Monday, 16 March 2020

THE BEST WAY OF TRADING UP IN REAL ESTATE INVESTING

Every real estate investor started from somewhere and most often in areas that may astound those who look at the level they now operate at. We all often start most processes with baby steps since this is what is easily attainable. The same goes for many real estate investors. The first home or first real estate investment may not be an ideal location and the property may be small.

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Most starter homes are often a reflection of someone’s determination to own a piece of real estate and not a true reflection of their taste if they had the right amount of money. The moment circumstances, income and experience change, most real estate investors trade up.

Trading up is a term that is used to describe a property owner’s action of selling their current property in order to buy a bigger or better property, often in a better neighbourhood with better growth or value prospect.

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This often means that the property owner or real estate investor will spend more in buying the new property and would have to raise the fund by either borrowing or selling the current property and then adding some more money.

The current property is not sold because the investor wants to cash out but because the investor wants to use the current property to move to a higher level on the investment scale.

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There are many reasons why a property owner or investor might want to trade up. This could be as a result of space requirement. Some starter homes were built because the couple just got married and had a small family.

As the family and assets grow the building becomes too small for them and they need a larger home. Others need to trade up because of security challenges in their current neighbourhood.

There are also those who have moved higher on the social scale as a result of promotion or business success. They need to align their home to their status. There are also those who have discovered opportunities for a better return on their money if they could raise enough money to buy properties in certain locations.

There are challenges that could arise if the process of trading up is not properly and strategically handled. Some of the issues to consider are what should be done first and how do you raise enough money to finance your dream property? If you sell your current property without a replacement, you could end up temporarily homeless and the funds could be diverted into something else. If you start your property search without a clear funding plan, you might engage in a frustrating process because you cannot consummate your transactions.

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What you do first and when truly matters. There are basic preparations that you need to do before you proceed on this process. We highly recommend that you engage your solicitor and realtors in this process because you are attempting to do several things within the same time frame. In order to make their work easier, you should be very clear as to your intention and your budget. You should ensure that they understand why you want to trade up.

They should have an idea of your budget and how far you are prepared to go in order to achieve your goal. In addition to all these, you should ensure that your current property is appropriately priced based on market sentiments and not your financial needs. Generally, to go to a higher level, you should be prepared to pay more.

If you have alternative funding arrangements in place, you do not need to trade up. If you have enough savings or you have been pre-approved for a loan, then you do not need to bother about funding your new purchase. However, if you do need to access the equity in your property as a leverage to purchase the new one then you should consider selling the property first and having the funds sorted out before you intensify your search for a new property in your desired location.

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This is especially so if the real estate market is slow. During slow seasons, properties stay longer in the market before they are sold and you would not like to commit yourself to any purchase that could put you under pressure to sell your current home at a significant discount.

It is usually acceptable to negotiate your exit with the sale, especially if you are the one occupying your property. Once the agreement is being negotiated, you can include a time for you to handover possession after full payment of the purchase price.

This exit window would allow you some time to organise yourself and conclude your new purchase. It is also possible for you to rent another property temporarily to enable you transition to your new home at your own pace. (Punch)

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