Repossessed Property Sales Scandal - Proof of how it works!greenspun.com : LUSENET : Repossession : One Thread
If you want to know how the scandal works just read the extract below from a money making guide you can find at:
(Your views on this would be be appreciated)
CHAPTER ELEVEN :
HUGE PROFITS FROM PROPERTY DEALS -
USING OTHER PEOPLES' MONEY.
Borrowing money is one way of getting the capital needed to finance property deals. But an even more attractive method, and one which is particularly appealing to those who are not in a position to borrow enough money to finance the initial property purchase, is to buy the property for a third party, using their money. And taking a commission on the sale. The way you make your profit here is to ensure that you can source properties, such as repossessions, which can be obtained at a significantly lower price than their true valuation. You find one or more clients who are looking for a particular type of property at in a specific price range. Finding these clients is not difficult. The reason they will come to you and be prepared to allow you to buy on their behalf is that you can inform them that you will obtain the property they are looking for at a substantial discount on the true market price.
As an example; you find a repossessed property which you can buy for B#40,000. You can find out from the general price of properties of a similar type in the same area what the true market value of this property is worth. Once you are fairly certain that the property is worth considerably more than you are able to acquire it for you can have this confirmed by a professional valuer. The valuation fee, around B#120 including a survey, is well worth paying as this gives you a true professional's written valuation. The survey is also very important in case there is some structural problem of which you were not aware. This will eliminate the danger of becoming involved in offers for properties which have 'hidden' problems, such as expensive structural repairs.
You find from your valuation that the property which can be obtained for B#40,000 has a true market value of B#55,000. You negotiate a contract with the mortgagee to sell you the property for B#40,000. You find a buyer who is willing to pay B#52,000 for the property, a discount of B#3,000 on the true market value. You then offer your buyer a further incentive of paying his 5% deposit. This makes your offer doubly attractive. Not only has the buyer already got access to a property at a saving of B#3,000 off the true open market value, but also has no deposit to make (a cash saving of B#2,600!). Since the true saving to the buyer is an overall B#7,600, he is very pleased with the whole deal. And, even after paying legal fees your profit is still in excess of B#6,000. This method of making money on property transactions is very popular and employed by a great many people who make substantial sums without the need for capital.
Of course, the B#2,600 deposit is actually paid to yourself. Because the buyer's lending bank or building society will require this amount to be paid to them in order to release the full B#52,000 to you, you have to pay this amount, on behalf of the buyer, directly to his the lender. In exceptional circumstances you may be able to persuade the lender that the buyer has paid you directly, but this is not normally allowed. If you do not have B#2,600 of your own you can borrow it using the methods described in chapter one. Remember, at the end of the day this money is paid from the B#52,000 which the lender ultimately pays you. So borrowing from credit cards or a short term, high interest loan is a perfectly good way of realising this amount for the cash deposit.
This type of deal is called a 'back to back' transaction and the selling and buying from the original mortgagee is performed on the same day. This means that you do not actually own the property, the deeds are transferred from the original owner to the new buyer and you, as the original owner's agent simply collect the profit. An alternative to this method is to raise the finance through personal loans and credit cards and perhaps a second mortgage on your home and purchase the property for cash. This method is particularly suitable if you wish to buy at auction. Property auctions are a very good way to buy properties, usually repossessions, at a price well below their true market value. The hazard of using this method is that, by not finding a buyer in advance of arranging the purchase, you may take some months to sell the property.
Of course you can use auctions to obtain property on behalf of a buyer who will commit himself to purchasing from you once you have secured a property. The auction method normally allows you to secure a property for a deposit of 10% of the sale price. You need only find this 10%, instead of the whole amount. After having paid your 10% you usually have between six and eight weeks to complete the deal. This gives you ample time to arrange a 'sub-sale' transaction, where the final buyer obtains a mortgage for 90% of the price which you sell to him for. Since your selling price is likely to be between 20% and 30% greater than the price you have secured the property at, the final buyer's mortgage is enough to pay for the property and give you a handsome profit. The final buyer's incentive is great in that he has purchased a property at 10% lower than the market price,and has no deposit to make. Tips to help increase your profits and ease sales :
When you obtain a property have it cleaned and do any minor repairs which make the property more attractive. It can often be worth your while to completely redecorate a property. The cost of a few thousands pounds to do this can enhance the resale value and make the property much more attractive to the buyer.Make yourself known to local estate agents and have them inform you of any repossessions which are about to go onto the market. Always act in a professional manner when dealing with all parties concerned in selling and buying. Project a smart, professional image and act like an experienced property buyer, even before you get experience. If you feel there are points you need to learn about, pick the brains of estate agents and surveyors. Read all you can about property valuation and the property market. Keep up to date by studying all the estate agents' magazines and advertising newspapers. Get onto friendly terms with a surveyor and valuer, explain that you will give him regular work in exchange for a discount. I normally get 20% off the usual valuation fee by going to the same surveyor/valuer that I have used dozens of times over the past few years. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
-- Tony Hayter (Tony@Hayter.com), November 02, 2000