Summary: Why settle for good, when you can make an investment great? Many who are new to real estate already know about cashflow. Few know about forced appreciation. Even fewer know about immediate appreciation. What is immediate appreciation? How do real estate investors use it to make a good real estate investment great? Read on to find out!
[Disclaimer: We are not accountants, lawyers, or financial advisors, so please consult your own team of professionals about the topics covered in this article.]
One of the reasons real estate is so popular as an investment is there are so many different ways to make money with real estate.
Most people know about cashflow. This is the income you make from a rental property after paying all the expenses, including the mortgage. People love cashflow because it gives them an alternative source of income if their primary source dries up for whatever reason, for example, COVID!
Few people know about forced appreciation. This is a type of appreciation that you can achieve that isn’t reliant on what’s going on with the real estate market. An example of this is adding a mother-in-law unit above a garage and renting that out separately, either as a long-term rental or even a short-term rental. When you increase a property’s income like this, or add additional square footage, the value of the property is going to increase.
Even fewer know about immediate appreciation. So what exactly is immediate appreciation and how do you get a property to immediately appreciate?
What is immediate appreciation?
Immediate appreciation is when you can buy a property at a discounted price.
This is what happened when we purchased a 160-unit property at the end of 2021 for $2 million less than the market value. How do we know the property was worth $2 million more than we bought it for? We got an appraisal on the property as part of getting the loan and that’s what the property was valued at when we bought it.
Many of the students in our course also buy properties at a discount. We even had one student negotiate a $200,000 discount on a 14-unit property! More commonly, our students are able to get four-figure to six-figure discounts.
How do you get a property for a discount?
There are several ways to get a property at a discount and achieve immediate appreciation.
The first way is to find a great deal. It’s not uncommon for agents to mis-list properties or simply under-price them.
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Mis-listing a property is when an agent leaves out critical information about a property. Oftentimes this is due to a careless mistake. For example, we had a student who bought a property that had an extra unit that was not even on the listing. He only found out about the extra unit during the inspection. So ultimately the true value of the property was higher than the list price.
Under-pricing happens when an agent fails to accurately gauge the true value of a property. This often happens as a result of failing to carefully analyze comparable properties. It can also be due to the agent failing to take into account changing market conditions. Whatever the reason, the property is clearly worth more than the list price. Many of the properties we buy fall into this category. If you have a trained eye, these properties jump off the paper as great deals.
The second way to get a property at a discount is to negotiate with the seller and get a discount. Surprisingly, this approach isn’t as commonly used by investors. We even had real estate agents tell us that negotiation is unethical. If you’ve ever taken a class or read any books on the topic, you know that there is nothing unethical about negotiation. Now there are unethical negotiation tactics, but that’s not what we’re talking about. We’re simply talking about a seller and a buyer agreeing on a price based on negotiation. In the case of many of our students, they are able to come to terms with the seller on a lower price or some other seller concession. In the end, both the buyer and the seller are perfectly happy with the outcome.
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How Often Can You Successfully Negotiate a Discount?
The answer may surprise you, but with the proper training, there’s a very high likelihood that you can negotiate a discount on investment properties.
While we don’t have statistics to back it up, we do have plenty of anecdotal evidence that you can negotiate a discount the majority of the time. This might be surprising to most who are reading this. However, it’s not really surprising once you understand the seller’s psychology.
When you’re selling an investment property, price is oftentimes not the most important factor. How quickly you can close or the certainty of closing is more important for many investors. Once you understand that, it’s not surprising that sellers will give buyers a discount in order to keep the deal moving. Most sellers don’t want to start the process over with a new buyer. If the speed of closing is important, you’ll give the buyer their discount so you can proceed to the closing process.
Great Deals Aren’t Just Found, They’re Made
You might have heard people say this before and not have understood what they meant.
When it comes to real estate investing, this means you can make a good deal great by negotiating and getting a big discount.
By doing this, you’re tapping into yet another way to make money with real estate. This instant equity you get can be significant. You just have to believe you can achieve it and then go out and do it!
