Buy Low, Sell High

Editor’s Note: This article first appeared in the May 1972 issue of the Real Estate Observer.

“BUY LOW … SELL HIGH” has been taught in educational classes for years. We don’t want to argue with this advice from our educators, but we feel it would be wise for the estate building broker to explore this formula in depth.

The formula offers two concepts: (1) Buy low and (2) Sell high! Let’s discuss each one individually and then look at the two ideas put together.

The “Buy Low” Concept – This idea stems from the beginning of free enterprise wherein the buyer has the basic right to make an offer, any offer, in an attempt to secure a property at the right price – attempt to drive a bargain price or discount in the preliminary steps to acquiring the vehicle. Here are a few items to look for in considering the “Buy Low” concept:

1. Are you really buying at a low price or are you buying a property at less than the listing price? Just because a property is listed at a certain price has no bearing on what the property is really worth. The property, unfortunately, might be listed by a Broker or Salesman who is not experienced in commercial real estate. We have seen new people enter our business and a month later list a brother-in-law’s property for two or three times a “reasonable market value.” Thus, prior to “buying low,” the buyer had better know completely what he is really buying.

2. If you “buy low,” what is it going to cost you in order to hold the property until you can take advantage of the “sell high” portion of the concept? Did you ever hear about the fellow who got so hung up on buying low that he forgot that the payments on a land parcel were $4,000 per month … and he didn’t have the monthly payments to back up his “buy low” purchase?

3. The recapture portions of our present IRS laws make it a wise suggestion to walk the project through completely with good tax counsel to review the potential “after tax” affect on the whole concept.

4. Have you completely reviewed how your offer is going to work after you “buy low” when you go back to the market place to sell high? In other words, what good does it do you to “buy low” when you can’t market the property to take your profit. Thus, you have to consider how the property will be accepted on the market after your purchase.

5. Timing is always a key factor in real estate. Thus, the buyer should be aware of the length of time he must hold the property and anticipate when to sell in order to take his profit. The buyer may have to hold the property so long that the holding costs “eat up” the profit from a future sale and, at best, all the buyer has done is risk capital for no return on invested dollars.

The “Sell High” Concept -The basic idea of this concept is to sell the vehicle (property) for the highest price possible to realize a profit, a worthy concept indeed! Let’s consider the factors affecting the “Sell High” concept:

1. The concept is based on the idea that there is a ready marketplace for the property. If this was 100% true, how come there are so many listings still available? How come it takes, in many cases, six months to a year to “sell” some listings, while others take even longer?

2. Terms, terms, terms, affect real estate, and it would be wise for the “Buy Low – Sell High” investor to realize the more flexible the terms, the better the chances the investor has to market his vehicle and take his profit.

3. Tax laws today make it imperative that the seller discuss the sale prior to marketing the property lest all of his profit be taken by another investor – – the government. Tax counsel can certainly pre-council you as to various alternatives in selling so that you will know which method will affect you less in the tax world.

4. The “Buy Low-Sell High” investor should look at one more factor. Who is going to do the selling? The investor better have a complete idea on who is going to sell the vehicle after he has “bought low” and held the property for a determined period of time.

5. The “Buy Low-Sell High” investor had better be flexible and open minded. Many things affect our real estate industry that might cause his holding period and profit taking to be delayed. Vacancy factors, changes in the money market, a slow down in construction and a slow path of progress are a few examples.

Thus, it is not enough for the “Buy Low-Sell High” Concept to be taken for granted without first understanding that many factors, outlined above, affect the formula and those who desire to use the concept.

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