Disciplined Buying - Winter/Spring 2007

A seasoned real estate investor cautioned me early in my career not to fall in love with a property.  His sound advice continued; “make thoughtful market based buying decisions, keep emotions in check and have a short and long term plan”. Unfortunately, during this last frenzied market some buyers did not adhere to this wisdom; particularly the advice about making sound market based buying decisions.  In 2003-2004 Main Street storefronts with no parking sold for more than $300 per square foot and then were leased to tenants paying rental rates well below what this purchase price demands.  Land on U.S. 41 between 4th Street and Fruitville Road was purchased at prices no allowable development project could support, and downtown historic buildings were purchased and renovated at costs far exceeding what the market will support.  Not unlike the frenzied stock market of the late 1990’s buyers replaced rational buying practices with unqualified expectations.  What will happen to properties purchased at prices well above the market?  Unfortunately, the result is almost always a loss.  If the property is income producing the loss may be minimized.  If the property is non-income producing or purchased for an unrealistic development; the loss may soon be so significant that the lender becomes the owner—this worst case hurts the market as well as the buyer.