Ok gang. All my real estate buddies are saying the same thing. "Ive got heartburn from 2006.", "Im screwed.", "How can I sell this house thats 20k above what its worth? Id love to fire sell it".
My solution? Buy more. Buy more at todays prices. And buy low just like you always have.
The logic for this is very similar to dollar cost averaging with stocks. Buy a stock for $100 that drops to $10. You lost $90 on paper. Specifically its on paper. You dont really lose until you sell. It may go up in value. This is a very important principal when you position your exit point for sale.
Ok so check this out. You buy a stock for $100 that now is worth $10, $90 less than what you paid for it. If you buy 1 more stock at $10, you have 2 stocks worth $110 in cash. Your overall loss is only $45 from $90. If they sold at $55 you would breakeven. Ah but not yet. The price is still only worth $10. So you buy another stock for $10 and now you have 3 stocks at $120 that have a breakeven at $40. The change rate gets diminshed as we approach $10; so with two more stocks bought at $10 we have $150 we have a break even at $30. What a big difference from $90! The loss is now reduced $70 to $20 from $90 if the price were to stay the same price of $10.
What a dramatic turnaround. A $90 loss reduced to $20 if the stock stayed exactly the same.
Now folks we dont buy things because they stay the same. We buy them because they go up in value. Isn't it easier for a price to get from $10 to $30 than it is to $90. LOL. Not a trick question dont answer that one.
So with real estate we do the same thing. Now unlike stocks, real estate is a more inefficient market. We don't have market makers(stock jocks who collaborate on what things are worth) over price. We have the open market of buyers and sellers.
We buy houses at a discount and leverage bad situations to our numerical advantage. We leverage distressed properties that need repairs or properties that banks wont finance in their current state. They entice us to buy because of the distress. We dont buy a $100k house with $20k in work for $80k. Most would rather buy that same house for $100k and NOT do the work. The market agrees. We pay $60k or $50k for that $100k house to do the $20k work to get $20k+ sweat equity.
So back to our math problem imagine buying a $30 stock for $10. And now the math becomes clearer. We create our exit by continuing to do what we do. Buy and sell houses. Buy low and sell higher. It may not be at 2006 prices, but the profit made will give you the antacid to digest the heartburn of prices dropping and stale inventory.
Get back in tha' saddle and ride!!!!
Your bud in the business,
Wes
