is out of the question, what it means is that you will need to find a specialist lender and, above all else, ensure that all your legal ‘Is and Ts’ are dotted.
How Much Money could you make Buying and Selling a Repossessed House
Currently, repossessed properties are selling at around 5% to 10% BMV but it is possible to negotiate a price up to 30% BMV. If you are borrowing-to-buy, the 30% BMV price is what you need to achieve, although if you have ready cash even the 10% BMV could make you some profit, depending on how quickly you turn the property around. Don’t forget that at the moment you can’t rely on the quick turnaround of a few years ago, so you might not repay your loan as quickly as you thought. It pays to look at a good mortgage payment calculator.
A quicker way to make money from a repossessed property might be to rent it out. Fill your property with vetted, high-quality tenants and not only will you cover the costs of your loan, you could also make up to £500 to £1,000 per property each and every month.