I remember being with three Chinese buyers from Toronto two years ago and I showed them houses all day. They loved what I showed them, but at the end of the day they told me that they thought the market was going to drop more.
I actually think the market bottomed out two minutes after they uttered those words. It’s been two years and I would bet anything that they still never bought a house and I know with certainty that they missed a great opportunity with me that day.
This brings us this week to the most common mistake No. 5 that real estate investors make: the paralysis of analysis.
Out of state and international investors tend to over-analyze house investments. I don’t have to remind you that the first four letters of the word analyze are anal. It’s one thing for investors to be active and do their own due diligence. It’s another thing for them to try to find reasons not to take action when they should concentrate on why to buy a specific property. Look, I’m always going to do my own due diligence on a property and you should too. Your gut instinct should help guide your decision.
If you’ve ever bought a house from a realtor, then you should understand this very easily. Don’t expect them to ever offer info on rehabs or future growth as they know very little about market dynamics. They only know about existing inventory and most don’t understand investment.
The biggest issue that we’ve come across with promoters and their clients are related to current market value. Again, most promoters don’t understand these dynamics and are only concerned with what their clients are saying.
Part of the problem arises from internet sites like Trulia.com and Zillow.com. These websites attempt to provide us with current market value. For someone that understands the information and can interpret it properly, they can be beneficial. The problem is most people have no idea how to interpret the information and apply it to a house in a neighborhood. Zillow does not take into consideration the dates that houses were bought, nor the condition of the property. A casual glance at values can really screw up an investor’s thinking unless he is comparing apples to apples within the same time frame.
The value given is based on when someone acquired the house. For example: If a house at 241 Marble St was acquired for $98,000 in November of 2008, often times that is the value associated with the house in 2014 even though other houses on the same street have sold for much more or much less. In today’s current real estate market, you could be looking at houses in a neighborhood that had a lot of foreclosures two to four years ago and the values show up as much lower than what the current market is. You need current knowledge of market conditions as well as to know what it costs to make this property “rent ready” today. I get calls all the time from promoters stating that Zillow is messing up their client’s decision to buy a house.
That could be happening for a few reasons:
- Their commission added $15,000 to the house.
- The square footage is wrong (Often this is the case in Georgia).
- The lack of current sales in a neighborhood.
- Listed houses on the MLS are much lower.
The first two bullets above show how it is fairly obvious why a house may appear to be overpriced.
The lack of current sales in an area translates to a normalizing market and prices are moving up toward pre-market meltdown figures. This is not so easy to ascertain unless you have been involved in this local market for years and you have personally observed the increased demand and rising prices. Those Real Estate Owned sales of two years ago are gone and most investors missed the bottom of the market.
Once I realize someone is looking for excuses not to act instead of reasons to make a decision to move forward, I drop them. Life is too short to waste a precious day on people that couldn’t make a decision if their life depended on it. How about you? How many good opportunities did you miss by over-analyzing an investment?
Another big issue that screws up your thinking on house values is when you see a HUD house advertised at a lower price. These are government owned houses that are first made available to homeowners. After a waiting period, then investors have the opportunity to bid. The problem arises because the house shows up in the MLS (Multiple Listing Service) real cheap and it makes other houses look over priced in the neighborhood. The property is really out for a competitive bid and the actual sales price could end up being over $50,000 more than what was listed.
Consider this: One of our investors owned a house that was being managed and the 8-year-old daughter of the tenant hung herself and died. How would you like to own that house and worry about re-renting or selling? I contacted the owner and I suggested we list it on the MLS for $59,000 to get a lot of activity and then tell all the cash buyers we need highest and best offers. We sold it in one week for over $90,000. This is the same game that banks have been playing right along.
So when you see that cheap sticker price on the MLS, call on it and try to buy it. You’ll find out exactly what I am talking about.
We do bus buying tours three times a year with this one international promoter. Their clients always buy from us and, in fact, they only sell our houses as a result of poor property management in other areas. This one time last year, they decided to call on every real estate sign they saw that day and what they found out blew their minds and confirmed everything I was telling them. Not one house was available as they all had pending contracts or it was a HUD house not available to investors.
It’s your responsibility as a buyer to do your due diligence. However, at the end of the day, let common sense guide your final decision and, once made, take immediate action and never look back.
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