The single most important phrase in the real estate business is “You Make Your Money on the Buy.”

What that means is that the profitability of a deal is actually determined before you close on the property, not when you start managing it. The purchase price of an asset is the single most important factor in a transaction.

Every deal makes sense at the right price. The key is not over paying.

There are multiple things you can do to create value in a property; more effective leasing, finding great contractors, renegotiating with vendors, better property management, etc. But none of those things will be able to help you if you over pay for an asset. Your cost basis will always be your cost basis and there is no way to change that.

The only thing that can help you when you overpay is time. And hopefully, in time the market will go higher and bail you out. Instead of hoping and waiting, only purchase your properties “correctly.”

Focus on current cash flow, and potential cash flow if you are a value add player. Be patient. And vet as many transactions as humanly possible. More on sourcing deal flow next time.

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