Real Estate: Making Money With the Purchase Price

by : Xavier Gallery



As the real estate market comes back down to earth, the concept of fast returns involving home purchases becomes less likely. Many of those who benefited from skyrocketing valuations on the coasts are starting to realize the high tide is over. Sure it was fun to sell a home for a twenty percent gain months after closing, but in all reality the market will always stabilize itself. I am not under the opinion that real estate valuations are in any real danger. I do expect to see some downturns in sales, but this is to be expected after two years of searing prices. In fact, I would subscribe to the notion that we are returning to normal, as opposed to declining. The immediate future of real estate still offers the average American plenty of opportunity, but purchases require a bit more discretion in a tighter market.

The unfortunate by-product of the real estate boom is the concept that anyone can make money in real estate. There are TV shows and hundreds of online courses that promote "flipping" homes as a fast way to make thousands. This can indeed be a reality for a wise investor, but if you are looking to jump on the coattails of your neighbor or uncle then you are probably too late. Investing in a home today requires patience and diligence if you are going to turn a profit in less than five years. You can essentially count on interest rates to rise, and there will be some price adjustments in the coastal markets, but a complete fallout is unlikely. This may lead to presumptuous media headlines, but it also translates into an opportunity for those who will do the research.

The good news with a slowing market is that it quickly becomes a buyers market in terms of sale leverage. The simple math says that a lack of qualified buyers equates to less offers for the seller. This means that bids can start lower without the risk of losing out to the next guy. The bad news of course is the fact that interest rates are rising, so although you will likely save on the purchase price, your savings will be countered with higher finance costs. This balance of opposing forces can be managed, provided you focus on one thing; the purchase price.

Echoes of the previous housing boom still ring in some buyers' ears. They worry that their offers will not contend with competitors and their dream home will be sold out from under them. This train of thought leads to a higher bid and ultimately a lower profit margin at resale. Notice that this profit was lost before possession of the home ever occurred. Unfortunately, this can lead to years of regret, depending on how high the initial bid came in over valuation. Not the kind of mistake to be made during a market adjustment period.

Here are some quick tips in regards to calculating a purchase bid. First, ignore the asking price. This is a biased evaluation of the home that should not influence your opinion. Second, have your realtor prepare a list of all the sales in the immediate area over the past six months. Compare sales of similar square footage, bedrooms, and bathrooms. This is the best representation of what the house is worth, that is, what someone is willing to pay for it. Third, investigate how long the home has been on the market. Lower the bid calculated in step two by one percent for each full month it has been for sale. Fourth, include everything you can in the proposal. Appliances, window treatments, and even yard equipment is fair game. This can save you thousands on your upcoming transition. Finally, submit your bid swiftly and with a twenty-four hour deadline. This leads to the impression that you are an active buyer who may very well move on to the next property. Sound too aggressive? Perhaps, but what are the repercussions? None. You can always submit a better offer the next day. Remember, the purchase price determines if you will sink or swim in the event you have to sell your house in the near future. A mistake here, especially with the increasing amount of houses for sale, could establish a negative position in the market for years to come.