You cannot safely go forward if you’re always looking in the rear view mirror. Make sure your analysis of properties is based on future assumptions, not past performance.
While is it an industry constant that people are taught to base purchase prices on historical numbers and not on your higher projections. Now would be a bad time to follow that advice.
At a time when, in many cases, the past performance of a property will be superior to what can be expected in the near to mid range future, if you buy based on historical numbers, you will pay too much!
The value of historical operating numbers relates only to their relationship with what you reasonably expect to happen in the future. The key word there is “reasonably.” You should expect any seller to try to get the highest price possible for his/her property. After all, isn’t that what you’d do? Of course it is. So, if the past has been poor, sellers will sell “future potential.” If times have been great, sellers will sell “past performance” with their assumed continuance.
Wise buyers will typically use the opposite focus when they buy. If times have been poor, then establish your offering price based on past performance. If times have been great, then establish your offer based on your logical expectations for future performance. Remember, you are buying a series of benefits that will come to you in the future and like it or not, you are basing your price now on the kind and amount of returns you expect for your time, effort, and money. So pay what is fair for what you will get.
If the seller will not sell under those circumstances, fine, take your business elsewhere. If you’re active in the business then you know that the “deal of the decade” comes around about once a week. Don’t let your ego or emotions trick you into buying high in a low market. Analyze your benefits over your expected ownership. Use reasonable, conservative, and logical assumptions and you should do fine. Once you can take the emotion, the excitement and the ego out a deal and focus strictly on the numbers, you will have become a consummate pro. Good luck in your purchases. We’re happy to help and we can if you’ll let us.
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