Thanks for tuning in today to the real estate today podcast. Right now we’re going to talk about forward looking hindsight.
Featuring:
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: We’ve got some things that have come up in repeated investors situations where they regret and feel … wish … If they could un-ring the bell they would, but they haven’t because they can’t. For example, paying too much for a property assuming that they can have rents continue to rise and the overall market to recover that purchase price.
Bob Nelson: That’s an interesting situation, because unfortunately that’s true. It does justify maybe paying a little too much in order to be the owner. Look at it this way, with a negotiation there’s three people that are wanting to buy the property. Each of them make an offer. The broker who has the listing on the property may say, “Hey guys, I don’t know which one to choose, you’re all qualified, let’s do a best and final.” I’ve done that before. They literally make one more offer. The winner is the winner, period. Now that’s assuming that all three buyers were financially qualified at equal capacity, and so forth. But, it’s interesting that even though the winner of that thing is maybe paying more than what the other two were paying, does that mean he overpaid for the property? Not necessarily, because in the past, rents have escalated at a very rapid rate. We even have rent control, because it was an emergency situation. He is the winner in a situation where rents will increase, and continue to increase, to justify what he paid for the property.
Marcia Edwards: If, in fact, it is going to continue to increase. Some markets do soften. Ours hasn’t recently.
Marcia Edwards: Let’s talk a little bit about buying more value-added properties; that is, the potential property that could have an upside if you did a lot of deferred maintenance after you take ownership, so kind of an as is purchase of investment property. Seems like a red flag to me.
Bob Nelson: Well, it’s an interesting situation. If you buy a property that is in bad need of repair, and you are the winner and you now own it, and there are tenants I’m assuming paying rent, now you have to ask yourself the question, “How far do I go in upgrading this thing? Do I put the improvements on the inside, where the tenants get to benefit from the increased-”
Marcia Edwards: Improved lifestyle.
Bob Nelson: Right. Improved lifestyle. I lost my tongue there for a second. Or, do I put it on the outside to cure the dry rot potentially. It will always be justified on the inside, rather than the outside. That’s just the way it is.
Marcia Edwards: Deferred maintenance is often more expensive than you anticipate, so I’d make sure you understand what you’re going to take on that’s deferred before you own that property.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30 on KPNW for the “Real Estate Today” radio show.
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