What’s the Formula for Finding a Great Deal in Today’s Volatile Real Estate Market?

There’s no doubt that today’s real estate market offers tremendous buying opportunities to investors and home buyers. A huge inventory of homes are being sold at 40 to 50 cents on the dollar — sometimes even 10 cents on the dollar in wholesale purchases. Home builders are selling homes for less than the building cost. Banks are being forced to sell lender-owned homes or pre-foreclosed homes at incredible prices and at steep discounts.

But at the same time that foreclosed homes are increasing, home values continue to decline. As a home buyer, you may wonder if you should wait until home values cease to decline or dive into the market now and snatch up a great deal. But how can you tell if you are getting a fantastic deal or overbuying in a declining market?

A formula that helped me when I purchased my primary home six months ago was to base the purchase price of the home I was interested in buying on the average national real estate appreciation of 3-5 % annually.

Say you plan to purchase a home that is listed at $272,000. The home was initially built in 1990 at a price of $200,000. Using the formula, Initial price times 3 % minimum National real estate appreciation , multiply the product by the age of the home. Then, add the product to the initial price and it should give you the 2008 price. Generally, if you are getting the home for a price equal to its value in 2003 or earlier, then the home is under-priced and will net you immediate equity.

Initial Price X 3% X age of home + Initial Price = 2008 Price

Applying the Example to the Formula:
$200,000 X 3% = $6,000 X 18 years = $108,000 + 200,000 =$308,000 (2008 Price)

In this example, $308,000 is the realistic price of a nice home for the year 2008. Since the home is listed at $272,000, you are buying the home at the 2002 price which is potentially a great deal!

Once you’ve established the 2008 price based on realistic national real estate appreciation, it is important to factor in the location, condition, upgrades and any improvements done to the home to confirm its value and before making a decision to make an offer.

It is a great time to invest in a home right now. We are seeing a time in our history that is probably unprecedented. Metro Phoenix is poised to weather the storm quicker than other cities due to its affordable housing, strong infrastructure and vibrant lifestyle. Interest rates are historically low and prices are very affordable now compared to three years ago.

For more information on this blog entry or for any real estate question, please contact Maria Hass at (480) 650-0075 or email Mariahass@realtyexecutives.com.

5 Comments Add your own

  • 1. mida  |  March 28, 2009 at 10:53 pm

    love the formula! I can see how I am not cheated that way!

    Once I get all my customers email together and will forward your email and blog entries to them.

  • 2. carolyn  |  July 31, 2011 at 11:20 am

    I am an investor looking for rental return/cap rate.
    How can i find the best return on investment as far as rental goes.
    Is there a website that would give me that.

    many thanks

    • 3. arizonabargainhomes  |  August 2, 2011 at 8:23 pm

      Hello Carolyn,

      There are several websites that guide you in calculating ROI. I do not endorse one particular site as you can learn from each site. In metro Phoenix, houses are so affordable that you can easily turn your investment into a positive cashflow. Location is a key consideration. Also, condition of the home, neighborhood and price of home. Good luck!

  • 4. Lidia  |  April 16, 2013 at 9:08 am

    I for all time emailed this blog post page to all my
    friends, as if like to read it then my friends will too.


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