A little-known method of financing the purchase of real estat
Investments 3 February 2017 Krzysztof Sadecki
One of the 5 key elements of successful investment and purchase of property is the method of financing. Even if we find an opportunity that meets the remaining 4 conditions (location, condition of property, the motivation of the seller and price) and if we do not have the money for it (actually guaranteed the method of financing) – the transaction will not go ahead. Professionals operating in this market know about that. Authors of investment literature like Robert G. Allen and Robert Kiyosaki write about it.The method of financing is the key to success in buying property for your own need or as an investment.
Polish people finance real estate by two known methods:
1. Completely with cash (approx. 30%)
or 2. Bank loan (approx. 20%)
or 3. A hybrid of the two methods – (approx. 40%)
giving a total of approx. 90% of the market. We are not familiar with the other methods. However, there is a little known method of financing that gives far better results and allows you to purchase real estate for a fraction of its value. This has method worked (so far) for professional investors (and conscious individual investors) – but is available to anyone who can see the potential in them.
It does not require large cash outlay (sometimes it is not necessary at all), credit rating or help from the bank. This method is popular in the West – particularly in the US where it is used by a small number of buyers / investors (approx. 0.01% of the population).
If it were used instead of various government programmes “supporting” real estate buyers (and it really supports banks) everybody could buy property using this way and there would be no housing problem in Poland..
Each investor could start their investments from today, instead of building their credit score over years. Especially since most property seekers (the residence) are people aged 26-30 years, often without savings, with low credit worthiness or even the lack of it.
The method is co-financing by the seller.
It is a way of investing small amounts of your own money at a maximum amount of funds involved in the investment (of others – the seller). It is investing with the help of someone else’s capital for one’s own needs with the intervention of time that works for the benefit of the investor. Basically, the property owner (seller) spreads the price to the buyer for payment within a specified period of time. Here are two examples – comparing the results of investors using this method in combination with conventional investors (cash or credit).
EXAMPLE 1
As you can see, the cash investor is not able to achieve the result of the investor benefiting from this method. His profit is much lower and requires large financial outlays. In the second example, the comparison related to the investor taking credit. Here you can see even worse results because that investor is having to bear the additional cost of money (interest), not to mention the need to have credit worthiness.
EXAMPLE 2
In Poland, there are more and more such transactions being carried out – for several reasons. Firstly, the growing awareness of investors (buyers and sellers), and secondly a lack of cash or creditworthiness (i.e. just the absence or decreasing access to traditional forms of financing).
With this method, both parties benefit:
1. Seller – because he/she can quickly sell your investment, get a higher price and financial flow for many years.
2. Buyer – a greater return on investment than with traditional financing and no need to burden credit standing, no need to disclose their liabilities / debts (debt register), the repetition of the investment process, greater opportunity to negotiate than in a bank (greater flexibility) – e.g. the suspension of payments, payment amount , security, etc., the ability to obtain better financial terms than a bank for example. non-market installment, faster process of purchase and sale (ease of sale), the opportunity to achieve greater scale investment, or sometimes even allowing entry into the investment, no need to engage own funds, the possibility of releasing capital instead of it being frozen. The method should be applied in the event of no profit (or too low gain) for other forms of financing.
In addition, this method gives better results than traditionally negotiating the price down, because the price of the property (even if it were higher) would be paid only for a while (depending on how we negotiate the repayment period).
Therefore, in this case it validates the saying: „opportunity lies in the fact that, seeing what everyone else sees, you notice what no one noticed”.
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