Good deals are not found; they are made.
Wise words above. I know that there are occasions when a property is offered for sale at a price that seems attractive and in fact is. Looking for these occasional jewels can be a rewarding experience. However, the astute investor creates value from properties that may not readily appear to be value purchases. This buyer can recognize and assess property differently than most people. Then he or she exercises a certain discipline when going through the purchasing process. A good deal is made in the front part of a transaction as well as through the ownership period.
Assessing a property is one thing. In certain markets matching the buyer’s financial discipline to market conditions can be trying. First, this article will discuss techniques of assessing a property. Then the more difficult task of acquiring the property will be detailed.
When evaluating a purchase
A buyer must decide on the objectives of the purchase. For purposes of this article this will be divided into owner-user properties and investor properties. Most purchases are owner-user. Commonly it is believed that if one occupies a single-family residence for a period of ten or more years the actual purchase price is of little importance. While I would agree with this argument to a point, money is still money. It pays to drive the best possible bargain no matter what. Clearly, if one loves a house and is in a bidding war then all bets are off. The concept of value buying would have little credence in this circumstance. But for those interested in maximizing wealth and making short-term profits, read on.
You will be OK in five years.
I heard those words above after overpaying for a property. It was one person’s gentle way of letting me know I paid too much. But the core is true; inflation makes us winner in the long run. No matter how many mistakes you make at purchase, time will generally work in your favor. San Diego is a unique market far different than Indianapolis. Growth and limited land supplies mean property will always be dear over time. Real estate in cities that have population and job issues, for example Detroit, will have stagnating values. San Diego’s price history breeds a certain contempt for price discipline. The object is to just buy the property; price becomes secondary. Holding a property long or medium term in a volatile market means success, not price, is paramount. By I digress; just how does one do the right evaluation?
Finding Hidden Value –Here are a few simple tips:
1. Do not be afraid of leftovers and retreads. Look for properties that others have rejected for emotional reasons. For example, foundations are not that expensive to repair. Profit on other’s irrational fears. Drainage issues, light problems, neighborhood nuisances and floor plans are issues that frighten potential purchasers. Look for problems that have a reasonable solution—most people will gladly to move to another property that appears to have fewer problems.
2. Buy during the slack seasonal times. Start shopping around Thanksgiving.
3. Always be on the alert for bad remodels. They often present inexpensive fixes.
4. Concentrate on the fringes of good neighborhoods—there is always a buyer who will buy your property based on his dream of urban improvement.
5. If this purchase is short or medium term, know the person who will eventually buy your property. Understand the market that you will sell into.
The Discipline of Buying
Leave your emotions at the door. A good agent should help here—often the art of selling takes over and your ally can become your enemy. Set a price target and do not budge in spite of entreaties to the contrary. Everyone in the transaction, except you, has the end objective of closing the sale. You are alone at that critical moment, absent a really good agent, and need to keep emotions in check.
While this may seem obvious, in practice it is far more difficult. It is like the mechanic who says, “While the engine is out, why don’t we rebuild the transmission.” Sticking to the price target is hard but imperative.
The Role of the Agent
Agents have as their first priority the making of the sale. There is the inherent conflict which has the potential for problems. Look for an agent that does not need the sale to make his or her car payment.
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