It seems contrary to common sense but you make your profit in real estate when you buy it not when you sell.
Let me explain. Normally the selling price on any property will be at whatever the current market is at that time. Usually a buyer will not offer more than the asking price. This might happen in a real active market but currently I don’t believe the market is that strong.
So let’s talk about what I mean when I say that a person makes their profit when they buy property. Sometimes for whatever reason a seller will sell at a lower price. There may be for a number of reasons. The seller may need the cash for family matters or maybe he would like to invest in a property that he perceives as having a greater upside potential. Maybe it is a homeowner that is moving out of the area and needs the cash to buy a home in the new location or doesn’t want to be a landlord or leave the home vacant. I have heard people comment that a person should not take advantage of this kind of seller but don’t forget that they have set the price. They have set the price based on their current need or needs. They want the dollars or debt relief that the sale might generate. In effect a buyer will be helping the seller with his needs whatever that might be at the time.
But the other more important way to make a profit when you buy property is by doing your homework. As a residential agent knowing the market you are working is essential in order to help your client get the best bang for their buck. This can be more of a challenge in the residential market because it is a more emotional transaction. Home buyers are looking at a home as a place to live and raise a family not about a profit at that point. As we all know that changes when they become sellers.
The commercial investment buyer will look at the numbers and analyze the property from all angles. They will look at not just the price but things like location, demographics, market trends and upside potential. The location and condition of the property are important as well. Different types of investors might look at the property form a different perspective than others. Some might like a property in a nice area with good curb appeal and others might look at the upside potential based on price and current market trends. Some investors will like to find a distressed property that they can fix up and flip for a quick profit. Trends not just in the local market but also in the regional and national markets. Evaluating the direction of these trends will help in establishing a price that an investor might be willing to pay. Demographics of an area are always important to examine. What is the overall makeup of the community. If an investor is looking at buying a retirement home he might want to look in an area that has a large population of older people. The type of property, retail-multifamily – office – land, as well as any leases that might be in place are very important.
The point I would like to make is that price alone is not the only way to make money when you buy. All of these items and more need to be evaluated in an effort to establish a price that will make this a good investment currently but also at the time of sale. I believe that whether you are working with residential clients or the commercial investor we need to help them with this process.