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  • Writer's pictureMichele Correa

What is "Instant Equity" in Real Estate?

In most investment markets, prices are largely inflexible. For example, whatever the market value of gold is at a given moment, is what you are paying. Same with stocks - if Apple stocks are trading at 200 dollars, that’s what you’re paying. You can’t really haggle or ask for a discount. Real estate, however, is a different story. It’s not uncommon for properties to be sold under their market value. This leads to situations of instant equity, or in layman's terms, "making money in the buy."

Instant equity is a phenomenon that occurs when you purchase something at a discount. When you purchase a property for less than its market value, you automatically increase your net worth. This is because, if you were to sell or refinance the property later, it would be worth more than you paid for it, and you would gain the difference.

Because of this, properties that provide you with instant equity are a good investment. The equity you have from these properties can provide a financial buffer in case of problems with them. By "making money in the buy", you have that buffer to ride out any market fluctuations in the area of your property.

So, it seems obvious that buying at a discount is a smart decision. However, you might also be wondering why people would choose to sell their properties for less than market value. As it happens there is a multitude of reasons someone might choose to undercharge for what they own.

For instance, a homeowner might be experiencing financial difficulties that require them to liquidate their assets within a certain timeframe. In this case, the homeowner would be motivated to sell the property quickly and efficiently, rather than for top dollar. Another scenario could be that someone is going through a divorce and needs to sell their matrimonial home in order to settle the case. It can even be as simple as someone inheriting a property that they don’t want and trying to sell it quickly simply to wash their hands of it. Or, an investor may want to retire and liquidate their portfolio quickly.

Regardless of the reason, people selling their properties for less than market value is a great opportunity for you as an investor. If you’re able to buy at a discount you’re already better off than you were before. Real estate is a rare example of an investment market where you can barter, and this can be used to your advantage. Yet another reason why real estate is a great choice for investing.



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