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I know, sound strange doesn't it? Overpaying... You have to be mad to overpay for a property... Or do you?? One of the people I recommend all apartment and commercial real estate investors read about is George Ross, Donald Trump's attorney that micro-manages most of Trumps deals. Before he started working for trump he represented some extremely wealthy people in the purchase of commercial property in New York. A story he has is that one day a broker comes to his office with an apartment listing for about $865,000. Ross takes the information and passes it on to one of his clients. His client looks at it and says, "Lets offer him a million for it!" Ross, is of course confused. "Why offer a million when it is being offered for $865,000?" His client goes on to tell him that: 1) He has been trying to buy that property for 15 years. 2) It is a steal, even at $1,000,000. Ross' client was indeed prepared to overpay for the property but in reality he wasn't. He got a great deal at that price. As a matter of fact when they took over he got a loan for $1,400,000 on it. So, do you go out and overpay for everything? No. BUT, make sure you listen to your gut and not just base your decisions on "averages" and "market share" and "median price." Become informed and then make the decision to overpay, if YOU still think it makes sense. Now, a couple of points that are very important. One, in order to overpay for a property or pay the asking price you need to know something about that property. In other words the investor who bought the above property KNEW that it was worth more than what he was paying. When you KNOW that a property has hidden value you should be aggressive and ready to pursue it.... So, despite this sounding very easy to do, its not because you really have to know what you are doing... Now to availability. It is needle in a haystack. In other words if these kinds of properties were available to everyone everyday, well, you know the rest. They are not. It's all about seeing what is under the surface... Many will think this is total baloney, but let me take it one step further. Lets say you buy the apple tree to use for one year that produces $1.00 apples. On average, lets say it produces 50 apples. At $1 per apple that would be $50.00 you can profit. Would you then pay as much as $50.00 for the tree and make zero profit?? No? Wait... What if you knew a special recipe that made a special kind of apple tree fertilizer. By using this fertilizer on the tree you know that the tree would produce 100+ apples instead of 50. Now would you pay the $50??? Same goes with real estate. It is simply knowing that you can do certain things to the asset (property) that can make it more valuable OR knowing something about it that can make it more valuable. Everything goes back to the 'highest and best use' and seeing a 'twist' in a property that others do not see.
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