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Buy And Sell – 4 Ways To Profit From Property Transactions
There are 4 ways to profit from buying and selling properties. Most of us implicitly know them but never really spend time thinking about it. When you able to identify and break down these strategies, you can have a better focus on how you want to approach you strategies.
The first way is by referral. The middleman business has been around for as long as anyone can remember. It basically means that you bring buyers and seller together by way of referral or introduction. This means that you have to keep in constant contact with property agents and investors. You are not playing the role of an agent, you are just a referrer or introducer. Some people call these people “brokers”.
Big deals are commonly tied up by referrers. If a multi-million dollar company is trying to sell a property, a leak of their intentions can arouse suspicions from the public on the company’s financial performance. This is when referrers are pulled in to “sound out” to potential buyers. It is the quickest way to profit from property transactions with the least amount of work.
The second way is sub-sales. This was a hot activity in Singapore in recent years. New launch condominiums were bought by speculators and sold off at a profit before the condominiums were even completed. The investment is small as buyers only pay a down payment and mortgage installments over the period the property is being held.
It must be noted that the real estate market must be booming for you to make a profit out of this. Condominiums under construction will usually take between 3 to 5 years to complete. So that is just about the period that your property has to appreciate in value to make the sale worthwhile and profitable.
The third way is old fashioned buying and selling (B&S). This involves buying a property and putting it back up for sale without improving on it. This is most common when buyers managed to snag a property way below market value. They recognize this and listing it for sale immediately allows them to capitalize on the price difference.
Another way to go about this is buying a property at market price and selling it at a premium. How? Who is going to buy? An option is to find an overseas buyer who is not familiar with the local market and sees your property being good value. Maybe that’s why we are seeing so many property marketers marketing overseas properties in Singapore. You would think that if these are great investments, the locals overseas would have stuffed each of these properties in their portfolios.
The forth way is buying, improving and selling (BIS). Other than getting control of a property for cash flow and equity build up, this way is the most popular choice for real estate investors who has been around for a while. Investors understand that importance of creating value. It is somewhat similar to any business that provides added value. Just like buying ingredients for $2 and selling cooked food at the food court with those ingredients at $5. The value is in creating the dishes and making them conveniently available to people. This is why people will pay $5 for a meal fully knowing that the ingredients required probably costs only $2.
This takes up a lot of time. But can be worthwhile when you finally cash in the windfall. We can see this going on in Singapore all around us. Very small parcels of land can be bought be small developers who build up apartment units on the land. The apartments can then be sold for a huge profit margin compared to the costs involved. Some developers even build only 2 apartments on these small land parcels. This means that even with less than 5 apartments, property plays like these can be profitable.
As can be seen from the graph above, referrals usually have the highest volumes but least profitable compared to the rest. BIS also tend to be the most profitable but has a much lower volume. BIS also takes much more time to execute as well.
Depending on market conditions, sub-sales can easily deposit huge amounts of cash into your bank account. The secret sauce is that you have to be on the lookout to identify these opportunities to exploit them. You should also assess your risk tolerance to see which method suits you best.