One of the mistakes many new real estate investors make is thinking they got a good deal just because they managed to purchase a property for less than list price.
Don’t confuse list price with property value. In many cases, list price is just the wish price of the seller or some lofty value a realtor gave the property in order to convince the sellers to list with them in the first place.
You’ll get a better indicator of value by answering the following questions:
1. What is the cash flow from the property?
2. What are other properties in the area worth? (Look at properties that are comparable in overall size, number of bedrooms and bathrooms, as well as lot size.)
3. And, finally, what would it cost to build that property right now?
In residential real estate, the best indicator of value is typically based on comparable properties in the area — what they SOLD for, not what they are listed at. But you should also consider cash flow and replacement cost.
List price shouldn’t factor into your calculations. Neither should the property’s assessed value. Neither of those numbers will consistently be a true reflection of what a property is worth. Do your own analysis. Then you can be certain you’re getting a good deal… whether you are buying a property for less than list price or not.[Ed. Note: Julie Broad, an Internet Money Club member and past attendee of ETR’s Internet business-building conferences, is a professional real estate investor (along with her husband) with a passion for teaching others how to get involved in the industry.
She has a special free offer for readers of Early to Rise: 31 real estate investing video tips, including Three Real Estate Calculations You Must Know, How to Find a Good Realtor, and The Hidden Money in Property Management, among many others. Go here to sign up for your free videos now.
ETR’s next event, our 5 Days in July Internet Business-Building Conference, will be launched very soon. At 5 Days in July, you’ll come in with nothing — no website and no products — and you’ll leave with a fully operational Internet business.]