It was in the wake of financial devastation that real estate appraisal was born. We are of course talking about “Black Monday 1929”. This crash, which led to a 12-year Great Depression, brought about the recognition by world financial markets for the basic need of a better system that would mandate the use of objective professionals acting impartially and representing the interests of the general public. “So what?”, you may be asking at this point. This is history, and we all have heard this bed time story time and time again.
The majority of people who are reading this post, already know the punch line. It is from history that we can learn the most important lessons. It is often mistakes that provide a long-lasting lesson, one that become indelible upon our very being. The problem is that the memory is short. Within a few short generations of success and prosperity those people who brought about the great recoveries and financial booms were quickly forgotten, but more importantly the guiding principles of integrity and honest deals have been replaced with greed and corruption.
Ok, so where do we go from here? The problems have been analyzed and rehashed to death. Residential investors and wholesalers are all running to buy properties, fix them up and sell them. But many new investors are running into the same old problems that is the money supply is all but frozen in red tape and fear. Consumers cannot purchase these renovated houses because they can not get a loan. The investors who are on short financing terms themselves generally either lose money or just break even.
This is not solving the problem or improving the marketplace, this only adds fuel to a roaring fire of marketplace destruction. Enter the experienced investors. Easily 1000 years BC (before cell phones), successful investors have pretty much been following the same guiding principles and have therefore made profits and will continue to make profits. For those of us who are in tuned to these principles the turbulence of the marketplace creates opportunities to increase our net worth. “Ok so how do I get in on this gravy train?”, “What are these closely guard secrets of wealth?”.
#1 – Stop trying to be so damned smart. – The marketplace is a relatively simple function of buyers and sellers. Understanding the motivations and desires of each market participant and placing yourself in a position to fulfill these needs or wants is key to success. Ok, “what?!” The economy right now has a plethora of available real estate therefore many buyers would say it is a buyers market and for those who have cash – they would be right. But for the rest of the world, who wish to finance a property; the marketplace is not so simple. Therefore an experienced investor will buy properties based upon the knowledge that they will be holding this property for quite some time. Therefore, the purchase price must reflect the value of the property assuming an extended holding time and assuming the market rent will support the debt service of this property.
#2 – No one can spend themselves rich, or borrow themselves rich. – If you wish to acquire wealth in this world, you have to make more than you spend. You have to borrow less than you make, or have create a system of repayment that will carry the weight of the investment. In other words, if you purchase a property will a very high loan to value then your chances of holding that property are diminished 100 times, or more. Any unexpected expense or vacancy can cause the house of cards to collapse. To invest for the long term is the key in this economy, look for those properties that can be purchased for pennies on the dollar, be willing to hold them, and maintain them and you will create a solid base for your net worth.
#3 – Be honest and deal fairly. People who try to always have the upper hand and beat their opponent in business may find a level of success in the short run, but to create a good name is while following the first two rules is to create generational wealth.
– as a caveat, this information or advice has been given to you freely – therefore the old adage “You can expect to get what you pay for” applies. But also remember that while the price is what you pay for something, the value is what you get.
See you around the water cooler.
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