by elycefeliz

When you are looking to make money, the old adage holds true: “Buy low, Sell high”. In other words, “You make your money when you buy, not when you sell”.

This is a fundamental concept that you must grasp in order to be a successful property investor. You must always buy your real estate for a low price, never for the full market value. Never forget this simple yet crucial rule and you’ll always make money. You may think that is all well and good but wonder how to go about doing it.

Well the great thing about real estate is that it has no absolute, set price. No one can say for definite what a piece of real estate is worth because valuation is an art not a science. Contrary to a popular misconception, estate agents don’t dictate the price of real estate. When you arrange a valuation with an agent, they’re just giving their best guess as to what they think people will be prepared to pay for it. The true value is whatever someone is actually willing to pay for it. For example, someone with an emotional attachment to a property might be willing to pay lots more for it than everybody else. In contrast, an investor might only be willing to pay less than other people would pay for it. Do you see what I’m getting at? The value of any given piece of real estate is very much an unknown quantity until the point of purchase. Different groups of people, for their own individual reasons, will value any given property differently.

So the emotionally driven buyer might pay, for example, £50,000 more than the majority of people are prepared to pay, in order to secure it for himself. Consider an analogy with an art lover at an art auction.

Fortunately for us, it’s not only vendors who can benefit from the fact that property values are not absolute. Indeed, vendors are human and can be emotional too. Therefore they might sell their property for less than it is generally considered to be worth. There are many reasons for this which I will discuss in other articles. Wouldn’t you like to be the lucky buyer who snaps up that cheap property? I certainly would.

You should never buy property from anyone who is not motivated to sell to you at a discount. If you ignore this advice and buy at full market value you will run out of money very quickly and find it difficult to make a profit. If you don’t know how to find these emotional vendors and their great deals you should use the web to get some free property investment education.

So, when you find a great deal, how are you going to finance it? If you were buying equities, you would have to use your own money. No bank will lend you mortgage money to buy equities because they know how volatile the market can be. No. They are happy for you to take that risk alone. In contrast, when you want to buy land, houses or apartments, you can do so using the power of a mortgage. You borrow and use “other people’s money” i.e. the bank’s, to buy an asset that will make you money forever more! Amazing!

You see, they know that real estate is a safe, reliable investment and that as time goes by their investment grows ever safer. From their point of view, if things go sour they can sell your asset for a lot more money and get their mortgage money back. Banks aren’t stupid. They demonstrate their faith in the property market to the public every day by lending on property purchases. We’ve all heard the expression “as safe as house”, right? If the banks class property as a safe investment, shouldn’t that tell you something? Now don’t get talking about the credit crunch and all the trouble that banks are in. That is nothing to do with them lending money to responsible people like you and I to buy safe, solid investment properties. They made mistakes in other areas of their business but we’re not going to get into a discussion about the credit crunch and overpaid bankers. Let’s get back to the magic of real estate.

Compare buying real estate with equities (shares, bonds etc). There is a fixed market price for those assets and if you want them you must pay full price just like everyone else. There are brokers fees to pay and tax on any profits with no breaks available from the tax man. Your values of your equities are probably volatile and could rapidly decrease in value. You can probably only hope to hold a very small percentage of the total number of shares on the market. With such a small voice you have no realistic, practical say on the running of the company that you have invested in so you can’t influence the value of your investment.  Compare this to property investment, with the ability to buy below market value, add value and the many generous tax breaks available. Surely the evidence is weighing up in favour of property investment vs stocks and shares.

So I hope that you understand why real estate is such a good investment in comparison to some of the other choices out there. You probably want to learn how to use mortgages like the pros to finance your next investment. You probably want to learn how you can become rich in real estate. If so, I recommend that you look at the next article in this series and hope that you find it useful.

FreedomWorks Vice-President of Strategy, Kent Lassman and Ken Hogland from Americans for Fair Taxation discuss the feasibility of 2008 Presidential Candidate Senator Fred Thompson’s Flat Tax proposal on Fox Business.
Video Rating: 4 / 5

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