How Do You Know What to Pay?

How Do You Know What to Pay?
Yesterday, I visited my friend and neighbor Rick Stikeleather. He is one of the most successful small real estate investors I know. He also does brokerage and management. He buys the properties for income mostly; but when and area where he was heavily invested went through the gentrification process a few years ago he did sell the properties in that area.
I asked Rick, “Are you still buying?” He indicated that he was. I asked “How do you know what to pay?” He said, “I buy on the rent.” This is a really simple answer to a really complicated question. It summarizes the reason for his great success. Rick does not concentrate on how much the property will be worth next year or in five years. He concentrates on the return on his investment today. I can’t help but believe that in an uncertain environment this is the only valid approach.
The answer could be restated for homeowners or 2nd home buyers. What are the benefits you expect to receive? Are they worth the price? What are they worth to you? The answer to this question is more important than the actual market value. Market values go up and down. While benefits sometimes change, this is a much slower and less volatile aspect of property.

David Segrest is a REALTOR in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com