The #1 Most Misunderstood Real Estate Investment Concept
Posted @ 10:52 pm - Filed under Real Estate Investing, Purposeful Planning, Retirement, Retirement Income, Buying Income Property, Investment Lessons, Goals
It’s the extreme market, Buyer/Seller, it doesn’t matter, in which so many real estate investors either misunderstand foundational concepts, or misapply them, sometimes with uh, unintended consequences of the ‘uh oh’ variety.
Buy Low — Sell High
Seems pretty straight forward, doesn’t it? Not so fast quick-buck breath. 
As a stand alone proposition, nobody would argue with the concept. But since we all know, some by harsh personal experience, my own included, that investors often buy low and sell lower — there must be a false premise lurking in the shadows.
False Premise — There’s a buyer out there willing to pay your ‘high’ price.
Just ‘cuz you can empirically demonstrate beyond a reasonable doubt you bought way below the current market, there’s absolutely no guarantee whatsoever there will be a buyer out there ready, willing, and able to pay that higher price.
False Premise — Since you bought at such a discount, even with an unfavorable market, your incredible coup on the front end will provide a profitable exit on the back end.
Geez, I dunno — ever wondered why you got such a great deal? Sometimes we hit the ‘exacta’ — a very cool discount for a genuinely valuable property. Why do we have such selective memories? Grandma didn’t lie when she told us the old saying ’bout, ‘If it sounds too good to be true, etc.’ Again, it does happen. When it does, count yourself fortunate. Just don’t think ‘cuz you bought so low, your profits are locked in. That’s a fool’s paradise if ever there was one. Life sends enough trains head on at us without creating our own.
Solution — This answer will surprise some. There is no ‘works every time’ solution. Hence the phrase, ‘risk capital’. You can do your research. You know, the boots on the ground, hands on, no BS research giving you real facts upon which you can reasonably rely. This will, far more often than not, make it highly more likely than not you’ll indeed be able to sell for a capital gain — some time in the future. But the key phrase there is ‘highly more likely than not’.
NOTE: ‘Highly more likely than not’ ≠ ‘The sun will set in the west today’. Duh
Those constantly impressed by low prices alone learn quickly they’ve often violated one of the most important rules in existence when it comes to investment.
Value pretty much trumps all. Paying market price for solid value will always outperform a low price for inferior location, product, or any number of other factors involved in the investment decision making process. Gettin’ a discount on real value? Now yer talkin’ podner.
Like an example wouldya?
Josh and I turned an Idaho builder down flat last year when he offered us monster discounts in price, plus a bunch of buyer credits to boot. Why? ‘Cuz he was building a brand new ghetto, that’s why. His construction was a joke. His finished product was an insult to cracker boxes everywhere —
nonot much hyperbole used. Ever been to what coulda been, shoulda been a great neighborhood, but turned out to be where you could buy a lot of poorly built homes next to a whole bunch of huge families barely making ends meet? I grew up in a neighborhood like that.
Talk about lighting the fuse for a future disaster.
Moral?
Buying low and selling high is the way to go. Just don’t attack your next investment based solely on price, ‘cuz the only way yer gonna come out well, is blind luck. Take it from someone who learned the hard way. Buying and selling value is the long term play of choice on Planet BawldGuy.
#1 Takeaway
Value is almost always best viewed through the eyes of the end user. In residential income property, whether it’s a home, condo, or small multiple units, that user is really two people. During the holding period it’s the tenant. The high quality, long term tenant willing to pay relatively upper range rents, are attracted by perceived value — their perception, not ours.
When you’re ready to sell/exchange the property(s), the end user is either another investor or in the best of all worlds, an owner intending to occupy. If you thought the tenant’s value perception was critical, the volume is significantly cranked up on this one. Another investor or literal end user, wants pure unadulterated value for their money — again, via their perception. If you can offer that, you’ve succeeded in doing exactly what you intended — Bought Low and Sold High.
This is why a Purposeful Plan is so critical as it applies to your retirement goals. Successfully setting up a magnificently abundant retirement is no accident. Contact me to start your Plan. We’ll look at your specific circumstances, and then Plan accordingly.
This entry was posted on Thursday, May 1st, 2008 at 10:52 pm and is filed under Real Estate Investing, Purposeful Planning, Retirement, Retirement Income, Buying Income Property, Investment Lessons, Goals. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.