If you want to buy high and sell low, you should:
a) buy when everyone else is buying
b) sell when everyone else is selling
c) panic buy at the top of the market
d) panic sell at the bottom
c) enter bidding wars and win
d) preferably with a bully offer.
What’s a “bully offer”?
A bully offer is when you place an offer that is so outrageous (i.e., has such a ridiculously high price, much higher than list price) that it elbows everyone else out of the way and “bullies” the seller into accepting your offer. These offers also usually come without any conditions like home inspection or finance.
A coaching candidate of mine, a brainiac doctor, recently went shopping for investment property in Toronto’s trendy Mount Pleasant district, and, like Van City, it’s going through insane price inflation completely unsupported by economic fundamentals.
Mount Pleasant Cemetery, Where Real Estate Dreams Go to Die
He put in an offer on:
-a renovated 3-bed townhome
-with a finished basement with its own separate entrance and fireplace
He offered full list price, and removed his building inspection condition. His offer (thankfully) wasn’t even close. An unconditional bully offer of $905,000 “won” the day. What a sucker.
If my coaching candidate had been successful, he would have had a “prize” that yields a cap rate of around 3% on rents of about $3,000 per month. This is not nearly high enough in my view to justify his investment. Cap rates should be at least 6.5% pa and preferably much higher. Obviously, he did not consult with his coach (a no-no) before making such an offer.
It’s my job to dissuade him from this strategy, and show him how to buy smarter plus how to animate/add value to real property so he doesn’t end up with a poorly performing portfolio.
By the way, investors in Vancouver are buying 0% cap rate property, an incredibly stupid idea since these markets (Vancouver and Toronto) have been known to correct by as much as 30% or even 40%. They’ll end up upside down on equity in a hurry in a down market. They are relying, of course, on the greater fool theory.
Don’t let this be you. ALWAYS BUY FOR CASHFLOW. Always. Then inflation in real property is like a bonus.
You make money in real estate when you buy (not when you sell), so buy smart.
@ profbruce @ quantum_entity
If you would like to experience some great real estate coaching, contact yours truly:
Firestone, B Eng (Civil), M Eng-Sci, PhD
brucefirestone @ rogers.com
“Making each day count”
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