Six things to keep in mind whenever you make a real estate decision.
Why do we buy real estate? What are the reasons to purchase a home, and how should you evaluate those reasons? Today we’re going to answer those questions so that you can make better real estate decisions. First, let’s go over the three reasons why people buy property:
1. Owner occupancy. This is when the owner wants to buy a property either so they can live in it or run a business out of it.
2. Investment. In this case, the buyer wants to purchase a property that will produce income. Sometimes, we talk about rates of return, cash on cash, or cap rates.
3. Speculation. The owner buys a piece of property, hoping that it will appreciate. Maybe they’re expecting the zoning to change, or maybe they want to buy an apartment and raise rents.
Now that we know those three reasons, let’s talk about three things you should consider whenever you buy real estate:
1. Trash in, trash out. If you eat junk food, you’ll feel like junk. The same thing applies to real estate. If you’re looking at the wrong values, locations, or information, you’ll get the wrong results. It’s important to make sure that whatever model you use has accurate information, and with it, you should make a decision.
2. Bad assumptions lead to bad outcomes. Maybe you think this view is better than most your home should cost more because the neighborhood is great. Your gut is important in decision making, but make sure you rely on the tools, information, and experts at your disposal to assist you and check your assumptions.
3. If it seems too good to be true, it probably is. I hate that I say this, but it turns out to be correct too often. When you look at these great opportunities, you need to be very thorough, evaluate them properly, and come to the correct decision. This usually means recognizing the situation, taking the most powerful data, and coming up with a result. That’s essentially what an appraiser does.
If you’re looking at properties and have any questions, give us a call or send us an email. We’re here to help you. If you know anyone who might find value in this post, please send it their way.