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Buying property for capital appreciation

Buying a property for capital appreciation is a goal in the minds of many buyers and in a rising market upward price pressure is naturally occurring. However, if you want to beat the market it may be time to look at some specific types of properties that can give you more capital appreciation than the norm.

The first type of property is a renovation project property. These properties will normally be unappealing to most buyers and so will be offered at a lower price. The presentation may well look quite poor but it is important to see past that and consider how the property will look after you have renovated it. As for the reasons why a poorly presented property would be sold in the first place, well there could be several. It could be the property was rented out and the owner has no time or inclination to renovate it himself or herself. It may be that there is a lack of interest in the property overall. Or it may be the owner knows it would be worth more spruced up but does not want to spend money on it, or simply can’t renovate it due to lack of funds.

Despite the poor state of the property, there are several things to check for so you can be sure you don’t have a major headache on your hands. Things like wiring and plumbing should be intact. Poor presentation should not equal a bad state of disrepair. Still, if wiring or plumbing work is required then this will need to be noted and the costs associated with it also marked down so the eventual price paid can cover any such extra expenses. The key thing is to actually spend time and check for these hidden extras. 

Then there are the factors outside of the property. It may be worth walking away from a property if it is apparent the management of the overall project has failed. This would normally apply to condos where you may find that the common ways and other facilities have long been neglected. As nice as you can make the condo in question, if the rest of the building is in a bad state of repair then it will make your property unappealing nonetheless, and there is little you can do about the external features. The only caveat to this is if there is imminent new management coming in place or already in place that has vowed to clean up the common areas and get all facilities back to their former glory. Otherwise look for properties where the common ways and facilities are already in good shape.

With this covered, it is time to focus on the inside of the condo. It may need a new kitchen, new walls, a repaint, new flooring, new furniture, new appliances, new lighting and new curtains amongst other things. You will need to come up with a total amount required to be invested in the property to bring it back to market value, and this needs to be subtracted from the price along with another 20 per cent or so to cover all of your hard work and effort effecting the renovation itself. It is worth pointing out all the work that needs to be done to the owners so they can understand why the price needs to be so low. If a price reduction to the extent you need is not forthcoming then it is wise to walk away. After all you could buy a new property and save a lot of work if the incentive is not there.

Of course, it is likely the property was already discounted to entice you to take a look at it in the first place. If that discount is not enough, bearing in mind the above calculations, then it will be necessary to negotiate an even better price. If you can secure the unit for the said 20 percent discount as well as the cost of the renovations, then upon the completion of the work you will be able to sell it at full market price and make around 20 percent capital appreciation.

Another way to buy properties that will likely appreciate is to look for distressed or quick sales. These can easily be new or renovated properties, or they may require some work as per above. They can be found in the press or online, though it is to be noted many people use the words “quick sale” in their advertising without any discount to the price evident. 

Thus it is important to find the genuine quick sale sellers that have reduced the price markedly from the current market price. This would mean a reduction of 15 to 20 percent, or more if possible. The seller will likely have a debt to pay off or some other pressing need for the money. The debt may not be the mortgage for the property, more likely it will be other debts. Or it may be the owner simply wants to sell the property quickly in order to buy another property that may also be a deal of a lifetime and also requiring a quick purchase.

Since you will be the answer to the sellers needs, i.e. the one with the quick cash there is the possibility to negotiate the price lower still, but be aware other buyers may also be enticed by the low price so some competition may also be out there. The one thing you can offer is the speed. So be sure to have the cash in hand and be ready to buy at a moments notice. A purchase can easily take place in a few days, or even a single day. If you can offer speed like this, you may be able to get a better price and also beat out the competition. 

To find properties that are priced lower than the market look also to visit some agencies and register your interest in advance. Then when a renovation or quick sale property comes on to the market they may be able to contact you first without advertising in the press or in their front window. This will give you the opportunity to buy before anyone else gets to even know about them!