News & Research Archive

Pulse Of The Market (Pulse 70 - I Want A Deal!)

Jun 22, 2009

 

Yeah. Every buyer has the same mantra.

If you check in with CNBC in the morning, as I do, you see talking heads discussing today's best trade. The word investment has seemingly disappeared from the Wall Street lexicon. When more than 50% of an average day's trading volume on the NYSE is attributed to hedge funds, I guess that the financial concept of investment is on the wane.

The "I Want a Deal" mantra reminds me how so many residential real estate buyers are focused on the here and now, just like Wall Street. So let's talk about this.

If you were to buy 100 shares of Google at $415 today, wake up tomorrow morning, and see that it is $405, you may be a bit unhappy. Yesterday you thought it was a deal at $415; today you are not so sure. Such is the stock market.

I like to suggest to buyer clients that they shop and try on properties the way they try on sweaters. See what fits and feels right. If the fit is poor, the price tag is irrelevant. It is the educational part of gaining an understanding of what fits and feels good that is the harder part. Paying for it is just about money, i.e. an affordability issue, which I submit is more straight forward and in a sense is the easier part. I am not saying that price is not important. It's just not the primary factor in determining a good deal.

Just because you are able to buy a condominium for $600,000 that sold for $800,000 in 2004 does not make it a deal. It is a discount, but not necessarily a deal or more importantly a good deal.

There are basic criteria for a good deal...

  • When it is time to sell in the future, you can sell it relatively easily. This means that it will appeal to more than one category of buyer (there are five buyer categories as you no doubt know having read previous Pulses).
  • It does not have attributes that would be considered problems when you buy and would make it less desirable when you sell - things like no parking, busy street, bad neighbors, litigation, high HOA dues, etc.

  • It does have attributes that would be considered desirable by most people and distinguish it from the pack in positive ways - good location, good neighbors, deeded parking, perhaps views, outdoor space, etc.

  • You can buy it at a reasonable multiple of (potential) gross annual rent so that if you need to rent it you can, and an investor might actually buy it as well.
  • The property suits your personal needs in the usual ways, like size, style, functionality, etc.
  • When you go to sell it in the future, you are likely to sell it for more than you paid.

If buyers adhere to the above criteria of a good deal, then they don't need to worry about whether we are at the market bottom or be concerned about this week's news out of Washington and Wall Street, etc. Investments take time to appreciate. Trades don't.

Written by: Malcolm E.A. Kaufman

E-mail: mkaufman@mcguire.com


Starboard TCN is posting this article on its website and blog with Malcolm E.A. Kaufman's approval.

Malcolm E.A. Kaufman is Top Producer at McGuire Partner. He refers you to his website, http://www.sfpulseofthemarket.com/, where you can see recent issues of Pulse of the Market and learn more about him. He invites your comments, suggestions, and questions.

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