Where you will find value in a seller's market
Warren Buffet, CEO of Berkshire Hathaway, told this story.
A man with a sick horse visited his veterinarian and said, “Can you help me? Sometimes my horse walks fine and sometimes he limps.”
The vet replied, “No problem. When he is walking fine, sell him.”
Most buyers in this market are looking for value and it is hard to find. With many homes receiving more than one offer and often selling over the list price, you might think it is impossible to find a good home at a fair price.
And that’s how I define value, a good property at a fair price. Be careful how you look at this because cheap does not always equal value.
The point Mr. Buffet was trying to make in his story is your source of the information. If your main source for information on the value of any property is the seller, then you need to do more homework.
Although the seller is required to be honest, they will still paint a picture that shows the property in its best light possible. And you might miss some information that is important to you.
So where do I look for good homes at a fair price?
- Poorly marketed homes are a good place to start. If you see a home that has been on the market an extended time this is a good first clue. If the home has no pictures, bad pictures or very little info in the MLS, it is being marketed poorly. These homes are a good first place to look because most agents and buyers will not dig deeper if they do not see what they want online.
- Ugly Homes fall are similar poorly marketed homes because most buyers and agents don’t take a second look. The usually need much work, so if you are not afraid of a project you might find a diamond in the rough with an ugly home. Fair warning: Besides being ugly the other important factors of a home must be good like location, layout, quality of construction and ability to meet the budget after repairs.
- Areas adjacent to the hottest neighborhood are good places to look. You need to find the next logical area for the hot neighborhood to grow into. Following the urban pioneers is a good strategy for finding these “next big thing.” There is some risk involved if the area doesn’t take off like it should so make sure that you protect your downside. This strategy also works in suburban or rural areas just outside the hot market.
- Auctions are a great place to find value. However, you need to do your homework up front before you start bidding. Depending on the type of auction, you might also be buying liens and judgments against the property. This is the most risky strategy that I have mentioned and it also has the potential for the highest return.
Do you see yourself as a value investor? If so, let’s talk soon about what you want to achieve.
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