When To Get Involved In Negative Equity Property Deals
To be honest with you, negative equity deals are a pain to those who own them. After 2005, this has become a bit of a recurring problem with properties in places such as Northern Ireland being more affected than most parts of the UK. People who own negative equity properties find it extremely difficult to sell or even move.
This drags them further into financial crisis unless a shrewd investor such as yourself comes along and sees the opportunity in dealing with negative equity properties.
What are negative equity properties?
A property is said to be in negative equity when its value is less than the mortgage attached to it. For example:
If you bought your property when it was worth £180,000, with a mortgage of £150,000 but it is now worth £110,000 then you are squarely in negative equity. This issue is often brought about by falling property prices and could happen to anyone of us.
When should you get involved in negative equity property deals?
When you find the right deal
This has to be your guiding light in all that you do as far as property sales are concerned. If you find a good deal that has great projections for returns, then you should definitely get involved. In negative equity properties, the owners are often eager to sell meaning that they could let it go for a steal.
If you have good credit and way to cover the outstanding mortgage, then you should definitely get involved in this kind of deal. You will get a house that is inherently worth much more than it is currently valued at for far less than you would typically pay for it on the normal market.
When you have a plan to turn it around
It is not wise to buy bad debt. If you do not have a plan to turn the property around, then you should NOT get involved in a negative equity deal. But if you are an HMO dealer and think the property is located in the right place and has come along at the right time, then maybe you should buy it. Provide you will be able to turn it into an HMO, get some money from it and pay off the mortgage.
If you like attending property events and meets, you may have come across Rick Otton, who has bought negative equity properties in the past and then sell it for profit later down the track. One of the things he points out is to always have an exit strategy before buying anything.
So yes, it’s possible to make something out of negative equity properties when you have a concrete idea of what you want to do with it. But if you don’t have a clear plan, then you may end up taking more risk than you can handle.
When your projections show that the market is due for an upswing
Properties go into negative equity because of falling property prices. But if recent times are anything to go by (and they are) these tough times do not last forever. If your projections show that the property market is set for an upswing then you can find the right property in negative equity, buy it and just wait for the upswing to make a profit.
Getting involved in negative equity property deals can be a risky affair, but if you know what you are doing and how you can turn it all around, buying up these properties can be one of the best decisions you ever make as a real estate investor.