Buying Without Examining the Facts

Any successful investment starts with a good buy. Making a good buy in real estate requires a great deal of valuation analysis.

The following story about two of my friends illustrates the dangers of relying too heavily on your emotions and not enough on objective information that could be staring you in the face.

"John" and "Joan" fell in love with a beautiful Victorian home the moment they stepped inside. Although the house was in bad shape, it had leaded-glass windows, carved woodwork, built-in hutches, and hardwood floors. They bought it, cleaned it up, and made it sparkle.

"We loved the house even though it was in a questionable neighborhood. As a result, we violated the number one principle of real estate: Location, location, location. To make a long story short, the beautiful house we loved could be rented only to less than desirable tenants, because the type of tenants we'd hoped to attract didn't want to live in that neighborhood."

Although John and Joan eventually sold the house for a small profit, they would have been better off had they examined the facts and made a decision to buy a different home in a much better neighborhood.

Keep in mind that though real estate is local, major national and international events and trends can help the worst of markets... and damage the very best. So be sure to analyze a real estate investment's national and local factors. Still, one very positive local factor can outweigh multiple national factors.

Start by researching location and market timing, then research them again. Get the picture for the area before you narrow your search to specific properties. Once you've decided that timing and location are right, then look at individual homes.