You buy a mansion in a fantastic location for a million dollars. If the mansion is worth a million dollars, you make no money. It’s worth a million and you pay a million. So, instead of buying the mansion you buy a rundown four-family house in a bad location. This property is actually worth $160,000 but you buy it for $120,000. How do you know that the property is worth $160,000? You know values because you have made the effort to research prices. Why did you get such a deal? There could be many possible reasons. One of these reasons will simply be that you made an offer and that offer was accepted. You made an offer to an owner who wanted to sell and no one else made an acceptable offer before you did.
How much does it cost you to make an offer in real estate? It costs nothing. That is zero. This is very straightforward. Make a lot of offers.
If you told your friends about buying the mansion, they would ooh and ahh in admiration and offer their congratulations. If you told them about buying the dilapidated four-family, they might be very happy to recite every horror story and problem that they ever had with real estate. You will hear about the leaking pipes, the tenants from hell, the junk cars, and the vacancies. Of course, all of these bad things could be among the good reasons why you were able to buy the property for $120,000. For the $40,000 profit, you’d have to be willing to correct problems and call a plumber, a lawyer, a tow truck or a rental agent. In the final analysis, you may never find out the seller’s motivation in accepting your offer. The reasons could be business or personal. You offered $90,000 and then $110,000 and then your $120,000 offer was accepted. Does the reason the seller decided to accept your offer really matter? Remember the mantra of the master salesperson, “Some will, some won’t, so what, next.”
Generally, an income producing property will sell for between six and eight times the annual income. In estimating value, consider both the current rents paid prior to your ownership and what the rent roll will be under your ownership and with your improvements.
