I wrote the book on Real Estate – literally – ( How To Make Real Profits In Real Estate) . It makes me ill that investors buy on the basis of a billboard that says ” Donald Trump Will Build Here”. The Donald lends his name in return for your deposit money to a developer. I have listings in Canada that are proven profitable investments – sitting because investors want to tell their friends they are investing with Donald Trump or some new beach front in Panama. Common sense is highly valued because it is so uncommon.
Taken literally, “Buy what you see” leads you to conclude that you should invest only in real estate that is 100% complete, totally built-out, with all infrastructure and amenities in place.
If you’re an ultra-conservative investor or a retiree not interested in taking any chances, this safe-bet strategy can make sense.
However, the point of the advice is to help the would-be real estate investor get back to basics. To remind you of the fundamentals of real estate markets, cycles, and pricing.
If what you see at the time of your purchase is a plot of land with no improvements or infrastructure, then that’s what you’re buying…and that’s what you should pay for.
That’s the crux of the thing. Make sure that, whatever you’re buying, you’re paying a price that reflects the reality of the product at the time of your purchase.
“Buy what you see” does not translate to mean never buy pre-construction or raw land. It means to understand what you’re buying…so you can assess and accommodate for the risks…and so that you pay the price you should pay given what you’re paying for.
The trouble starts when investors forget this fundamental and are tempted into paying “something-there” prices…when there’s nothing there.
In Panama, for example, during the heyday of the pre-construction boom, people began paying prices that reflected potential values, not current, pre-built values. That’s not buying and paying for what you see. That’s buying and paying for what some developer is promising you. When you buy early, you should pay a price that reflects a discount compared with comparable completed projects.
Unfortunately, in Panama, as elsewhere through various boom and bust cycles, the developers got greedy…and the buyers, greedy, too, were led astray by promises of profit supported by claims from earlier buyers who had, in fact, bought at discounts to completed construction prices.
If your risk tolerance is low, then you want to follow the advice literally. Buy only what you see.