Find investment property for sale below market value and you have found the key to making money in real estate.
This is by no means an exaggeration to sell you on this property investment strategy in real estate investing. The proof is not only in the theory of finding investment property for sale below market value but in the practice of many successful real estate investors.
While it is one of the best property investment strategies a real estate investor can use, knowing where to start and how to go about finding these kinds of investment properties can be a bit of a challenge without the right guidance and real estate investing tips.
Keep reading to become an expert on how to find investment property for sale below market value with our real estate investing tips! Learn how to find these investment properties as well as how to buy the best below market value property in the real estate market.
What Is a Below Market Value Property?
The value of an investment property for sale in the real estate market is determined in two ways:
- Comparative Market Analysis
- Investment Property Analysis
Comparative market analysis takes a look at real estate comps (investment properties similar to the one in question) in order to determine the real estate market value. However, the price found from comparative market analysis alone is not enough. Investment property analysis will determine the potential for return on investment. This could reveal that the investment property for sale is worth more or less than the price from comparative market analysis.
If a real estate investor can purchase an investment property for sale for less than the market value, then it is considered a below market value property.
Need help with comparative market analysis and investment property analysis? Sign up for Mashvisor now.
How to Find Investment Property for Sale Below Market Value
Keep a Close Eye on “Days on the Market”
Imagine putting an investment property for sale out into the real estate market. You’re hopeful a real estate investor will soon take interest, and you can get a good return on investment. As the days, weeks, and even months pass, your vacant investment property for sale starts costing you money, and you become desperate to sell to the next real estate investor, no matter the offer.
This is a scenario of a “motivated seller”: the kind of real estate property owner we will be seeking out for most of this guide on how to find investment property for sale below market value. If a real estate investor can find investment properties that have been available in the real estate market for a long time (too many “days on the market”), they can be bought for below market value. Keep an eye on the dates of listings for investment properties and look into the oldest ones.
Click here to find an investment property for sale in the real estate market.
Seek Out a Fixer-Upper Investment Property for Sale
A fixer-upper investment property for sale (that requires repairs within a real estate investor’s budget) can be a great below market value property. Some consider these to be a huge risk in real estate investing. As long as a thorough investment property analysis is done beforehand to ensure the after repair value and cost of needed repairs will still bring a good return on investment, the risk will be reduced.
Go After Foreclosures
A real estate investor can buy foreclosures at three different stages: pre-foreclosure, at an auction for investment properties, or when the investment property becomes real estate owned (REO). For investment properties that haven’t become foreclosures just yet, a real estate investor can reach out to the motivated seller. Investment properties like these will be labeled as “Notice of Default”.
At an auction, foreclosures can be bought for below market value since the bidding starts at what is owed in mortgage payments only. A real estate investor should take the right steps when buying foreclosures at house auctions to avoid paying anything more than 20% below market value.
For help with buying foreclosures from house auctions, read “Buying a Foreclosed Home at House Auctions: What Real Estate Investors Should Know”.
REO foreclosures are officially owned by the bank. Because these foreclosures cost the bank money to maintain, a real estate investor can usually pay what is owed in mortgage (below market value) and close on the investment property for sale quickly.
Related: How to Buy Foreclosed Homes from Banks and Why They are so Great
Invest in HUD Homes
An option for a below market value investment property for sale that is often overlooked in real estate investing is a HUD home. These investment properties are similar to the typical foreclosures in the real estate market, except they aren’t owned by banks. Rather, they are owned by the Department of Housing and Urban Development because the investment property was financed with an FHA loan.
This department conducts its own home appraisals of the investment properties, and most real estate investors find that they price the HUD homes at below market value.
Related: Investing in HUD Homes: The Basics
Advertise in Locations with Potential Below Market Value Investment Properties
Once a real estate investor finds a location with potential for finding investment property for sale below market value (more on how to do this below!), he/she should consider advertising his/her interest in purchasing a real estate investment in the area. Whether by the newspaper, internet, or passing out leaflets, a real estate investor who advertises in such a location becomes the first person a motivated seller contacts when he/she has an investment property for sale.
Turn to an Expert Real Estate Agent
Buying rental property with any of the property investment strategies becomes easier with an expert real estate agent. A beginner real estate investor, especially, should consider hiring a real estate agent to aid in finding and buying investment property for sale below market value.
Not only will an experienced real estate agent know where to look in the real estate market for these kinds of investment properties, but he/she will know how to negotiate even lower prices with the motivated seller. Of course, a real estate investor will have to budget for the commission fees of a real estate agent.
Real Estate Investing Tips for Buying Below Market Value Property
Now that you know how to find investment property for sale below market value, here are the top real estate investing tips for finding the ones that will get you the highest return on investment.
Tip #1 Invest for Positive Cash Flow
An investment property for sale may be below market value, but if it doesn’t have the potential to be a positive cash flow property, then it’s no good! Investment property analysis will allow you to determine the kind of return on investment a below market value property will bring.
Not sure how to perform the calculations of investment property analysis and return on investment? Mashvisor’s rental property calculator can do it all for you. Just provide the data, and the rental property calculator does the rest to let you know if an investment property for sale will have positive cash flow.
Click here to use the best rental property calculator to find and analyze investment properties.
Tip #2 Ensure Rental Demand Is High
A factor that greatly impacts the positive cash flow of an investment property for sale is rental demand. Will the investment property easily attract tenants who will provide rental income for positive cash flow? How can a real estate investor know? Investment property analysis will let a real estate investor know if tenants will want to rent the investment property for sale. Studying the neighborhood and the amenities will reveal if there will be high rental demand.
Another tactic to determine rental demand can be applied when choosing the location of an investment property for sale. Check local “For Rent” listings. How long have most of the rental properties been listed? How many rental properties are listed? If rental properties are listed for way too long or there are far too many, these are signs that rental demand won’t be favorable for an investment property for sale in such a location.
Tip #3 Don’t Choose the Wrong Locations for Real Estate Investing
Speaking of rental demand and locations, it’s important not to choose below market value investment properties in the wrong locations, it is really important. Sometimes bad neighborhoods or even nice rural areas have really inexpensive investment properties, but these locations don’t aid in the positive cash flow of rental properties. Be careful not to fall for the traps of these cheap rental properties. Know how to choose a good location for real estate investing.
Seek out locations that may be “bad” for real estate investing now, but show tangible proof of improving very soon. These will have below market value investment properties with even greater potential for equity growth.
Related: Location Location Location: What Makes for The Best Place to Invest in Real Estate
Tip #4 Look for a Well-Rounded Real Estate Investment
Even if an investment property for sale can be purchased at below market value, that shouldn’t be the deciding factor for a real estate investment. Choosing a real estate investment depends on many factors. A below market value property should have everything that makes for a good real estate investment. Take your time, do your due diligence and investment property analysis, and find a great real estate investment.
Find a real estate investment and analyze every aspect of it with Mashvisor. Click here to get started.
Tip #5 Avoid Fixer-Upper Investment Properties with Costly Repairs
Fixer-upper investment properties can be attractive below market value properties, but a real estate investor has to choose the right ones. For example, if comparative market analysis reveals that the real estate market value of a fixer-upper is $120,000, a real estate investor may think paying $100,000 is a steal. However, if investment property analysis then reveals that repairs will cost $20,000, this real estate investor would have essentially paid the real estate market value for the investment property for sale, rather than less. Always get an accurate estimate of the cost of repairs.
Tip #6 Don’t Fear Negotiation
With our real estate investing tips on how to find investment property for sale below market value, you’ll be dealing with a motivated seller. With a motivated seller, you have the negotiating power. Don’t be afraid to use it! Remember, a real estate agent can help you negotiate some of the best deals.
You can find an investment property for sale that is below market value. Know that it will take some time to learn the process and to find great real estate investment deals. Still, it is one of the ultimate property investment strategies for making money in real estate. Take advantage of it now!