This is intended as a practical short guide, not as a course or comprehensive article about buying real estate. For the latter I highly recommend the Rich Dad Poor Dad series of books & courses which are inexpensive and full of insight.
This article is also more geared towards the purchase or residential real estate by potential homeowners or residential investors.
These concepts are totally applicable and remain the same in Commercial real estate purchasing and investing, only the nomenclature and procedures differ somewhat since more work is needed to obtain the information.
Value in Real Estate:
We look for value, that’s why we buy anything or want to recoup value, that’s why we sell anything.
It’s important to spend a few words on the concept of value because most errors in real estate investing, buying or selling, are derived from misunderstandings of this concept.
Instinctively we know that value is that feeling that we acquired (or bought) something that has an intrinsic worth which is superior to what we paid for it. This is especially true in Real Estate.
Notice that I describe “value” as a feeling, value is in fact subjective, this is why great salespeople are able to sell quantities of expensive products. They present and emphasize the “value” attributes of what they sell.
You have many terms which don’t mean value such as: price, terms, affordability, cots, interest rate, etc…
You can have an ideal property, in the best of locations, at a very good reasonable price, however potential Buyers won’t acquire it unless they feel they have value.
Mistakenly, in my opinion, most people seek a better price, meaning a lower price instead of a better value. Price and value are not the same.
A low enough price could make up for the lack of intrinsic value on a piece of real estate, however price by itself does not add value to a piece of real estate. This is why before you consider buying a property understand what is value in real estate and how to get it.
Click here for a detailed explanation of the concept of value and how it applies to Real Estate.
What to look for when Buying Real Estate:
The devil is in the details. A property is akin to a tree. A tree is planted and cannot move, the tree by itself doesn’t mean that much, it depends where it was planted and how the surrounding gardens look like.
Similarly a property cannot be viewed in isolation of its neighborhood. Both, property and neighborhood form a package.
A property is also akin to getting into a relationship, easy to get in, hard to get out and it is hard to know all the facts before you commit -there is risk.
You really don’t know the true condition of a property until you:
- Do an appraisal.
- Perform a professional inspection.
- Request and thoroughly read its Title Repor.
- Drive by the property & neighborhood.
- When possible, speak to neighbors.
- Go inside and thoroughly check it out.
- Understand why it is being sold.
If you are buying a foreclosed property at auction you won’t be able to do many of the above.
When buying property far from where you reside, the temptation is to do it remotely in order to “save” on traveling expenses. This could prove a costly mistake, way bigger than traveling expenses.
Real Estate is a hands-on job, either you do it yourself or have highly qualified, experienced employees-associates who will do it for you.
Unlike bonds and stocks, two pieces of real estate, even in the same neighborhood, are not the same, you need to know why.
In addition, most Sellers believe their property is the exception to the rule. In all my years of real estate I have NEVER met a Seller with a realistic expectation of the true value of his/her property. This is why the majority of advertised properties are way overpriced. This is why they sit for months on end not selling and why they have to have several rounds of price cutting.
In fact, the realistic Seller is so rare, that when a house is priced properly it sells in MINUTES! Even in this recession at the time of this writing, May 23 2012.
This is why it takes a long time and looking at many pieces of real estate to find one that makes financial sense.
This is also why, buying real estate requires interaction, lots of talking and really understanding a Seller’s reasons to sell. Expecting to buy some real estate simply because you submit a written offer without any feedback or previous detailed conversation with the Seller, in my opinion, it’s a waste of energy.
The best way to go about it is by zeroing in on a potential property, finding everything you can possibly find out about it and talking extensively to the Realtor and/or owner.
It is OK to spend some money when doing your due diligence on a piece of real estate. Top companies in this field spend hundreds of thousands of dollars doing due diligence even before they buy anything, therefore it is OK for you to spend a few hundred dollars, this is really cheap money.
Always be suspicious of the asking price, even if it seems low. Do your due diligence and research, go through the list as pointed above.
Remember, roll out your sleeves, be prepared to spend a little money, work diligently and reap the rewards!
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