Rick Otton On Seller Finance
A Fairfax Media survey revealed that many economists believe majority of home values in Australia are overvalued. Despite that, very few expect a bubble or a crash looming.
Although the article goes through great lengths to explain why a crash is unlikely, the survey isn’t exactly music to the ears for many. At the end of the day, first homebuyers are being priced out of the market. In addition, for local investors, high house prices make it very difficult to build a portfolio and to profit from it.
Of course, predictions are not set in stone. Even Meryl Lynch’s Saul Eslake mentioned that the possibility of a correction is still “quite real” even if it is unlikely.
In other words, no one can truly be sure what will happen next. A prediction only becomes valuable when it comes to fruition. And if you are going to react after things have happened, then it’s already too late.
A good investor doesn’t gamble on the future. Rather, a good investor has a plan geared towards different outcomes. In that way, he/she is always in a position to make money whether the market rises or falls.
Having this kind of flexibility is especially important when home values are high. Remember, the more you invest on a property, the harder it is to make profit. Moreover, if a crash suddenly happens and home values drop, people who paid the most for properties and committed to high mortgages are the ones at risk of ending up in negative equity.
Therefore, how you enter the property market is crucial. And this is where I feel seller finance is very useful for local investors who want to build their portfolio without risking their financial stability.
For instance, rather than take out a new bank loan, the buyer may negotiate to assume the existing financing and pay the remaining equity in increments. The flexibility makes it more convenient for the investor to make the purchase. At the same time, a seller will be able to move away from unwanted debt much more quickly. This presents a win/win for both parties.
But this is just one example of how to use seller finance. Tune in to the weekly podcasts where we discuss real-life situations and solutions to common property problems. Be sure to subscribe to catch all episodes, transcripts and useful updates.