Rules for Value Investors to Buy Real Estate at the Right Price

1. Rules for Value Investors to Buy Real Estate at the Right Price Buying real estate is an excellent way to build a healthy portfolio and plan for the future. However, for value investors, there are several specific rules that need to be followed to ensure that you’re actually maximizing the value you see on the deal. This applies to pretty much any type of real estate, from multi-family homes to office buildings. 1. Plan for More Than the Income Stream Manynew value investors make the mistake of assuming that the payoff for their investment is the cash flow generated by the property. However, while that’s a nice benefit and shouldn’t be ignored, it’s not the end point of the process. Value appreciation is what actually builds your wealth. So, paying a high price for a property may or may not be worth it — it all depends on the value potential for the property in question. 2. Determine the Intrinsic Value before Buying When you buy a property, you’ll be presented with the price. However, understand that price is separate from the actual value of the property. You need to be able to

2. determine the intrinsic value of any real estate you’re considering before you make a purchase decision. 3. Know the Basics for the Area Let’s get something straight. No property operates independently from the underlying economy of the area. So, while a particular property might seem like it would be a great buy, with lots of intrinsic potential, realize that if the area’s economy is depressed, chances are good that potential value will never be realized. In fact, it’s more than likely that you’ll take a hit on the property. 4. Buy Based on Future Trends When you study the real estate markets, you’ll notice that some neighborhoods are very popular. Prices for property in these areas will be much higher than in others. However, realize that those trends will change, and they can change pretty quickly. If you buy in a “hot” neighborhood, you’ll find the decreases soon. You need to be able to spot areas that will become hot in the future, and buy there. That allows you to liquidate when the trends change. 5. Understand the Market There are multiple cities in the US that are prime for real estate investing. However, they’re not all the same, and each has unique drivers that you may or may not understand. It’s always a better bet to invest in a market where you understand the factors that affect value and future growth than to invest in one where you’re flying blind. 6. See It in Person There’s no substitute for actually viewing a property in person. You can get all sorts of technical data from a real estate listing, but until you actually look it over yourself, it’s just information on paper (or a monitor, as the case may be). This can mask hidden problems, or even cause you to overlook important features and benefits. Always view a potential property in person. With these simple rules, you can begin to make smarter investment decisions and grow your portfolio.