Real Estate Investing; Using Perception and Potential To Increase Value

Real Estate Investing; Using Perception and Potential To Increase Value

People invest for many different reasons. The most compelling reason is so you don’t have to work for the rest of your life. When it comes down to it, people either become an asset and work for others or they acquire assets and make the assets work for them.  At the same time many people refuse to invest for many reasons. The number one reason people don’t invest is fear of losing money.  Many of the hesitant people choose to invest in real estate.

There are three ways people invest in real estate; developers,  flippers and landlords.  Developers usually acquire large tracts of land, divide it into small lots, build houses, and then sell them.  This type of investment requires large amounts of money that usually isn’t practical for most investors.  The next type of investor is the flipper.  These investors buy houses for cash as cheap as they can get them, they fix them up as fast as they can and then they try to sell them.  The people who have the greatest success with this type of investing are people who are skilled in the trades, have connections in the construction industry and are often real estate agents.  The final type are landlords, these types of people buy houses and then rent them out for profit.  Traditionally this has been a safer method of investing, but laws are becoming less landlord friendly and putting a heavier burden of risk on the landlord.

There is a fourth category in which an investment is an afterthought.  That is when people have bought a home as a primary resident, and now they are trying to sell it.  They could be selling it for several reasons: maybe their work is re-locating them, maybe they can’t afford the monthly payment, maybe they need to up-size or down-size. The only thing that is consistent is they want to get the most amount of money possible.  As a statement of fact, all four of these types of people have this one thing in common, they want their asset to bring as much money as possible.

With the exception of the landlord-tenant relationship there is always a two way form of negotiation.  The seller asks for “X” amount and the buyer offers “Z” amount.  They will eventually agree on number “Y” and make the sale or they won’t agree and the buyer will move on.  If they agree on number “Y” and number “Y” is closer to “X” they seller wins.  If “Y” is closer to “Z” the buyer wins.  If they don’t agree nobody wins.  Negotiation happens in a landlord-tenant relationship also but it is different.  If the landlord is asking “X” for rent and the landlord cannot find people to rent the property, then the landlord has to lower the price until they find someone to rent the property.  The landlord is negotiating with the market and not the potential tenant.

Real Estate Investing; Using Perception and Potential To Increase Value

The biggest trick for the seller or landlord is to increase the potential and perceived value of their property.  The potential is a combination of factors beyond a persons control, and within a persons control.  The potential value adds a lot to the perceived value as well.  Potential factors beyond an individuals control are things such as: how close it is to public transportation, schools or shopping centers.  Potential factors in their control are: does it have home automation, home security, fresh paint, storm windows, and a green lawn.  Potential factor contributions aside, perceived value are the things you can do to trick potential buyers into believing they are getting an amazing deal at the original asking price.

Once again perceived value can start before someone even sees the home.  A well written description designed to give an emotional response can place the value high, before someone even knows the price. If its a rural home or in an exclusive, upscale neighborhood, have a 3D Aerial Video Made.  If its an urban home a video of kids playing or walking to the park, the feeling of community can sell an experience and a lifestyle.  People are more likely to negotiate down a product before they will a luxury or dream.

Potential Factors You Can Control

Painting

Painting a house is one of the easiest and cheapest ways to improve the value of your home.  With a little work, creativity and less than a couple hundred dollars you can hide a lot of flaws and give it a new life.  This is also a great way to increase your perceived value.

Now Your Cooking

If your kitchen cabinets are a little older, you don’t have to buy new ones, many cabinet shops can make new doors and drawers for a fraction of the price.  The appearance of new cabinets may increase the value of your home by thousands.

Green with Envy

If your yard is a bit on the drab side, consider putting a few plants in the front yard.  Some great evergreen plants and nice lawn go along ways toward increasing your homes value.

Home Automation

A house that responds to your commands is no longer a thing of the future.  Soon it will be a standard for most homes.  With many companies making wireless versions of Home Automation Systems, installation can be non-invasive and affordable.

Perception Factors You Can Control

Perception is more about selling the dream.  It’s marketing the idea that you have something material and when the customer buys it, they get the same dream you have experienced.  New communities often have model homes that are built for this purpose.

If it is a starter home and most of your perspective buyers are young couples, pictures of small kids in the yard playing.  Or the family smiling and having fun. Even picture frames cash in on this concept with pre-loaded stock pictures already inside the frame. In rural areas, aerial drone shots can show your isolation, or the surrounding beauty.

New furniture can help make your house look more modern, or up to date. You still take the furniture with you when you leave, but the right furniture in the right spots can really increase how much people will come up from their starting negotiating price.

Conclusion

One of the best starting places for both areas would be to bring in an interior designer for feedback.  It will probably cost you a couple hundred dollars but if they can give you a few good suggestions you may be able to increase the value of your home or investment by several thousand.  Any type of investment is about maximizing your gains and returns.  In the real estate market it can often be a perception game that you have a great deal of influence over.  Which is one reason it is attractive to people who are hesitant to invest in other industries or markets.