In the world of real estate investing, you'll often come across catchy slogans like "50 cents on the dollar" or "buy property for half off." It's an alluring promise, but let's debunk the myth right here: when a property is sold for a specific price, that is its actual worth at that moment.
Is it theoretically possible to buy a property and immediately sell it for a profit, maybe even doubling your money? With a double closing, you could technically achieve this in a single transaction. However, such deals are rare and not the norm in real estate.
So, what determines the value of a property? It's straightforward. The value is precisely what someone is willing to pay for it. If you purchase a property for $50,000 and sell it for $100,000, its worth is $100,000 because that's the price someone was willing to pay you.
But did you buy a $100,000 property for $50,000? Absolutely not, not even hypothetically. You added value to the property, which influenced the buyer's willingness to pay more than the seller initially did.
The crucial questions to consider are ethical ones: Did you act ethically when buying the property, and did you act ethically when selling it? Unfortunately, the answer in many cases is no. Sometimes, sellers or buyers are cheated in these transactions, or even both.
Karma may not always come around, but the best defense against real estate hucksters is being informed. When you encounter someone touting "50 cents on the dollar" deals and offering real estate investment courses, ask them about the value they add to the properties they buy. Request documentation of their past deals, if possible.
Let's break down the formula again: You buy something at one price, add some value to it, and sell it at a higher price.
Higher Price = Lower Price + Value Added + Profit (or Loss)
Consider this scenario: You purchase a single-family residence at a county auction, but the property has its complications. You may need to wait for the redemption period to end (typically two years in Texas), evict tenants, perform maintenance, pay holding costs, and obtain fire insurance if the home remains vacant. These challenges are the value you add to the property before selling it.
This principle applies to various real estate strategies, from rehabilitation and renting to flipping contracts, wholesaling, lease options, PAC trusts, conversions, and more. To sell a property at a higher price, you must add value ethically.
While some real estate educators may not fully grasp this concept, the legitimate and ethical ones do. They're actively involved in real estate deals and can offer valuable insights into the hidden value they bring to properties without even realizing it.
In your real estate endeavors, always remember that adding value is crucial. It's your responsibility to assess the ethics of any scheme you encounter. As a final thought, remember the wisdom of James Garner's character in "The Rockford Files" - it's easier to shave when you can look at yourself in the mirror. So, act ethically in your real estate deals.