The resale purchase is a real estate transaction allowing you to generate an advantageous added value at the time of the resale of your property. It is true that renting a property can generate large revenues over the long term. However, in terms of generating a big gain in a short period of time, the resale purchase is more efficient.
The ideal strategy for second-time home buyers is usually to quickly sell real estate and finance the purchase of another property. The resale purchase is a solution that allows them to proceed quite differently. Discover in this article 7 mistakes to avoid during a resale purchase operation.
Buy Resale: What is it?
The resale purchase is an alternative loan relay. It makes it possible to finance the purchase of a new real estate while reselling its current good. Thus, the bank buys your current credit and the assistant to your new loan.
1. Definition and principle of resale purchase
The resale purchase credit allows you to borrow and consolidate all your loans into one. As a result, the bank will adjust the monthly payments of your bank loan to those of your other loans so that you build a constant schedule. This, for a maximum period of two years. This time is the time you have to find a buyer and sell. Once the property is sold, you must pay a portion of your loan. This will be done without you having to pay a prepayment penalty. Thereafter, the maturity will be readjusted according to the capital remaining due.
To do this, banks usually have a real estate expert own. The role of the latter is to estimate the fair value of the property object of the operation. Indeed, an estimate made by an external expert has no value in this case.
In addition, it may happen that a bank decides to include all the costs related to the purchase resale in the monthly payment. It is precisely the notary, agency and guarantee fees.
Principle of the loan purchase resale
The resale purchase is similar to the bridge loan in that it also allows you to buy a new property without having to wait for the old one to be sold. The major difference is that instead of 2 monthly payments, you will only have one to pay with a resale purchase. In addition, you benefit from interest at preferential rates.
The monthly repayment of the resale purchase loan generally includes:
- Remaining capital on the loan contracted to finance your previous property
- Credit that finances the purchase of your new property
- Notary fees
- Warranty Fee
- Remaining capital of a loan contracted in another setting.
Note that in the bridging loan, it is the resale of your old property that pays the loan. In contrast, for a resale purchase, the sale of the old property only reimburses part of your resale purchase loan. So after reselling, you will continue to pay off the resale purchase credit. This credit is the balance of your new acquisition.
2. When to make the purchase resale
There is not a particular moment to make the purchase resale. You have to sniff the bargain when it comes to you. One way to do this is to regularly check the real estate listings. You can find a house, an apartment or a building plot that meets your expectations. To avoid being over-indebted, you can bring in a resale purchase loan. This will allow you to buy a new home directly.
Contracts this resale purchase loan will allow you to finance your new home well before selling the old one. To do this, the lending institution will buy back your current loan and associate it with the second loan. So that you do not exceed the threshold of 33% of indebtedness an advance of 70% of the estimated amount of your property will be given to you by the bank.
Consider that your new home costs 250,000 euros and your current property is 200,000 euros, for a salary 4,000 euros. You will be entitled to an advance equal to: (200,000 x 70) / 100 = 140,000 euros. If the remaining capital of your first loan is 70,000 euros, the amount of your new credit will be: 250,000 + 70,000 = 320,000 euros. Assuming that your reimbursement benefits amount to 1 500 euros, with your advance of 140 000 euros. The exact total amount of your new credit will be 320,000 + 1,500 – 140,000 = 181,500 euros net.
For the future, you can negotiate a favorable interest rate. In this way, you will be able to respect the threshold limit of 33% of indebtedness
4. Purchase resale: Taxation
Real estate gains are subject to a flat tax of 19%. At this rate is added that of social security contributions which is 17.2%. Adding both, you get a rate of 36.2%. Which is the maximum you will pay. In fact, this rate may benefit from a larger rebate depending on the duration of ownership of the property. This is to encourage detentions of more than 6 years. Thus, the longer the holding period, the less you will be taxed on the gain in case of sale.
Buy resale in real estate: 7 mistakes to avoid
The resale purchase involves some risks. These are particularly due to the difficulty of placing your old home. Indeed, you must follow certain steps in order to attract potential sellers. To do this, work must be done to increase the value of your property.
Here are the important steps you need to take in order to achieve a significant increase in value.
Step 1: Estimate the value of the property to buy
It is important not to overestimate the value of a good when you buy it. To make a good profit when reselling, you must first make a good deal with the purchase. However, the selling price depends on the quality of the real estate and the market.
Here are some parameters to consider when buying your property:
- Find an owner in a hurry to sell: A seller in the emergency is more inclined to lower its price. This is usually the case for people who find themselves in a situation where they must quickly get rid of the good. It can be a bad investment, a divorce, a transfer, etc.
- Finding a house that has been on sale for a long time: The more the sale lags, the more the owner is inclined to negotiate the price. Your job is to find the reason why good has dragged on the market. You can then capitalize on this information if it does not go against your investment objectives.
- A home that requires major renovations: This type of investment generally discourages potential buyers. As a result, there will be much less competitor for the purchase of the property. In addition, you will also benefit from the possibility of adapting the accommodation to your liking. By adapting it to the market offer, you can increase its value. You can also argue the costs of the renovation to get a better price.
There are so many conditions that can make the difference at the time of purchase.
Step 2: Buy, Renovate and Resell
In order to sell your property quickly, you must increase its value. Indeed, to quickly attract potential buyers, your property must be presented in the best way. This, so that customers can see the potential of the property. Thus, for the visits you can privilege the mornings where the parts are perfectly illuminated.
In addition, you can carry out renovations to refresh the house. To do this, you can opt for a home staging. The goal of a home staging is simply to make a staging of your home. It consists of highlighting each piece of your property. This requires the depersonalization of your home so that the buyer can project more. To do this, you can use a professional.
Step 3: Choose your partners
Whether it’s the real estate agent, the banker or the craftsman, choose people with whom you can establish a relationship of trust. It is also necessary that the seller is transparent in order to avoid surprises afterwards. It could for example fail to point out some flaws invisible at first glance.
When it comes to administrative procedures, always think about getting ahead of them. Make sure to sign the sales agreement before you start. As for artisans, choose who are reliable and competent. You can also have a craftsman recommended by someone you trust. Generally, reputation and seniority demonstrate the seriousness of it. Also remember to be present in the field, to control what is done there.
Step 4: Double your budget to cover your back
This consists of doubling both your budget and the time needed to realize your project. Above all, do not underestimate the time and costs you will need to make in the resale purchase of your property. This is especially so if you are new to this type of investment. A double budget gives you a good margin of safety. Remember that you will have to pay monthly installments of the resale purchase even if the property is not sold yet. In addition, you can find a partner to support the expenses with you.
Step 5: Anticipate an alternative in case of deadlock
When making your resale purchase, do not expect to sell your home in the immediate future. That is why it is important to ensure in advance that similar properties have been sold in the area. Also estimate the average selling time. Preparing for the worst situation will allow you to anticipate problems.
To do this, the sale of your property should not be your only alternative. You must have a broad vision of your investment. In this case, you can consider extending your loan in case of an overflow of the works. Rental is also a good alternative if you are struggling to find a buyer. At least so, you can settle your monthly payment thanks to the rents.
Step 6: Well negotiate your resale purchase loan
When you negotiate your resale purchase loan, make sure it is to your advantage. The bank loan is a good idea for a real estate investment from the moment it is well contracted. So, beyond the rate, pay attention to the schedule. For a start, it is wise to start with a payment deadline at least 6 months after making the loan.
Whatever the case may be, take care to opt for the most flexible loan terms possible. This is useful in order to minimize the risks, because it is possible that the resale is late. This is what makes the total amount you will have to pay the most important item when trading.
However, there are other equally important clauses to consider. Among these are the penalty fees for early repayment. This is usually the case when buying resale. You can negotiate their deletion at the time of signing the loan.
Step 7: Finalize the purchase sale of your property
When it comes time to sell your property, you have the choice between using a real estate agent or you charge. If you opt for a real estate agent, this obviously has several advantages. Be aware that the latter may charge 4% to 8% of the selling price for his expenses. However, you can benefit from his expertise throughout the promotion of the property until its sale.
By deciding to sell your property yourself, you will have the opportunity to negotiate without intermediary. You will also be required to advertise your home. It is still you who will intervene for the visits. The good thing is that you will not be liable for any margin to anyone on the selling price. Apart from taxes, the rest of the surplus value will be returned to you entirely.
In the end, it is not always easy to achieve a good gain in a resale purchase transaction. However, by following the previous steps, you will be able to avoid any mistakes that may lead to failure.